A Titanic Tale
bA Titani

Harvard Business School Working Knowledge

April 11, 2005

Book Report

by Sean Silverthorne

Perhaps we are no longer shocked when we read in Edward Jay Epstein’s engaging look at the business behind Hollywood that most films lose money at the box office yet still produce profit through licensing and marketing deals to get those films into the home.

But what is surprising after you read this book is that any good movie ever gets made by a major studio. In business journalist Epstein’s Hollywood, movies are crafted for kids and teenagers—they being the ones who control parents’ spending and who buy all the throw-off products that movies produce, such as toys, soundtracks, cereals, clothing, and the like. And can a good movie really emerge after a scriptwriter is told by a studio exec to make the villain a martial arts master because kung fu movies are “hot in Asia”? Or told by the movie star to include “lots of hardware, huge action scenes”? Or told by a vice president to carpet bomb the entire concept and start over?
Close glimpses like these into the sausage-making details of filmmaking are what really animate an already animated account and make The Big Picture perhaps the definitive work on the modern film industry.

Another compelling aspect of this book is Epstein’s ability to get his hands on actual studio business documents. We are told that Disney’s Gone in 60 Seconds, which was touted to have grossed $242 million at the box office, actually lost Disney over $160 million after figuring in production and distribution costs ($206.5 million), the cut from receipts taken by theaters ($140 million), and Disney’s employee and interest costs ($59 million).
The modern era in filmmaking actually began in 1937, when Disney released Snow White and the Seven Dwarves—the first movie that generated income not only from ticket sales but also from the music soundtrack and merchandising tie-ins. Disney invented the future of the industry, says Epstein, whereby “the real profits would come not from squeezing down the costs of producing films, but out of creating the intellectual properties that could be licensed in other media over long periods.”
Later, he notes, “By 2003 the studios were taking in almost five times as much revenue from home entertainment as from theaters.”
Interestingly, the industry has always been vertically integrated: Studios in the first half of the twentieth century owned the equipment, studios, actors, and movie theaters. Today, those assets may reside elsewhere, but the six entertainment conglomerates that own the major studios—Disney, Sony, Time Warner, NBC Universal, Viacom, and News Corporation—do own music and publishing houses, television programming, and other properties that can take advantage of synergistic licensing deals.
The book’s epilogue looks at the dawn of the digital movie, a phenomenon that does away with film, dramatically decreases distribution costs, lessens the need for those pesky human actors, and broadens the possibilities for ancillary products (ring tones anyone?). All of this is bad news for the adult movie-going public, says Epstein. “To be sure, there still may be movies made for grown-up audiences to see in theaters, but they will play an ever-smaller part in the big picture.”—Sean Silverthorne

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