Sunday, March 27, 2005

Rise Of The Tube Moguls

Brad Grey Toasts Jeff Bewkes

A common thread runs through the appointments of Robert Iger as CEO at Disney, Sir Howard Stringer as Chairman of Sony, Tom Freston as Co-President of Viacom, Brad Grey as CEO od Paramount, Gail Berman as President of Paramount, Jeffrey Bewkes as President of the Time Warner Entertainment & Networks Group , and Peter Chernin as President of the Fox Entertainment Group. They are all former top TV executives.

The ascendency of the tube moguls should not come as a surprise– at least not to readers of The Big Picture. What used to be the movie business, centered in "movie houses," has been transformed into the home-entertainment business, centered around TV sets. Old Hollywood studios–prior to 1948– owned or controlled movie houses; New Hollywood studios– or their corporate parents– own or control television outlets. In fact, they own all six broadcast networks in America, almost all the principal cable networks in America, and most of the Pay-TV channels in America.

Underlying this transformation is a singular reality: most of the adult population no longer goes to the movies on a regular basis. As late as 1948, over two-thirds of Americans went to the movies weekly. Now barely 10 percent of Americans go in an average week (and, even in this sliver of the population, most of the frequent movie-goers are teenagers.) Where did the audience go? On any given night, over 90 percent of the American population is at home watching something on a television set. Naturally, Hollywood followed that mass audience home.

The numbers, which I reveal in Table 1 of The Big Picture, tell the story: ticket sales from theaters, which had provided all the studio revenues in 1948, provided less than 20 percent of the studios’ revenues in 2003 . Instead, home entertainment– including television, Pay-TV, DVD, and videos– provided more than 82 percent of the studios' revenues . Further, whereas as the high costs of print and advertising eat away most, if not all, of theatrical revenues, the studios retain the lion's share of the home entertainment revenues.
These lucrative home entertainment earnings have transformed the way Hollywood operates. Theatrical releases, despite the blinding allure they hold for the media, now serve essentially as launching platforms for its products for the home market, much like the runways at money-losing fashion shows establish brands for downstream consumer markets.

With New Hollywood's takeover of the television now all but complete-- see my X-Ray of the 6 major studios' media holdings-- the line of succession now runs to the gatekeepers of its El Dorado: the tube executives
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Monday, March 21, 2005

Send In The Aliens

Milla Jovovich

Furthering the Midas formula for New Hollywood, Twentieth Century Fox arranged in 1996 for the then governor of Nevada, Bob Miller, to dedicate Nevada’s Highway 375 as an "Extraterrestrial Highway" on which aliens would be granted safe haven when they landed their UFOs. The studio then unveiled a beacon on it near the town of Rachel, Nevada. This monument, according to the Fox news release, pointed to "Area 51"–where the U.S. military operates "a top secret alien study project." In fact, there is no such military base or "Area 51", but Fox assumed it had license to stretch the boundaries of reality for the opening of Independence Day– a Fox movie that, not unlike the news release, depicted "Area 51" as the U.S. government base for alien spacecraft. So while its beacon had only problematic navigational utility to any visitors from alien heavens searching for "Area 51," it had great value in luring entertainment journalists by the busload along the now official Extraterrestrial Highway to the putative periphery of the non-existing "Area 51." These investigative junkets (helped along with the usual studio-provided terrestrial gift bags) resulted in hundreds of news stories about the alien sanctuary.

The reason that Fox went to such lengths to establish Area 51 is that the mining of the paranoid fantasy about government machination to conceal space invaders from the public produces gold in the form of licensing rights for the New Hollywood. Steven Spielberg deserves much credit for developing the mother lode of this El Dorado. In his enormously-successful Close Encounters of the Third Kind (1977), the US government is so deeply involved in concealing the alien abductions that it stages a fake nerve-gas attack to hide its transactions with extraterrestrials. The deception pays off when, in an inspired ending, the aliens exchange the humans they have been abducting for experimental purposes for a busload of American astronauts. Spielberg expanded on the theme with E.T.: The Extra-Terrestrial (1982), which not only broke box-office records around the world, but opened up the universe of merchandise licensing which heretofore largely been the preserve of Disney. He also produced the franchise, Men in Black (in which the government not only shelters ETs but systematically erases the memories of civilians exposed to alien visitors) and the miniseries Taken about alien abductions (its tag line: "Some secrets we keep. Some are kept from us.")

These Spielbergesque fantasies neatly fit the requisite in New Hollywood for movies that could serve as launching pads for the raft of other products– including videos, games, toys, TV spinoffs and rides– that now kept it afloat. So others followed suit. Fox, for example, used The X-Files television series to help establish the Fox network.

Ironically, in promoting a view of governments as paternalistic institutions that create elaborate illusions to shield citizens from developments with which they cannot cope, studios may be extrapolating from the strategies they themselves use to dupe the public. What else is the Extraterrestrial Highway but a brilliant con job? The political logic of Hollywood may seem other-worldly, but, as The Big Picture explains, there is a decided method in its madness .
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Sunday, March 13, 2005

The Money Shot

William Safire

The lucidity prize for summing up my entire 396-page book in a succinct sentence goes to master wordsmith William Safire. In his column in today’s New York Times Magazine, he writes: "In The Big Picture: The New Logic of Money and Power in Hollywood, the investigative author Edward Jay Epstein holds that what used to be the movie business, centered in "movie houses," has been transformed into the home-entertainment business." That transformation, in a nutshell, is the key to understanding the New Hollywood.

Even though today's Hollywood studios may have the same names, logos and back lots as their Old Hollywood counterparts, they are radically different creatures. The Old Hollywood studios owned movie houses; the New Hollywood studios– or their corporate parents– own television conduits, including all six broadcast networks, all the principal cable networks (including ESPN), and most of the pay-TV channels. The Old Hollywood studios made virtually all their money from the sale of tickets at box-office; the new Hollywood studios make most of their money from licensing products, including movies, TV shows, and videos, for home entertainment. For the extent of the TV windfall alone, see the answer to my Question of the Day.

Underlying this transformation is the reality that most of the adult population no longer goes to the movies weekly. Consider: as late as 1948, over two-thirds of Americans went to the movies weekly. Nowadays barely 10 percent of Americans go in an average week (and most of today's frequent-goers are teens). Today's mass audience-- over 90 percent of the population-- is at home watching something on a television set.

The ineluctable metamorphosis of Hollywood into a provider of home entertainment brought with it a new global logic. For one thing, unlike the movie business, the television business is licensed, franchised, and regulated by government authorities.

If this sea change has remained elusive to the outside world, that is not accidental. The owners of the new Hollywood go to considerable lengths to conceal the breakdown of their cash flows they garner from home entertainment. Once the numbers are known– and I provide the breakdowns in The Big Picture– it becomes clear that all that remains of the Old Hollywood is institutionalized nostalgia, self-generated myths, and an outdated vocabulary.

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Tuesday, March 01, 2005

Willful Blindness

"Willful blindness involves the conscious avoidance of the truth"
-- Merriam-Webster Dictionary of Law

In Hollywood reporting willful blindness can be found in the media’s avoidance of any performance measures for moguls that might get undercut "gotcha" personality stories. This eyes-wide-shut practice serves a truly gawkeresque purpose: it allows entertainment journalists to focus on juicy tidbits about the bad manners of moguls while ignoring, or at least holding in abeyance, readily-available facts that might distract their audience from them.

Consider, for example, the field day. or, more precisely, field decade, that the media has enjoyed in its disparagement of Disney’s Michael Eisner. The stories about Eisner’s bad behavior began soon after Jeffrey Katzenberg, Disney’s talented studio chief, left in 1994, intensified after Eisner’s clumsy firing of Michael Ovitz in 1996, and became a veritable feeding frenzy after Eisner got rid of Roy Disney, Walt Disney’s nephew, in 2003. The rehash of items about Eisner's insensitive language (eg. describing Katzenberg as a "midget"), nepotistic decisions (eg. hiring his friend Ovitz), back-stabbing (eg. firing Ovitz) and rich payoffs (eg., honoring the compensation committee’s negotiated $140 million settlement with Ovitz) gradually coalesced into a media morality play: how Eisner's "dark side" led to Disney’s near downfall. To keep the story plausible, entertainment journalists kept their eyes wide shut to the numbers that showed that Eisner, even with the "dark side" that their moral compasses located, had transformed Disney into a huge financial success.

Willful blindness conveniently allowed these journalists to miss the most obvious measure of performance: the valuation of Disney by the stock market. Here are the actual figures: in 1984, when Eisner took over Disney, the (split corrected) Disney share price $1.20, giving Disney a market value of only $1.7 billion; in 1994, when Katzenberg left, the share price was $12.90, Disney had a market value of $18.6 billion; today the share price is $28.5, giving the company a market value of $55.8 billion. So under Eisner, his bad manners and questionable pay offs not withstanding, Disney’s market value has increased $54 billion. Even taking inflation into account between 1984 and 2005, the company increased 18 times in value under Eisner. In view of this enormous business success, it is not surprising that Fortune’s 2005 poll of 10,000 business executives rated Disney as the most admired company in the entertainment industry. These executives evidently valued good performance over bad manners.

Eisner achieved the $54 billion increase in the company’s value not because of his "dark side" but because he recognized that Disney’s future would be in home entertainment– not movie theaters– and, to move Disney in this direction, boldly bought Capital Cities/ABC in 1996 for $19 billion. Disney acquired not only 10 ABC television stations in the biggest advertising markets and the ABC network, but 80 percent of ESPN which turned out to be a huge money-machine. With this coup, Disney moved to the forefront of home entertainment, which is now the heart (if not the soul) of the new Hollywood. As I demonstrate in my book The Big Picture, the logic of money and power behind the new Hollywood is not always transparent. For a closer look at why Disney makes record profits even when its movies bombed at the box-office, see the answer to my Question of the Day on my web site.

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