Hollywood 'Completely Broke.' But That's Good News, Right?

Big Hollywood links to an article by Lynda Obst, the producer of Contact, Sleepless in Seattle, and TV’s Hot in Cleveland (among many other projects) in Salon, setting up her quotes by first noting that “For consumers, the decline of the DVD market has meant switching over to both Blu-ray and, more recently, streaming options for their viewing pleasure. The end of the DVD format’s dominance meant something much more, and far worse, for Hollywood.”

In Salon, Obst writes:

“The DVD business represented fifty percent of their profits,” [20th Century Fox executive Peter Chernin] went on. “Fifty percent. The decline of that business means their entire profit could come down between forty and fifty percent for new movies.”

For those of you like me who are not good at math, let me make Peter’s statement even simpler. If a studio’s margin of profit was only 10 percent in the Old Abnormal, now with the collapsing DVD market that profit margin was hovering around 6 percent. The loss of profit on those little silver discs had nearly halved our profit margin.

This was, literally, a Great Contraction. Something drastic had happened to our industry, and this was it. Surely there were other factors: Young males were disappearing into video games; there were hundreds of home entertainment choices available for nesting families; the Net. But slicing a huge chunk of reliable profits right out of the bottom line forever?

This was mind-boggling to me, and I’ve been in the business for thirty years. Peter continued as I absorbed the depths and roots of what I was starting to think of as the Great Contraction. “Which means if nothing else changed, they would all be losing money. That’s how serious the DVD downturn is. At best, it could cut their profit in half for new movies.”

* * * * *

“When did the collapse begin?”

“The bad news started in 2008,” he said. “Bad 2009. Bad 2010. Bad 2011.”

It was as if he were scolding those years. They were bad, very bad. I wouldn’t want to be those years.

“The international market will still grow,” he said, “but the DVD sell-through business is not coming back again. Consumers will buy their movies on Netflix, iTunes, Amazon et al. before they will purchase a DVD.” What had been our profit margin has gone the way of the old media.

But it was in 2010 that James Cameron told the Washington Post that DVDs were bad for the Gaia and other living things, and needed to be eliminated (while simultaneously having multiple versions of Avatar coming out that same year on DVD):

It’s a consumer product like any consumer product. I think ultimately we’re going to bypass a physical medium and go directly to a download model and then it’s just bits moving in the system. And then the only impact to the environment is the power it takes to run the computers, run the devices. I think that we’re not there yet, but we’re moving that direction. Twentieth Century Fox has made a commitment to be carbon neutral by the end of 2010. Because of some of these practices that can’t be changed, the only way to do that is to buy carbon offsets. You know, which again, these are interim solutions. But at least it shows that there’s a consciousness that we have to be dealing with carbon pollution and sustainability. …

And the following year, many in Hollywood went all-in with Occupy Wall Street, which was obsessed with the “obscene” profits made by gigantic multinational corporations. You know, like movie studios.

Presumably, losing the cushion of DVD sales is part of the reason why Steven Spielberg recently told a USC audience that, as the Hollywood Reporter paraphrased, “an ‘implosion’ in the film industry is inevitable, whereby a half dozen or so $250 million movies flop at the box office and alter the industry forever.”

But it’s not like Hollywood has much respect for the audience who pays the tickets to see those $250 million products during their initial run in theaters. Obst’s article on the collapse of her industry appears in Salon, which isn’t exactly sympathetic to Hollywood’s core audience in flyover country, when its editor at large has a new book titled, What’s the Matter with White People?: Finding Our Way in the Next America.

Similarly, in 2008, the late Nora Ephron, who in the previous decade had written and directed the Obst-produced Sleepless in Seattle, wrote in the Huffington Post, “This is an election about whether the people of Pennsylvania hate blacks more than they hate women. And when I say people, I don’t mean people, I mean white men.” Incidentally those people in Pennsylvania that Ephron was writing off as troglodytic racists were her fellow Democrats, who were about to decide between Obama and Hillary in the PA Democrat primary — the same primary voters that Obama wrote off at the time as bitter, gun and God-obsessed clingers.

Last weekend, my wife and I watched Raiders of the Lost Ark, a Paramount movie, at the theater in Santana Row — our local Northern California holodeck recreation of a fin de siècle European village. It’s fascinating to watch a movie made 30 years ago — after the cultural revolution of the late ’60s and ’70s, in which Hollywood had its first go-around at burning down traditional American values — and realize it probably couldn’t be made today; PC would transform those ’30s characters into oblivion. And then the following day, watch the latest Star Trek movie, another Paramount production, and realize (SPOILER ALERT) that it’s a 190 million dollar sci-fi bit of 9/11 trutherism.

As late as 1981, Hollywood could still muster up enough energy to care what the audience thinks and want to please it. Today, the American moviegoer is anathema, particularly now that he’s no longer buying sufficient quantities of DVDs to support the lavish lifestyle of Hollywood elites, despite following the advice of Hollywood elites who told him to stop buying DVDs.

In 2012, David Brooks (of all people) explored “Why Our Elites Stink” in the New York Times (of all places):

Through most of the 19th and 20th centuries, the Protestant Establishment sat atop the American power structure. A relatively small network of white Protestant men dominated the universities, the world of finance, the local country clubs and even high government service.

Over the past half–century, a more diverse and meritocratic elite has replaced the Protestant Establishment. People are more likely to rise on the basis of grades, test scores, effort and performance.

Yet, as this meritocratic elite has taken over institutions, trust in them has plummeted. It’s not even clear that the brainy elite is doing a better job of running them than the old boys’ network. Would we say that Wall Street is working better now than it did 60 years ago? Or government? The system is more just, but the outcomes are mixed. The meritocracy has not fulfilled its promise.

Christopher Hayes of MSNBC and The Nation believes that the problem is inherent in the nature of meritocracies. In his book, “Twilight of the Elites,” he argues that meritocratic elites may rise on the basis of grades, effort and merit, but, to preserve their status, they become corrupt. They create wildly unequal societies, and then they rig things so that few can climb the ladders behind them. Meritocracy leads to oligarchy.

“Credentialed, not educated,” as Glenn Reynolds would say.

And certainly lacking in wisdom and street-smarts. Compared to the Ivy League-credentialed elites who run it now, the men who created the movie industry were largely uneducated immigrants who fled to Hollywood in the first decades of the 20th century to escape antisemitism, and to build what film historian Neal Gabler described in 1989 as “An Empire of their Own.” Given their own personal experience, the original Hollywood moguls had every reason to be crass and cynical about their audiences, and yet, somehow, they produced a far better product than their peers today. Why should I care about Hollywood’s future, when so many of its elites loathe wide swatches of the Americans who support it?

Update: “Connecticut stops offering Hollywood a luxurious tax break.” Presumably, those in Hollywood who promoted Occupy Wall Street, and railed against George Bush’s tax cuts view this as a good thing, right?