"Star Wars" buffs are counting on "Episode
III, Revenge of the Sith" to redeem the reputation
of the franchise, Hollywood teeth-gnashers are hoping it
kick-starts a slumping movie market. Box-office action is
down 6 percent from the comparable period last year, and,
according to Entertainment Weekly, attendance figures are
down for the third straight year.
Only if your horizon is cluttered by short-term box-office
In February, Edward Jay Epstein blew the lid off Hollywood's
dirty little open secret with his book "The Big Picture
-- The New Logic of Money and Power in Hollywood."
The open secret is this: A movie's theatrical run is only
the beginning of its life cycle; many more millions stand
to be made in the DVD and television markets and through
The permutations are endless," Mr. Epstein writes.
Mr. Epstein calls it the "clearinghouse." It's
not "built of bricks and mortar and doesn't have a
precise address," he writes, but "it is conceptually
an essential -- and utterly real -- part of today's studio."
clearinghouse works like an interlocking system of offshore
accounts. Even the industry's biggest stars may not fully
comprehend its back-scratching beauty.
Mr. Epstein offers the 2000 Nicolas Cage movie "Gone
in 60 Seconds," a product of the Disney-owned Touchstone
Pictures, as an example. It cost the studio $206.5 million
to make, factoring in production costs, advertising and
overhead expenses. The movie took in $242 million worldwide,
$139.8 million of which stayed in theater registers.
leaves Touchstone about $100 million in the red, right?
did Disney's Michael Eisner get away with touting the movie
as a "hit" in the company's 2000 annual report?
The answer is found in the clearinghouse, the highly lucrative
after-market that pretty much shatters the industry mythology
that attaches to the vaunted opening-weekend and weekly
box-office tallies, which took off in the early 1980s.
clearinghouse not only rescues the bottom line of movies
that fare modestly at the box office, but it also keeps
a significant chunk of money in studio coffers and out of
the wallets of actors.
closely: Buena Vista Home Entertainment International, also
a Disney subsidiary, reported $198 million in sales and
rentals of "Gone." But only a fraction of that
sum was credited to the movie, Mr. Epstein explains.
Buena Vista gave Walt Disney Pictures a $39.6 million royalty
cut, a transaction that was treated as though the two companies
were separate entities rather than corporate sisters. Distribution
fees and other expenses claimed $20 million of that sum.
After various accounting tricks, Mr. Epstein writes, only
$18.4 million of "Gone's" home-entertainment take
got credited to the movie itself -- which, after deducting
manufacturing expenses, left Disney with a $130 million
profit on the home-entertainment release.
For Mr. Cage, who was entitled to 10 percent of the movie's
video gross, the royalty calculation meant he earned a little
less than $4 million, as opposed to $19.8 million. That's
not chump change. "Without the royalty system,"
a former studio executive told Mr. Epstein, "we would
studios, obviously, love the clearinghouse system. But there's
the issue of movie attendance and fewer rear ends in theater
seats: That's got exhibitors worried.
Entertainment Weekly reports that DVD sales are up 15 percent
this year. And movies already make far more in the video
market than they do in theaters ($24.1 billion vs. $9.2
Exhibitors are so skittish about these figures that Todd
Wagner, head of Dallas-based 2929 Entertainment, is willing
to give them a piece of the action if his potentially revolutionary
business model takes off.
Last month, 2929 signed a deal with director Steven Soderbergh
to release six movies -- the first due this fall -- simultaneously
in theaters, on DVD and on television. (The company owns,
in addition to the Landmark theater chain, the high-definition
cable network HDNet, which includes the digital tier HDNet
an olive branch to theater owners, Mr. Wagner is open to
charging a premium for DVDs and cable pay-per-views while
the same movie is in theaters.
"I don't view this as attacking theatrical runs,"
Mr. Wagner says. "To me, it's all about consumer choice.
Only the movie industry has dictated for 50 years how and
when you consume something."
In Mr. Wagner's estimation, the way the movie business works
now -- a staggered system of release "windows"
that begins with a theater engagement and ends with network
television or cable -- is not only choice-dampening ("like
hearing a song on the radio and having to wait three months
to buy the CD," he says), but wasteful, too.
Why not cut out the middleman, Mr. Wagner asks? Why pay
to advertise a movie more than once?
To allay exhibitors' fears, Mr. Wagner cites the example
of the black market for DVDs in Russia. Up to 99 percent
of DVDs there are pirated and yet the Russian theatrical
market has never been stronger, he claims.
"People will always want to go to the theater. It's
that communal experience."
The industry may already be trending in the direction Mr.
Wagner wants to take it. DVD releases are creeping ever
closer to the ends of theatrical runs, as studios try to
get more bang for their marketing bucks.
But David Card, an analyst with Jupiter Research, envisions
another scenario, one that could add even more fuel to the
clearinghouse system and restore distance between movie
In the past few years, Mr. Card has seen more and more money
spent to promote DVDs as products distinct from their theatrical
cousins. If that happens, it may be in studios' interest
to, once again, wring as much cash as possible from each
"It's conceivable the windows will stretch out again,"
he says. "I'm sure studio execs are puzzling over that."
If the clearinghouse system as limned by Mr. Epstein is
any indication, all that "puzzling" will lead
to an increasingly baroque scheme of Peter-Paul robbery.
And the rest of us simpletons will be left clucking about
our opening-weekend scorecards