Monday, August 15, 2005

Synergy: Movie studios and TV networks Edward Jay Epstein, the author of The Big Picture: The New Logic of Money and Power in Hollywood, has been writing a set of excellent pieces about the movie industry for Slate.com. In a recent one, he demonstrates that not theatrical releases and not DVDs, but television rights are the most profitable part of the movie industry. While the industry does not break down the dollars by category, Epstein has dug to find them out, and they are surprising: Last year, the six major studios-Disney, Fox, Warner Bros., Paramount, Universal, Sony, and their subsidiaries-had total revenues of $7.4 billion from world box-office sales, $20.9 billion from world video sales, and $17.7 billion from world television licensing. Even though DVD revenues are higher, the profits are bigger in TV. That's partly because, unlike getting people into the seats is enormously expensive, so much so that companies lose money on most theatrical releases, even popular one. DVDs are profitable, but they also involve an expense for stocking and marketing, and recent indications have been that there is a limit to users' enthusiasm for buying their own copies of so-so films. Television rights involve almost no overhead for studios, and the marketing is the responsibility of the TV stations and networks themselves. Epstein points out, and they can give well-liked movies an endless run. First there is the pay TV income, then other pay video releases, and then a long run on network and cable TV. As Epstein points out Fifty-nine percent of this immense $17.7 billion of revenue from television licensing comes from America, which is not surprising, considering that on an average day fewer than 2 percent of Americans go to movie theaters, while more than 90 percent watch something at home on TV. And without these profits from TV, no Hollywood studio could survive. But that also explains why General Electric was so eager to buy Universal Studios, and why movie studios without TV properties (Sony being the most notable) have more of an uphill battle. The other majors, Disney, Fox, Warner, Paramount (CBS), and Universal (NBC) all now are associated with TV properties in a big way. But even Sony has a big advantage - its library. The big six studios, with vast libraries of movies and TV programs, can count on this income flow no matter what happens at the box office or video stores. For example, even though Sony has a batch of movies this summer, its profitability is assured by the licensing fees flowing in from its library of more than 40,000 hours of movies and TV episodes. No such luck for the independent studios. Epstein explains that Dream Works, especially, despite a run of successful films, is at a big disadvantage in this way. It's also the reason why the library of MGM (which also owned the United Artists library) deserved such a good price from Sony, even though it was producing few new movies. TV used to be thought the cursed rivals of the Hollywood movie studio. Now they are it saviors. 9:00:26 PM

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