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February 10, 2006Oh that Carl Icahn....
The possible break-up of Time-Warner under Icahn's idea of a more stock market friendly configuration is a double edged sword. On one hand, the freedom of being a stand alone film and television business would allow Warner Bros. to operate like a studio again, instead of like an economically indistinguishable part of a major corporation.
On the other hand, the freedom of being a stand alone film and television business would allow Warner Bros. to operate like a studio again, instead of like an economically indistinguishable part of a major corporation.
You see, the studio business is not a great business to in. There is a reason why they get absorbed into conglomerates... and it's not just because the conglomerates are fascinated by the now-proven-flawed model of owning content as a way of controlling hardware.
The business has become massive risk, minimal-to-decent reward. A blip on the profit and loss statement like the first five years of DVD sell-thru is, in the life of a corporation, a negligible event. "What have you done for my stock price lately?" is the credo. And the answer is as fickle as Sony's first and second quarters and Sony's third and first quarters of 2005. For the first half of the year, the movie business was the one bright, shining light. In the second half, it was just another drain on the bottom line.
But the idea of Warner Bros following the model that Viacom just offered, splitting Paramount and the cable nets off of the television network and some other segments, seems to me to be dangerous stuff... that is, if you don't love the idea of yet another mighty studio reduced to being a small boat in a massive turbulent corporate sea.
In both cases, these are really new business models. Warner Bros Television is the last standing major producing a significant amount of television product without owning a major network of their own on which to foist a part of what they make. The cash flow from this business is a key to balancing the choppy financial seas of the studio business.
Paramount has been a clear drain on the stock price response to the recent success of CBS. By giving the minor/cable networks to Paramount to work with, Viacom has left them with a full array of marketing tools and cross-promotional possibilities that have not yet been exploited to their greatest effect. In addition, I am wondering (and will remain wondering today, as doing research from a cruise ship is no picnic) whether the new "CW" will end up on the Paramount side of the ledger as a hedge against FCC issues with a growing network operated primarily by CBS.
In any case, these two (potential/new) standalones have some more muscle than a start-up like DreamWorks and are launching (might be launching) from a running start.
But on today's/tomorrow's media map, three of the six surviving majors have to be considered to be vulnerable to takeover, hostile or otherwise, at any moment. (Those would be WB, Sony Pictures, and Paramount.) Disney and News Corp seem to be the most completely (or perhaps, only completely) integrated media companies. And the NBC/Universal world seems still unsettled somehow.
It's funny. I saw Barry Avrich's The Last Mogul again here at the Floating Film Festival last night and I had forgotten that a part of that story was how, early after the MCA takeover of Universal (first the lot, then the remaining assets), there were attempts first by Seagram's and then by NBC (the vast majority of whose product was then produced by Universal Television) to take over MCA.
And within the 30 years following, both Seagram's and later NBC would own the former MCA. Seagram's would buy the company at a discount after Japanese electronics giant Matshusta failed to make a go of it, Vivendi would buy it from Seagram's, and Vivendi would fail and soon be forced to sell to General Electric's NBC division.
After all the crap Michael Eisner took in his last years in charge, one has to marvel that he was the only CEO in the game who managed to keep the entertainment core of his company as the core of the overall business. News Corp is in media, but news and distribution are where Rupert Murdoch's heart lies. Sony is a hardware company, GE is GE, Viacom and Time-Warner are/might be splitting off movies.
The WB split, in particular, is a curiosity, as the company has been in the process of hedging against Icahn for more than six months now. What corporate parentage compels the strategy of, for instance, splitting off the costs of Superman to an equity partner? If, as with The Matrix, Superman and subsequent spin offs of this version of it, become a cash cow, the company is forced to split profits with a partner they would rather not have at that point. And if it flops (meaning $300 million or less worldwide, based on the massive, record-breaking cost of the picture), there is a lot less pain to absorb.
As a stand alone, there is no such strategic questions necessary. None of these companies will be able to risk a $400 million investment in product and P&A on one project, no matter how promising. Period. And, as DreamWorks found out so painfully, if you get yourself behind the eight-ball, there is no way of recovering when you are splitting financing on most of your movies. Even Shrek 2, the second highest grossing film in the history of the domestic box office, was not enough to make the company solvent again.
More importantly, as standalone movie/TV businesses on the stock market, how completely vulnerable to the wave of this quarter's success or that quarter's failures with the stock price be?
And this all brings us back to the shortening windows and new delivery systems and my notion that the road we are going down is the road to a significantly smaller film industry... lower risk, lower reward... but mostly lower risk... flattening the blips... because blips are bad for the stock market.
The film business is not a traditional commodities business. But that is where the corporations, unimpressed by the rewards, unhappy with the risks, are taking it. And maybe, some hope, it will create a new age of quality expression, with less lavish opportunity, but an industry of solid professionals, cutting corners and pushing the aesthetic instead of the budget to make their films.
In my opinion, the "we'll have theatrical blockbusters and the rest will be available day-n-date" is a hopeful, doleful misguided, prayer for the impossible. Or perhaps an 8000 screen theatrical universe will be big enough to handle that load. But haven't we already been though the bankruptcies and distribution destruction of the 8-week theatrical obligation that hamstrung multiplexes in the last iteration of a system?
Will we see another Marvin Davis or Ted Turner or Mark Cuban who wants to get into the movie business enough to buy a major and who actually is smart enough to reconsider the model in a real way that makes it a financial success?
Or will we see what we see in television... giants and flies (very rich flies, but nonetheless...)? Four majors with eight Peter Rice-like operations under the tent (two each) and every producer desperately looking for a position making movies for the four majors to distribute?
I believe strongly that there will always be a large demand for the theatrical experience. But what we all tend to forget is that demand is often not the driver of supply. Economic forces drive so much... but they haven't driven Joints™ into the cigarette racks at 7-11. There is more theatrical demand (some at a different price point) than is being serviced by exhibitors and distributors now. McDonald's has been driven to price competition, not by lack of customers, but by a drop in customers, creating different economies of scale.
Go see, when you can, the Who Killed The Electric Car documentary (which still is a work-in-progress and needs a lot of work narratively) and tell me that demand and passion from consumers drive big business. And as much as we all want to claim movies for "The Arts," at anything more than $100,000 a pop, they are business. And at anything over $5 million a pop, they are big business. And at $100 million a pop and up, they are conglomerate business.
Or to misquote Dandy Don, "Get out the knife, the party's over."
There's always next Monday night.
Oh.
Maybe not.
January 3, 2006 - Reflections On A New Year
January 6, 2006 - Sundance Preview
January 5, 2006 - The Business Of 2005, Pt 1
January 9, 2006 - The Business Of 2005, Pt 2
January 11 - Munich In Sequence | Act 1 | Act 2 | Act 3
January 12 - V For Vendetta
