Sleepless in Hollywood: Tales From the New Abnormal in the Movie Business by Lynda Obst Read Free Book Online Page B

you’re calling the Great Contraction] were the recession and the transition of the DVD market,” Peter said. “The 2008 writers’ strike added a little gasoline to the fire.” Well, at least my writer friends would be relieved to know that Peter didn’t think it was totally their fault, as some in town were fond of intimating.
    He went on to say, “It was partially driven by the recession, but I think it was more driven by technology.”
    There it was. Technology had destroyed the DVD. When Peter referred to the “transition of the DVD market,” and technology destroying the DVD, he was talking about the implications ofthe fact that our movies were now proliferating for free—not just on the streets of Beijing and Hong Kong and Rio. And even legitimate users, as Peter pointed out, who would never pirate, were going for $3 or $4 video-on-demand (VOD) rentals instead of $15 DVD purchases.
    “When did the collapse begin?”
    “The bad news started in 2008,” he said. “Bad 2009. Bad 2010. Bad 2011.”
    It was as if he were scolding those years. They were bad, very bad. I wouldn’t want to be those years.
    “The international market will still grow,” he said, “but the DVD sell-through business is not coming back again. Consumers will buy their movies on Netflix, iTunes, Amazon et al. before they will purchase a DVD.” What had been our profit margin has gone the way of the old media.
    It hit me like a rock in the face. The loss of DVDs for our business had created a desperate need for a new area of growth. This was why the international market has become so important a factor in creative decisions, like casting and what movies the studios make.
    We sat in mournful silence for a second before I realized that Peter probably had to take a call from China and I should go home and take a Xanax.
    But then Peter said the most amazing thing. A P&L, if you’re not a numbers person, is a profit-and-loss statement. Studios create P&Ls in order to explain to their financial boards, banks and investors how they are going to recoup their costs when they green-light films. It estimates how much money key domestic and international markets are expected to gross based on how “elements” (i.e., stars, director, title) have performed in the past in those markets, country by country. It also estimates how they will perform in various ancillary markets like DVD, TV, pay cable, Internet, airplane devices, VOD, handheld devices, etc., again basedon past performance. If it all adds up to the amount of the budget or more, Go!
    These are the quantifiers that studios use to rationalize their decisions, to put them on solid-enough financial ground on which to base predictions to their corporate boards.
    “So,” Peter said as I was about to leave, “the most interesting thing is what a few studio heads said to me privately about two years ago.” He stopped to smile. “None of them from Fox, of course.”
    “Of course,” I said. I knew he was about to share something very inside with me.
    “They said to me, ‘We don’t even know how to run a P&L right now.’ ” The look on his face expressed the sheer madness of that statement. “ ‘We don’t know what our P&L looks like because we don’t know what the DVD number is!’ The DVD number used to be half of the entire P&L!”
    “What are the implications of that?”
    He looked at me incredulously, as if to say, Haven’t you run a studio? Then he said very emphatically, “The implications are— you’re seeing the implications —the implications are, those studios are frozen. The big implication is that those studios are—not necessarily inappropriately— terrified to do anything because they don’t know what the numbers look like.”
    Of course they are. They’re frozen, so the gut is frozen, the heart is frozen, and even the bottom-line spreadsheet is frozen. It was like a cold shower in hard numbers. There was none of the extra cash that fueled competitive