Imposing real world on pix finds a buyer
Imposing real world on pix finds a buyer
Tying ticket prices to production costs would only make sense if there were some meaningful correlation between a movie's cost and how good a movie it is -- a hypothesis a century of moviemaking has pretty thoroughly wrecked.
But for all the razzing he invited, Bronfman's broader critique of the industry's stubborn resistance to what he called "real world" business ideas is not as irrelevant as his critics might want to believe.
A majority of the studios' gross revenues today derive from ancillary arms that generally operate according to the sort of drab, unglamorous business principles that Bronfman advocates. And as home entertainment technologies continue to evolve, and the availability of movies in non-theatrical channels expands, the percentage of gross revenues coming from those industries can only grow.
Consumers today, for instance, spend about as much money purchasing movies on video as they spend renting them: around $7.5 billion per year. While the video market, like all movie distribution channels, is ultimately driven by the quality of the product available, the ability to reap the maximum value of that product from the purchase market is a function of a set of skills and capabilities that, historically, have not generally been associated with Hollywood studios:
Things like efficiencies in the manufacturing and distribution of packaged goods; securing and defending retail real estate (i.e. shelf space or floor display space); inventory and information management; packaging; pricing; and any number of other disciplines that would be entirely familiar to the sales and marketing departments of Procter & Gamble or General Mills.
Even "Titanic" (assuming it's priced for sale in its initial video release) won't have a free pass through the sell-through market. While it will certainly get a better-than-even shot at prime docking space in Wal-Mart and Kmart, its claim to that space will hardly be unconditional.
Competing distributors will have proprietary claims of their own on that real estate, often secured through direct cash payments to the retailers or generous advertising commitments. "Titanic's" ability to hold onto the best space will also be tested.
Retailers like Wal-Mart and Kmart calibrate the cash return from every square foot of space be-neath their roofs on a constant and ongoing basis. Each selling space in the store must generate a certain level of cash to hold on to in-store real estate. If merchandise doesn't sell fast enough to meet that expectation, it's dumped -- whether it's "Titanic" or Tide.
And it's up to the manufacturer to keep the inventory turns high, through ongoing advertising and promotion.
The traditional oddball economics of the video rental business have tended to shield retailers and studios from the full weight of consumer demand, but those traditional economics are being rapidly overthrown.
Recent efforts, led by Blockbuster Video and increasingly supported by the studios, are aimed at making the rental market more responsive to real consumer demand by increasing the availability of movies on store shelves.
As those efforts evolve, the same issues of keeping merchandise moving, shelf space and information management that rule the sell-through market will infuse the rental market.
Even the pay-per-view business, historically a distribution backwater, is increasingly subjected to the unsentimental discipline of supply and demand. As digital technology expands PPV "shelf space," by allowing cable and satellite operators to offer dozens of PPV channels, the number of slots that a movie can secure on those systems will become critical to its earning potential.
And if history is any guide, those slots will eventually end up being bought, traded and sold, just like any other commodity, requiring far more involvement (and investment) by the studios than is required today.
So was Bronfman right? Not exactly. His explicit goal of passing along his increased costs to his customers will remain a tough sell until someone finds the magic formula for consistently making successful movies.
But he's more right than he knows in imagining what it will mean to be a studio in the (not-too-distant) future. Despite the slippery nature of the studios' product, "real world" business disciplines play a solid role in Hollywood's bottom line. A role that Bronfman's critics overlooked.
