Hardly a Surprise

Really, not a surprise at all:

A reckoning may be looming, however. Research suggests that the demands made by A-list actors have turned the movie business into a loss-making industry at the precise moment that it has mislaid its audience at the box office.

A report, Do Movies Make Money?, predicts that the 132 films distributed by the six leading Hollywood studios in 2006 will make a pretax loss of $1.9 billion (£920 million).

The findings by Global Media Intelligence (GMI), an offshoot of Screen Digest, a London-based research company, are based on evidence that revenue growth has stalled after a “golden age” between 2000 and 2004, while costs have ballooned. GMI believes that several of the biggest box office hits of 2006 made an overall loss or failed to return significant profits to their investors. These include Mission: Impossible III, Superman Returns, Dreamgirls and Miami Vice.

Falling DVD sales, increasingly ambitious marketing campaigns and demand for ever more spectacular special effects have all played supporting roles. The leading culprit, however, is the spiralling costs of “gross participation” deals, which can account for up to $100 million on a single film.

Roger Smith, the author of the report and an industry veteran of more than 30 years, said that deals offering top actors, directors and producers a share of the gross revenue from a film have risen steadily in recent years. They are not included in budgets and are paid on top of the star’s official salary. GMI estimates that they cost Hollywood at least $3 billion last year.

Money flows to the rare commodity. Whether it\’s football players who have that extra 1% of talent, bankers with that extra whatever or the film star who can green light a movie. There\’s really nothing surprising about it at all.

3 comments on “Hardly a Surprise

  1. It is surprising, though, in a relatively free market, that studios choose to pay their stars their asking price, thus destroying their own profitability.

    Tim adds: Err, no, it’s that free market bit that causes it. If it were an unfree market then the studios would have the power. As it is a free one then each studio is in competition with the other ones forthat rare and valuable thing, talent. Thus the price for talent goes up.

    It’s the same reason that wages (with lags and variations, to be sure) follow productivity in the economy in general. Because employers are in competition with other employers for the services of the workers.

  2. But all the empirical evidence shows that ‘stars’ don’t have the draw for the audiences that studios ascribe to them.

    However, since it is fear that drives the Hollywood executive, he hires a star because he feels that they will be less likely to prove a dud.

  3. Well the market will adjust, just as it briefly did with footballers wages. During the cash crisis in the old first division following the collapse of the on digital tv deal, wages plummeted. In other words there wasn’t enough of a draw to the public to justify the footballer’s wages. Only quite recently has that trend reversed, with the increasing popularity of Championship football. Very successful rebranding that.

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