Oscar's Lament

Newark Star Ledger
Febriary 27, 2005

by Edward Jay Epstein

As the nation's glitterati gather in Los Angeles tonight for the
77th annual Academy Awards, they will celebrate the role of actors, directors and writers in creating a distinctive American art form: the motion picture.

But behind the familiar rituals - red-carpet interviews and the
opening of sealed envelopes - the business of Hollywood has undergone some fundamental changes since the Oscars became a national pastime.

Sure, America's movie studios still compete for stars and the kind of buzz that tonight's awards generate. And yes, Hollywood has always been geared toward making money. Increasingly, however, the movie business is
just one high-profile outpost in a world of clashing entertainment giants that value the "synergy" of video-game spin-offs, fast-food tie-ins and soundtracks as much as the creation of original pictures.

These changes have been a long time in the making, and they are rooted in the evolution of technology and American society. Slowly but surely, they are transforming the way movies are made and how they are distributed to audiences in this country and around the globe.

Everything was so much simpler in 1929, when the Academy of Motion Pictures Arts and Sciences first began voting on Oscars. Back then, 95 million Americans - or over 70 percent of the American population - went to the movies in an average week. This massive outpouring was not a product of expensive national marketing campaigns; it was simply the result of regular moviegoers going to see whatever was playing at their neighborhood theaters.  Even as late as 1947, about two-thirds of Americans went to the
movies in an average week. The vast majority of these movie-goers were adults (For children, there were cartoon matinees; for young teens, "B" westerns on double-bills).
As a result, Hollywood studios made movies for adults.

Nowadays, a small fraction of that audience remains. Last year, 30 million Americans went to the movies in an average week - only slightly more than one-tenth of the population. Television and other diversions have taken over.
As the movie-going crowds have dwindled, they have also become disproportionately young. More than 60 percent of frequent movie-goers last year were under the age of 21.
Consequently, Hollywood not only makes movies for younger viewers, it has to find those viewers - and attract them - by spending huge sums to advertise on the television programs they watch.  In 2003, the last year the data was compiled, the six major studios spent an average of $39 million per film just to get audiences and prints
into American theaters, which was more than they recovered from the box office.
To make matters worse, the costs of producing films have also risen astronomically. Correcting for inflation, costs have increased more than 16 times since the 1947 collapse of the studio system, which freed movie stars to seek more lucrative deals. (Star salaries have not been the only factor,
of course, but consider this: Arnold Schwarzenegger received a fee of more than $29 million for "Terminator 3").
By 1980, when most of the studios' worldwide revenues still came from movie theaters, every studio was losing money on its overall movie business, no matter how large the success of such 70s hits as "Love Story,"
"Jaws" or "Star Wars." By the 1990s, this had become routine.

Indeed, as one Fox executive explained to me, the theatrical
releases evolved to fill a different role; they became launching platforms for licensing rights, much like the runways at haute couture fashion shows.
In other words, they help establish movies for the market where money is really made - home entertainment. And no wonder: Fewer than 2 percent of Americans now go to movie theaters on a given day, while more
than 95 percent watch something at home on TV.
Responding to this new social reality, the companies that owned the major Hollywood studios have aggressively diversified, buying their way into American homes. Today, the corporate parents of the major studios own all
the television broadcast networks in America - CBS, NBC, ABC, FOX, UPN and WB. They have also purchased almost all the profitable cable networks, including ESPN, CNN, Turner Broadcasting, Nickelodeon, the Disney Channel,
USA and MTV; the two most important pay-TV channels, HBO and Showtime; and the largest satellite broadcasters in the world, including DirecTV, Sky Broadcasting and Star Television.

By 2003, the studios were taking in almost five times as much revenue from home entertainment as from theaters.
So how does all of this influence the way movies are made?
For one thing, Hollywood increasingly invests its resources into products that appeal to the home audience - and to its new gatekeepers. These include the Wal-Mart executives in Bentonville, Ark., who allocate shelf space for DVDs, and the powerful executives who run network television
and pay-TV. This means giving the green light to films that meet the family-values criteria of these gatekeepers. Not surprisingly, in the last 5 years, the number of R-rated films released annually has dropped from 212 to 147.
It also means selecting movies that mesh most profitably into the myriad ventures that define the Big Six entertainment companies - Disney, Sony, Time Warner, NBC Universal, Viacom and the News Corporation. These
ventures run the gamut from merchandising tie-ins to theme park rides.

But when you flip on the television tonight, remember this: Even as movie studios have become role players in today's home entertainment economy, the Academy Awards ceremony (which some 40 million Americans will
watch on Disney's ABC network) still serves as an important platform for those members of the Hollywood community who places a high value on prestige, acclaim and, yes, the art of motion pictures. As such, it serves as the only remaining, and still surprisingly potent, lobby for films that transcend the economic logic of Hollywood.

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