Why is Hollywood Broken?

white-house-down

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If there’s anything that Hollywood loves more than itself, it’s explaining how bad of shape Hollywood is in these days. This usually begets discussions about why Hollywood is in such a rut, which includes lengthy diatribes about lack of new ideas, the loss of DVD sales, piracy, international markets, etc. All good points, even though I don’t remember that many great ideas in the 80s, VHS tapes back then cost $100 dollars (you could still make copies of them), and people in Turkey were just as interested in Star Wars as we were.

Salon, which is like a living & breathing example of the big city liberal jackass caricature that the Right likes to trot out every election, thinks they have the answer. The article, “Lynda Obst: Hollywood’s Completely Broken”, contains this insightful subheading:

When you stopped buying DVDs and started streaming on Netflix, Hollywood’s economics changed. So did the movies

Fascinating. The article continues to blow the lid off the issue with new revelations:

“The movie business,” Peter said, “the historical studio business, if you put all the studios together, runs at about a ten percent profit margin. For every billion dollars in revenue, they make a hundred million dollars in profits. That’s the business, right?”

I nodded, the good student, excited that someone was finally going to explain this to me.

“The DVD business represented fifty percent of their profits,” he went on. “Fifty percent. The decline of that business means their entire profit could come down between forty and fifty percent for new movies.”

For those of you like me who are not good at math, let me make Peter’s statement even simpler. If a studio’s margin of profit was only 10 percent in the Old Abnormal, now with the collapsing DVD market that profit margin was hovering around 6 percent. The loss of profit on those little silver discs had nearly halved our profit margin.

Catch that? The movie business had ten dollars, and then somebody took five dollars, now it only has five dollars instead of ten, which is less money. In the industry, this is known as “half”. Those little silver discs that we assumed were either Frisbees or the leavings of some advanced alien civilization? Those had movies on them. Movies that people who used to have ten dollars worked hard to create. But since we stopped buying, and/or worshiping those discs, less were sold.

Typically, a business suffering a sharp loss in revenue examines its costs to find and cut wasteful spending, but this is Hollywood, where glamor lives and dreams are made, and other nonsense. If something consistently doesn’t work, the best way to fix it is to throw more money at it. In Hollywood, this is known as the “Shyamalan Effect”. Business Insider explains:

shyamalan effect

BTW– anybody want to go see The Lone Ranger this weekend?

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