Sunday, January 30, 2005

The Hollywood Sexopoly

There’s no business reported like show business--coverage of which usually consists of star-driven anecdotes, idiosyncratic examples, and anachronistic measures of performance, enlivened with punning headlines such as "Incredible Incredibles Capsize Nemo at the Box-Office." If news of the OPEC cartel were reported in this fashion, its business would be reduced to a series of "boffo" gushers and "megaflop" dry holes– and, no less, in its older fields that no longer produce its real wealth. Perhaps it’s fitting that an industry dedicated to illusion should be covered in such a make-believe way except that the new Hollywood is not just entertainment, it is a vast multibillion-dollar economy ruled by six giants– Sony, Disney, NBC-Universal, Fox, Time-Warner, and Viacom. And what is neglected by Show Biz stories about star assignments, PR hype wars, astounding digital-effects, and box-office grosses is the reality of how the Hollywood sexopoly cashes in on the world entertainment economy.

Consider, for example, just television-- a medium that the old Hollywood attempted to strangle in its crib in the 1940s by denying it movies. The studios' numbers here, even though they are not in the domain of entertainment journalists, tell a remarkable story.

First, there is global Pay-TV. While the six big studios do not disclose to the media what they earn from Pay-TV in 2003, they (and their subsidiaries) scored $3.37 billion from licensing their movies to it . Of that total, $1.59 billion came from sales to Pay-TV channels in the US, such as HBO and Showtime; and the remaining $1.78 billion came from Pay-TV abroad (largely from Rupert Murdoch’s satellite broadcast empire). The studios license most, if not all, their films in "output deals," or multifilm packages, at a fixed price per film. That price – currently about $8 million per film in America– is not dependent on the film’s box-office performance. (When, in earlier days, Showtime tied the fee it paid for Ghostbusters to its box-office performance, it proved disastrously expensive for Showtime.) As a rule, then, a box-office failure generally commands the same price as a success. For many foreign output deals, a film is required to have played in theaters for a minimum period (which is why studios sometimes have token openings for movies in a handful of theaters).
How profitable is the studios’ take on their Pay-TV deals? In 2004, the $3.37 billion the six studios got far exceeded what they cleared from the box office after they had deducted their print and advertising costs. (Bear in mind that with Pay-TV deals, all advertising expenses are paid by the Pay-TV channel, and, of course, there are no prints.)
In addition to Pay-TV, the Big Six sell their movies, cartoons, and television programs to the six American broadcast networks – CBS, NBC, ABC, FOX, UPN, and WB– all of which are now cozily and conveniently owned by the studios’ own corporate parents. In 2003, the networks paid their corporate siblings licensing fees of slightly over $4 billion for the rights to broadcast their products. Over three-quarters of this money was for television series and made-for-TV movies that obviously have no relation to the box office. Even in the case of the movies they license, networks weigh many factors aside from a film’s success at the box office. For one thing, they must consider the durability of its appeal, since it will not be broadcast until between two and five years after its theatrical release. More important, they have to consider whether their advertisers, as well as government regulators, will consider it suitable for a prime-time audience. Controversial films by Oliver Stone that proved successful at the box office, such as JFK and Natural Born Killers, for example, were turned down by the networks. They now also have to take into account their connection to the studios that are their corporate siblings. ABC, for example, which is owned by Disney, not surprisingly licensed the lion’s share of its films and shorts from Disney.

Finally, the studios have a cash cow in licensing the films and television programs in their libraries to local television and cable stations around the world. In 2003, library sales earned $5.5 billion for the six studios. Since library sales do not begin until a half-decade after movies are out of theaters– and are often part of output deals– their box-office performance is only loosely related to what they earn for the studios.

In all, the six studios took in about $14 billion in 2003 from a television complex that their corporate parents largely control. And this is only one part of Show biz's unshown side . For more on this cozy if not incestuous liaison of the sexopoly, see the
answer to my Question of the Day today on my web site.

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