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The “Jaws” of death? – Rethinking film industry strategy
Steven Spielberg on-set for “Jaws”. The Leviathan gave birth to the summer blockbuster
This past week, Zeitgeist had the pleasure of enjoying a new adaptation of Shakespeare’s “Much Ado about Nothing”. This adaptation was not performed at the theatre but at the cinema. It was not directed by Kenneth Branagh or any other luminary of the legitimate stage, but rather by the quiet, modest, nerdy Joss Whedon, who until a few years ago was best known to millions as the brains behind the cult TV series phenomenon “Buffy the Vampire Slayer” (full disclosure: Zeitgeist worked on the show in his days of youth). Whedon was picked to direct a film released last year that can, without much difficulty, be seen as the apotheosis of the Hollywood film industry; “The Avengers”. A mise-en-abyme of a concept, involving disparate characters, some of whom already have their own fully-fledged franchises, coming together to form another vehicle for future iterations. “The Avengers” became the third-highest grossing film of all time, and it is a thoroughly enjoyable romp. Moreover, to go from directing on such a broad canvas to shooting a film mostly with friends in one’s own home – as with “Much Ado…” – displays an impressive range of creative ingenuity.
Sadly for shareholders and studio executives’ career aspirations, not every film is as sure-fire a hit as “The Avengers”, try though as they might (and do) to replicate the same mercurial ingredients that lead to success. Marvel, which originally conceived of the myriad characters surrounding The Avengers mythology, was bought in 2009 by Disney for $4bn. Disney for all intents and purposes have a steady strategic head on their shareholders. They parted ways with the quixotic Weinstein brothers while welcoming Pixar back into the fold. They were one of the first to concede the inevitability of closed platforms release windows – something Zeitgeist has written about in the past – they are debuting a game-changing platform, Infinity, which might revolutionise the way children interact with the plethora of memorable characters the studio have dreamt up over the years. However, such sound business strategy could not save them from the uber-flop that was 2012’s “John Carter”, which lost the studio $200m. This summer, the rationale for their biggest release has been built on what appears to be sound logic; taking the on- and off-screen talent behind their massively successful “Pirates of the Caribbean” franchise, and bringing them together again for another reboot in the form of “The Lone Ranger”. The New York Times said the film “descends into nerve-racking incoherence”; it has severely underperformed at the box office, after a budget of $250m. Sony’s “After Earth” similarly underperformed, suddenly throwing Will Smith’s bullet-proof reputation for producing hits into jeopardy.
These summer films – “tentpoles” to use the terminology bandied about in Los Angeles – are where the money is made (or not) for studios. As an industry over the past ten years, Zeitgeist has watched as these tentpoles have become more concentrated, more risk-averse and therefore less original, more expensive and more likely either to produce either stratospheric results or spectacular failures. Paramount is an interesting example of a studio that has made itself leaner recently, releasing far fewer films, and relying on franchises to keep the ship afloat. Edtorial Director of Variety Peter Bart seems to think there’s a point when avoiding risk leads to courting entropy. It’s an evolution that has escaped few, yet is was still notable when, last month, famed directors Steven Spielberg and George Lucas spoke out publicly against the way the industry seemed to be headed. Indeed, the atmosphere at studios in Hollywood seems to mimic that of a pre-2008 financial sector; leveraging ever more collateral against assets with significant – and unsustainable – levels of risk. The financial sector uses arcane algorithms and has a large number of Wharton grads whose aim should be to preserve stability and profit. Yet even with all this analysis, they failed to see the gigantic readjustment that was imminent. In the film industry, Relativity Media’s reputation for rigorous predictive models on what will make a film successful is rare enough to have earned it a feature in Vanity Fair. So what hope is there the film industry will change its tune before it is too late? Spielberg pontificates,
“There’s eventually going to be a big meltdown. There’s going to be an implosion where three or four or maybe even a half-dozen of these mega-budgeted movies go crashing into the ground and that’s going to change the paradigm again.”
Instead of correcting course as failures at the box office failed to abate, studios have dug in harder. Said Lucas,
“They’re going for gold, but that isn’t going to work forever. And as a result they’re getting narrower and narrower in their focus. People are going to get tired of it. They’re not going to know how to do anything else.”
Such artistic ennui in audiences is admittedly sclerotic in its visibility at the moment. “Man of Steel”, another attempt at rebooting a franchise – coming only seven years after the last attempt – is performing admirably, with a position still firmly in the top ten at the US box office after four weeks of release, with over $275m taken domestically. It’s interesting to note that audiences have been happy to embrace the new version so quickly after the last franchise launch failed; though actor James Franco finds it contentious, the same has been true with the “Spider-Man” franchise relaunch.
Is M&A finally out of vogue in the Media and Entertainment sector?
Part of the problem in the industry, some say, is to do with those at the top running the various film studios. In “Curse of the Mogul”, written by lecturers at Columbia University, the authors contend that since 2005 the industry as a whole has underperformed versus the S&P stock index, yet such stocks are still eminently attractive to investors. The reason, the authors say, is that those running the businesses frame the notion of success differently. They argue that it takes a very special type of person (i.e. them) to be able to manage not only different media and the different audiences they reach and the different trends that come out of that, but more importantly (in their eyes) to be able to manage the talent. They asked to be judged on Academy Awards rather than bottom lines. The most striking thing in the book – which Zeitgeist is still reading – is the continual pursuit by said mogul of strategic synergies. This M&A activity excites shareholders but has historically led to minimal returns (think Vivendi or AOL Time Warner), often because what was presented as operational or content-based synergy is actually nothing of the sort. It’s a point Richard Rumelt makes in his excellent book, “Good Strategy / Bad Strategy”. Some companies are beginning to get the idea. Viacom seemed an outlier in 2006 when it divested CBS. Lately, News Corporation has followed a similar tack, albeit under duress after suffering from scandalous revelations about hacking in its news division. A recent article in The Economist states,
“Most shareholders now see that television networks, newspapers, film studios, music labels and other sundry assets add little value by sharing a parent. Their proximity can even hinder performance by distracting management… they have become more assertive and less likely to believe the moguls’ flannel about ‘synergies’.”
So in some ways it was of little surprise that Sony came under the microscope recently as well, part of this larger trend of scrutiny. The company has experienced dark times of late, with shares having plunged 85% over the past 13 years. The departure of Howard Stringer in 2012 coincided with an annual loss of some $6.4bn. Now headed up by Kazuo Hirai, the company has undoubtedly become more focused, with much more being made of their mobile division. Losses have been stemmed, but the company is still floundering, with an annual loss reported in May of $4.6bn. It was only a couple of weeks later that hedge-fun billionaire Dan Loeb – instrumental in getting Marissa Meyer to lead Yahoo – upped his ownership stake in Sony, calling on it to divest its entertainment division in a letter to CEO Hirai. Part of the issue with Sony is a cultural one, where Japan’s ways of working differ strongly from the West’s. This is covered in some detail in a profile with Stringer featured in The New Yorker. In a speech he gave last year, Stringer said, “Japan is a harmonious society which cherishes its social values, including full employment. That leads to conflicts in a world where shareholder value calls for ever greater efficiency”. But Sony’s film division – which includes the James Bond franchise – is performing well; in the year to March 2013 Sony’s film and music businesses produced $905m of operating income, compared with combined losses of $1.9 billion in mobile phones, according to The Economist. It ended 2012 first place among the other film studios in market share. Sony is the last studio to consistently deliver hits across genres, reports The New York Times in an excellent article. The article quotes an anonymous Sony exeuctive, “We may not look like the rest of Hollywood, but that doesn’t mean this isn’t a painstakingly thought-through strategy and a profitable one”. Sadly the strategy behind films like ‘After Earth’ begin to look flimsy when one glances at the box office results. While Hirai and the Sony board concede that have met to discuss the possibility of honouring Mr. Loeb’s suggestion – offering 15-20% of it as an IPO rather than selling it off in full – Mr. Hirai also commented in an interview with CNBC, “We definitely want to make sure we can continue a successful business in the entertainment space. That is for me, first and foremost, the top priority”. In mid-June Loeb sent a second letter, advocating the IPO proposal and saying “Our research has confirmed media reports depicting Entertainment as lacking the discipline an accountability that exist at many of its competitors”. The question is whether selling off its entertainment assets would remove any synergies with other divisions, thus making the divisions left over less profitable, or whether such synergies even existed in the first place. For Loeb, the “most valuable untapped synergies” are still in the studio and music divisions yet after decades as one company they still remain untapped. That point won’t make for pleasant reading at Sony HQ.
Another problem is the changing nature of media consumption habits. Not only are we watching films in different ways over different platforms, we are also doing much else besides, from playing video games, which have successfully transitioned beyond the nerdy clique of yesteryear, to general mobile use and second screening. This transition – and with it a realisation that competition is not likely to come from across regional boarders but from startup platforms – is largely being ignored by the French as they insist on trade talks with the US that centre on the preservation of l’exception culturelle. Such trends are evident in business dealings. The Financial Times this weekend detailed Google’s significant foray into developing content, setting up YouTube Space LA. The project gives free soundstage space to artists who are likely to guarantee eyeballs on YouTube, and lead to advertising revenue for the platform. From the stellar success of the first season of “House of Cards”, to DreamWorks Animation’s original content partnership announced last month, Netflix has become the bête noire for traditional content producers as it shakes up traditional models. We have written before about the IHS Screen Digest data from earlier this year, showing worrying trends for the industry; as predicted, audiences are beginning to favour access over ownership, preferring to rent rather than own, which means less profit for the studio. As much due to a decline in revenue from other platforms as growth in of itself, cinemas are expected to be the major area of profit going forward to 2016 (see above chart). We’ve written before about the power cinema still has. Spielberg and Lucas pick up on this;
“You’re going to end up with fewer theaters, bigger theaters with a lot of nice things. Going to the movies will cost 50 bucks or 100 or 150 bucks, like what Broadway costs today, or a football game. It’ll be an expensive thing… [Films] will sit in the theaters for a year, like a Broadway show does. That will be called the ‘movie’ business.”
In a conversation over Twitter, (excerpts of which are featured above), Cameron Saunders, MD of 20th Century Fox UK told Zeitgeist that “major changes were afoot”. Such potential disruption is by no means unique to the film industry, and should come as a surprise to one. Zeitgeist recently went to see Columbia faculty member Rita McGrath speak at a Harvard Business Review event. In her latest book, “The End of Competitive Advantage”, McGrath discounts the old management consultant attempts at providing sustainable competitive advantages to business. Her assertion is that any advantage is transient, that incumbency and success often lead to entropy, unless there is constant innovation to build on that success. Such a verdict of entropy could well be applied to the film industry. The model has worked well for decades, despite predictions of doom at the advent of television, the VCR, the DVD, et cetera ad nauseum. But fundamental behavioural shifts are now at play, and the way we devise strategies for what content people want to see and how they wish to see it need to be readdressed, quickly. Otherwise all this deliberation will eventually become much ado about nothing.
UPDATE (15/4/13): Of course, context is everything. The New York Times published an interesting article today saying investing in Hollywood is less risky than investing in Silicon Valley, though the returns in the latter are likely to be greater. Neither are seen as reliable.
This issue isn’t going away. We write again about it, here.
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Making the Oscars more relevant
Are the Oscars as outdated as wearing your hat to work?
Last month, AMPAS celebrated a year of achievements in film, for the 87th time. In a recent article, the Financial Times lambasted the film industry for its overwhelming focus on high-risk, high-reward blockbusters and the death of middle-budget studio films, the likes of which were often lauded by the Academy. Viewing figures for the show in 2015 were the lowest in six years (though, let’s keep things in perspective, it was never watched by a billion people). In a guest post, M.K. Leibman looks at what’s going wrong with a format that has often been criticised as outmoded, if not inappropriate. M.K. is a native New Yorker with experience in film production. She hosts a popular blog where she often critiques film industry practice.
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It’s been a couple of weeks since The Academy Awards. Everyone’s think pieces have already been written, the internet has had its say and Hollywood has already returned to work on this years slate of new releases. It’s back to business as usual. Disappointed with the 18% decline in ratings, the industry assures us that “next year will be better”.
Others like Variety remain less convinced that will be the case.
In it’s incredibly popular piece, Variety stepped up the tone warning that things are unlikely to improve with the Oscars unless several changes are implemented. In its article, Variety noted six changes which should be implemented, notably the inclusion of more popular films as nominees, not televising technical awards, and reducing the run-time of the broadcast.
However, I argue that they don’t go far enough, or actually get to the core of what’s wrong with The Academy Awards. Looking at over 150 comments underneath the article, you could get a feel for what people actually thought was wrong with the ceremony, and it wasn’t giving stage time to the sound editor. The general consensus is: The Oscars just aren’t relevant any more to the average American.
Of course the Academy isn’t just going to throw up their hands and close up shop at this revelation. There needs to be massive changes implemented at all levels of the broadcast in order to sustain its future.
The first decision The Academy should make is to not re-hire show producers Craig Zadan and Neil Merron. They’ve had a run of three years and the show has failed to see a big boost in ratings. It’s not to say these two gentlemen aren’t very talented producers. However, to effectively implement change means to start those changes at the top in order to bring the show in a new direction.
Under the tutelage of Merron and Zadan, the Oscars have struggled to define their tone. In their first year as producers, they made a bold move and picked comedian Seth McFarlane to host the show. His performance drew ire from the older Academy voters and Hollywood for unorthodox jokes, while thoroughly pleasing the younger demographic. The next year they decided to change course drastically to compensate for offending many, hiring the lovable comic Ellen DeGeneres. After McFarlane’s raunchy style, Ellen just felt too clean and safe. While the broadcast was widely watched, the biggest moment felt like a corporate gimmick: a Samsung-sponsored selfie became the most re-tweeted image on Twitter of all time. Neil Patrick Harris was the producing duos most recent choice. He too was a very safe choice, and failed to leave his mark on the show – even feeling awkward at times with the written material he was given to present, such as the joke mocking the broadcasts lack of diversity.
The one common tone these hosts and their shows all share is that the modern Oscars also feel more like a Broadway musical than a celebration of film.
While some may like this Vaudevillian style, most people on social media and in the Variety comments section seemed tired of these long drawn out musical numbers. Several recent hosts have made the musical a centerpiece of their show, including McFarlane with the asinine “show me your boobs.” The Oscars isn’t a Broadway musical, it is a show that ought to celebrate film – not dance around to silly songs, or theme songs from movies made 50 years ago. Or worst of all, in the case of the 85th Academy Awards, to Merron’s own film Chicago in a rather transparent attempt at self promotion.
When asked about their strategy for taking over the Oscars three year ago, Neil Merron and Craig Zadan told Entertainment Weekly that they needed to both shorten the show while increasing the number of performances; an arguably impossible task. They decided to reduce the stage time for technical awards, seating them closer in order to reduce the walk-time to the stage for acceptance of awards (a total of 40 seconds). They reason this frees up more time for musicals and other in-between performances which in turn allegedly attracts more talent to want to attend the broadcast live. Unfortunately, this has failed to decrease the run time and this year’s ceremony nearly approached the four hour mark.
They need to cut out more of the musicals and, like the BAFTAs, eliminate the televised acceptance of technical awards. They need to do this no matter how loudly those technical trades collectively complain about it. By eliminating technical awards, the BAFTAs run on average an hour shorter than the Oscars. This may be a hard pill to swallow for some, but people just don’t have 3.5 hours to devote to an awards broadcast on a Sunday night.
Once we cut out all of the musical numbers and technical awards, what could they be replaced with?
For starters, hosts that can actually captivate an audience without song and dance and poorly-scripted spectacle. None of these hosts were the sort of folks that could get a family to want to sit in front to the TV together to watch. When you think of some of the more successful Oscars hosts throughout history, they were comedians who could naturally work a room, loved by many generations. The current Oscars feel victim to a teleprompter mentality, a hyper-scripted event that fails to feel authentic. In trying to achieve the right tone, the Oscars could benefit from handing the hosting job to a duo like Amy Poeler and Tina Fey, whose Golden Globes hosting gig remains one of the more talked about award shows in recent memory. Some have even suggested their former SNL co-star Jimmy Fallon, but even he feels too safe a choice and slightly over-exposed given his Tonight Show gig. The host needs to be a natural comedian or comedic duo, with more choice over the written material and someone who is not overexposed that plays well with multiple key demographics.
The other part of the tone that needs to change is its pretentiousness. There is no faster way to assure irrelevancy than if you make the Oscars into a club of pretentious film buffs. There needs to be more time devoted to financially successful films that captivated general audiences during the year, and less time making fun of them. You don’t need to give an award to the superhero films, but to mock – or worse, just ignore – their existence isn’t going to improve your ratings either. Perhaps add a segment which praises some of the more financially successful films of the year, or include a performance related to those popular films.
This years ceremony felt almost like the Independent Spirit Awards, the award show that nominates the best of independent cinema. In fact several of this years big winners were also indie films honored at the Spirit Awards. Apart from the film buff niche, the American public isn’t going to see films like Birdman or The Grand Budapest Hotel. That doesn’t mean, as Variety suggests, you need to honor tentpoles with Best Picture nominations, but it’s not like the studios didn’t put out good films people enjoyed which were also award-worthy; Gone Girl was but one notable snub in that arena. People care about the Oscars more when films they care about are nominated or win. The most successful year of all time was when megahit Titanic was nominated in 1998, that year saw 55.5 million viewers versus this years 34 million.
Did the mainstream cachet of David Fincher’s Gone Girl hinder its chances at further Academy recognition?
The other 800 pound gorilla in the room is diversity. While not discussed in the Variety article, a highly visible Oscars boycott took social media by storm under the hashtag #OscarsSoWhite and #BoycottOscars. The tweets were in the millions, suggesting the boycott was substantial according to the number of tweets supporting it. Upset by the lack of nominations for Selma and no people of color nominated for acting awards, many decided not to watch. Even Al Sharpton called off a protest of the red carpet, hours before the show was to begin at the request of Selma director Ava DuVernay.
Before one chalks this up to being just another case of social justice sentiment on social media, there are serious long-term financial ramifications. If viewers don’t see themselves represented on screen, or at the Oscars, they’re not going to watch. As America grows more diverse, with people of color expected to become the population majority by 2050, the Oscars need to do more to include illustrate this diversity in their broadcast. Granted, a chef is only as good as his ingredients, the show’s lack of diversity isn’t helped by the product released, which this year had a paucity of strong roles for women. As Variety commented at the time,
The Oscars need to find a way to appeal to young people, and people of color alike. The future of this show is not white people over 34, but the critical 18-34 demographic and minorities. This needs to be reflected not only in the broadcast’s format and demeanour, but also in the makeup of the Academy itself; 94% white, 76% men, 63 years old on average.
In order to remain relevant, the Oscars need to find a tone that can compete with people’s attention in a highly-distracting digital age. The Oscars are starting to feel too self-congratulatory, too Hollywood, despite the irony. Americans don’t feel represented by the choices the Academy makes. The musical nature of the show leaves many men out of the equation and the lack of diversity is off-putting to entire races. Yet I doubt most of these considerations will be on the table for next year’s show. I suspect another safe choice for host with a near four hour run time chock full of endless musicals, lack of diversity and self-congratulatory scripted satire which is bound to generate uncomfortable laughs – and in today’s day in age I just don’t know how much longer that format can last. When Americans don’t feel like they’re invested in the show, there are just too many other entertainment options in the present day than to have to tune in for what they know will be in the news tomorrow or on social media in seconds.