Memo to Hollywood:Stop Making Movies
The Box office results are in from last year and the message is pretty clear. Releasing more movies does not increase the audience. On any given weekend, four to seven new movies compete for a fixed audience of theater-goers. This is called “Cannibalization”; its as ugly as the word sounds.
Hollywood is caught in “The Prisoner’s Dilemma”, a classic bit of game theory that is behind such notions as a nuclear arms race. It would be in the financial and security self interest of both India and Pakistan to not spend billions on nuclear weapons, but because they don’t trust each-other, they continue to do so, instead of feeding their poor. Hollywood moguls, caught up in the useless notion of “Market share”, don’t trust each-other to not make more movies to grab greater share. The notion of market share of the box office never entered Hollywood’s lexicon until the Coca Cola company bought Columbia Pictures in 1982, bringing their supermarket shelf space POV to the movie business. Market share with a commodity product like sugar water is a fine notion. Market share with a one-off variable cost product like a movie is financial suicide. Coke quickly figured this out and in 1987 unloaded Columbia to Sony, desperate to own content so it didn’t get screwed in the DVD wars to come as it had in the Betamax disaster. Of course Sony’s guess turned out to be wrong as well, as their ownership of content has not helped BluRay’s High Definition player succeed in a similar Prisoner’s Dilemma stand off with Toshiba’s HD DVD. The excess movie output problem is further complicated by the role of A list talent, who’s only objective is to secure as many multi-million dollar fees per year as possible. They always believe their film will rise above the crowd, and when this does not happen, they have no penalty for the failure. No one ever asks Tom Cruise or Joel Silver to give back their fees on a bomb.
With the hedge funds that fueled much of this madness now licking their wounds from the sub prime meltdown, perhaps some sanity may return to the business. Without crossing the anti-trust fine line, perhaps the majors and their equally guilty specialty divisions might make a New Year’s resolution to cut back production. After all, the mark of a good business is not market share but Return on Investment.
Stop Making Movies would also be a great headline for a different story. Most of Hollywood would be considerably more profitable for years if in fact they stopped making films and fired everyone. That would reduce their expenses to almost nothing (except interest) while the income would be major – everything earned from the catalog would fall right to the bottom line.
Would we miss them?
all true
[...] 10, 2008 · No Comments Last week I wrote that classic supply-demand factors like overproduction were harming the movie business. This week I got a note from a high [...]