Book review: The Hollywood Economist

This book was authored by Edward Jay Epstein in 2010 (Library of Congress 2009943414).

I found this book hard to follow, but I can summarize the main themes, which the author conveniently summarizes in his epilogue.

One. Hollywood was started in the early 1900s by (mostly Jewish) individuals who were blocked from making movies in New York and Massachusetts by the Edison Trust. By the mid-1920s weekly attendance was 57 million, and by the 1930s (Depression years) attendance was 75 million weekly (out of a population of 130 million). Hollywood was very profitable.

Two. Theater attendance plummeted with the rise of television. After peaking at 90 million weekly viewers in 1948 attending 500 motion pictures produced by a workforce of 320,000, only 45 million attended weekly in 1958. Tickets accounted for 80% of revenues in 1948 and 20% of revenues in 2007. But Hollywood deal-makers are resourceful; they currently spend millions to advertise each movie to (primarily) under-25 males to remain immensely profitable. While clever, original productions such as Slumdog Millionaire dominate the Oscars, these movies have little to do with Hollywood's success; rather, Spiderman 3 and its ilk pay the bills.

Three. It is unclear what the future holds, but given Hollywood's financial creativity in years past, the author expects Hollywood to invent new ways of making money, despite the surge in viewers looking to the free Internet and pirated DVDs for entertainment.

Beyond these themes, I was intrigued by the way studios spread their risk. Each movie is typically produced by an independent company, wholly-owned by the studio. This independent company pays the studio for distribution services, so much so, that those doing business with the independent company should expect it to lose money. For example, they offer to hedge funds and other investors an opportunity to front to these independent companies part of the production costs. The investors collect at the end, but from a smaller pie than one might imagine, given the off-the-top amounts going to the studio. Governments at both a national, regional and local level provide tax breaks to studios who produce some of the movie at a given location or perform some of the work there. So, the film may be shot in Canada and edited in Germany using Pennsylvania staffers, with all those governments kicking in a share. To get the tax breaks the studios may have to sell the movie to a local entity, and then lease it back from that entity.

Headline actors and actresses do not perform their own stunts, despite what they might claim on The Tonight Show, for two reasons. First, action movies are not shot linearly and the action scenes often require very different backgrounds. We have all heard of the stunt double, but in modern films the more accurate description is stunt-twins, -triplets, even -quadruplets. There may be several men playing James Bond, one who hangs from a cliff, another who jumps from a speeding car, and another who dodges thrown knives. Beyond this, a movie starring Nicole Kidman will not do well at the box office or with later DVD sales and rentals if Nicole Kidman is not in the movie. She may decide she does not like the director, she may break her ankle stepping off a curb on her way to the grocery store. To protect itself from these incidents a studio will want to purchase insurance. An insurance company will happily take this risk in exchange for a couple-million-dollar premium, so long as risks are minimized, which means no stunts. Not only will the insurance contract forbid stunts, but before issuing the policy the insurer's staff will scrutinize the script for danger and after issuing the policy may send staff to the set at various times to verify. The author states that the deception may not be vanity on the part of the actors and actresses, but may instead be required per their agreement with the studio.

Certain actors, and to a lesser extent actresses, hold a lot of power, and three were especially interesting to me. Arnold Schwarzenegger was the headliner for Terminator 3. The producers felt he was needed because of his role in Terminator 2, not because of his acting skills (indeed, he played a robot). In addition to a $29.25 million fee, whether or not the movie was ever played, he also received $1.5 million for private jets, limousine service, personal physicians and cooks, and the like. And, he was entitled to a share of the profits, with profits being defined in a way that there would actually be profits, unlike with the wholly-owned company described above that typically loses money. Further, the studio paid the Governor's company, not Mr. Schwarzenegger himself, given him flexibility in structuring his pay for a more advantageous tax outcome.

This was small potatoes compared with Tom Cruise and the Mission Impossible trilogy. He earned more the $70 million from the first and $92 million from the second.

Many actors and actresses are truly interested in the artistic side of movie-making, as opposed to the commercial side, so that players such as Sean Penn and Julia Roberts will star in small films, the kind shown at Sundance, for the Screen Actors Guild minimum wage of $788 per day.

Last, and this example saddened me more than the others, is Michael Moore and his Fahrenheit 9/11. Production was a political hot potato, given its content, and many studios did not want to distribute it. This censorship attracted press attention which eventually persuaded the Harvey and Bob Weinstein (brothers) to do so. Mr. Moore's statements regarding the studios were not entirely accurate, but more compelling, driving more press attention. The attention drove the movie to $228 million in ticket sales and $30 million in DVD sales, of which $21 million Michael Moore took. One can read a Wikipedia article for a fuller description of these events.

All of the above facts and figures, of course, I took from the book. I have no way of knowing whether they are true.