Wednesday, February 6, 2008

Movies just don't make money anymore...

Sometimes it really looks like Hollywood is a sinking ship. Not like the romantic James Cameron "Titanic" version, either. (or this 'Titanic slide' version to the left) I'm talking about the one that's burst into flames, has dead bodies everywhere and people are knifing each other for no reason, but I digress... Look, I'm not saying that people aren't making money out there, they are. However, the movies they're making are not. The studio's are taking huge losses right now and there's only one way to turn the ship around...

First, the problem... Box office returns are going up, yet profits are going down and the major studio's have produced a loss in the billions over the last couple years. Further, just until recently, studio's would fund films all on their own, but they can't anymore. It's increasingly coming from outside sources, such as hedge funds and private equity, which does protect the studio's against the downsides... but it also takes away a lot of the upside. The studios are basically putting themself into a position where it's almost impossible to make money. They're blaming everybody from the internet, to those greedy writers, but guess where the problem really lays? It's really in those A-list actors, directors and producers who are getting huge upfront checks. When your budget is $100Million+ and you then tack on marketing, distribution and your own costs, how can you possibly make money? You can't and you've got a major problem on your hands... So, how do you fix it? Well, actually, that's kind of simple, stop spending so much money on making big budget stinkers.

You see, this is why horror is such a cash-cow, they have low budgets and tend to do okay at the box office due to the fanbase. (Decent Box Office - Low-Budget = Returns) Further, this is why low-budget filmmaking is far more profitable than making big-budget films. You're dealing with smaller revenue, but at least it's a positive figure. Even the private equity guys have it figured out, check out this article in The Hollywood Reporter. The venture capital fund, Film 7, has around $350Million to spend. Are they going to finance 3 big 'blockbusters'? No, they're going to finance "25 features in the less-than-$20 million budget range". Personally, this is why I think that everyone who's cutting their chops in the micro-budget to low-budget filmmaking market is going to have an edge. You know how to make a product on next to no budget, Hollywood certainly does not.

If Hollywood is to survive, it's going to have to switch to a more cost-effective model. No more big paychecks, no more $20Million for an actor, no more paying huge dollars just to have a big named producer attached. The days of big budgets and big paychecks are coming to an end and an age of smaller, modest budget features is coming.... and all of you low-budget horror filmmakers are going to be ready. It's a simple rule of thumb - if you want to get rich, spend less than you make.

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