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March 29, 2006
Welcome to Full Pocket Reporting…
It's time for entertainment journalists to start looking at the economics of Hollywood through the prism of the real economic picture and not just at individual pieces of the puzzle, which may or may not be misleading.
It used to be so much simpler.
Just 20 years ago, the formula for financial success was fairly simple. Domestic rentals times two was roughly what a studio could expect as a return on a film. Foreign was still less than domestic and home video was eating into television sales.
A decade or so ago, domestic gross times three became the basic formula. Domestic (1/3) + foreign (1/3) + ancillaries (1/3) = rough estimate.
Now, it's blurrier. There were 18 films in 2005 that grossed $200 million or more worldwide. Of those, only Batman Begins and The Wedding Crashers grossed more domestically than internationally. Hitch, Fantastic Four and Robots grossed between 45% and 50% here at home. Star Wars: Episode III, The Chronicles of Narnia, Charlie & The Chocolate Factory, Chicken Little, and Flightplan grossed between 40% and 45% domestically. The other eight of the eighteen titles grossed less than 40% here at home, including Harry Potter IV, Howl's Moving Castle, Constantine, and Kingdom of Heaven all grabbing less than 35% of their income in North America.
Meanwhile, DVD sell-thru, whose actual revenues are not reported to the media by studios, can generate anywhere between $75 million and $300 million in returns to the studios for a given picture.
And then there is the now epidemic gross participation deals. We in the media get our sources about how much is coming off the top, but its rare that we have it exactly right.
So… we know domestic box office and with the shortening window, projections aren't so hard to do. But foreign numbers are a guessing game and even when the films are being reported on overseas, it is only the top titles and it is rare that most major territories are in play at the same time. And DVD is a whole different set of speculations.
The release of King Kong is drawling speculations of DVD sales of anywhere between 10 million and 20 million units… a variable of literally more than $100 million in returns. Universal has gotten rentals of about $300 million in from the film… with P&A, not enough to make the movie profitable. DVD and other ancillaries will make the movie profitable. But the difference between a $50 million return on a $400 million investment and a $150 million return is significant, obviously. Of course, both amounts are good by normal investment standards and unexceptional by blockbuster movie standards. And I haven't accounted for when Peter Jackson's take starts accruing on top of his, Fran Walsh's and Phillipa Boyens' $20 million initial fee.
But the real point is, most of the revenue streams are difficult, if not impossible, to report factually. Yet the responsibility of entertainment journalists in this day and age demands that we start taking that effort more seriously. Reporting success and failure by domestic box office is, simply, not the economic truth.
The game for corporate publicists is not unlike the game of personal publicists and the tabloids… keep reporters spinning within a range of control. Quarterly statements define everything. But these too are not always reality based, however legal the bookkeeping.
Editors have to start breaking free of the self-imposed confines of myopic reporting. Journalists will follow. We don't have to deal with the full pocket with every report, but that full pocket must be explored as context for any story.
Any story that includes the phrase, "the film grossed $X," quoting domestic gross and not accounting for foreign and Home Entertainment revenue, is not telling a truthful tale. Yes, we cannot Know with a capital K. We don't get to go into the studio books. And while the profits and losses are disclosed publicly, details of individual films are not.
And it's only getting more complicated as the industry reevaluates how it values the various revenue streams. The media is so excited about new delivery systems and is already so slipshod in analyzing the revenues and profits of the studios that the idea of actually calculating the potential costs, in cannibalism and opportunity, seems to be a non-starter in totaling the journalistic equation of analyzing Hollywood.
Now, whether the pocket is half-empty or half-full… that's another matter.
