Wednesday, February 17, 2010

Disney's Proposal: Movies Don't Make Much Money, But Toys Do

The LA Times (still doing occasionally interesting reporting on their website) tells us that Disney is not interested in a sequel to 2009's "the Proposal." Given that the movie made $314 million world-wide in box office gross revenues, this is remarkable.

The LAT spins this as part of Disney Chief Bob Iger's "branding strategy" which is doomed to fail. More likely, it is part of cash-strapped, debt-servicing (Disney's latest 10Q reports $118 million in interest, not net, for the Quarter ended Jan 2, 2010) Disney recognizing one bitter truth: movies don't make much profits any more.


Disney spent $4 billion to purchase Marvel Entertainment, in a mixture of cash and stock, requiring heavy debt service for at least two years and threats to downgrade its bond ratings from Standard and Poor's. Thus, Disney can't afford to push for projects that don't produce a lot of cash, up-front. The year-on estimates for Disney's cash payments for the Marvel (and likely, Pixar acquisition) are about $400 million a year. Given slow growth in theme parks and other divisions, including ABC and ESPN (the ad market is projected to only slightly improve for 2010), Disney has no choice but to maximize cash from films that make money from toys and games. Call it "the Revenge of George Lucas," who amassed his $3 billion dollar fortune largely off Star Wars merchandising, for which he retained the rights. Or as the movie "All the President's Men" urged, "follow the money."

The movie "The Proposal" cost around $40 million to make, with probably another $30 million to market for a total cost of $70 million. Even assuming very little in foreign revenues due to marketing agreements, and perhaps co-financing with outside partners, and focusing solely on domestic box office, we would arrive at the following. The opening weekend grossed $33 million, of which Disney would keep 75% or roughly $25 million. The remaining $130 million gross would result in Disney keeping $65 million, for a total of $90 million. This is at worst, a profit of $20 million, before of course other costs, depreciation, taxes, and so on. Very likely, at least some money would roll in from foreign box office.

But compare to a movie like Up. Its production budget was $175 million, with another $30 million or so for marketing, making a total cost of $205 million. Its opening week-end produced $68 million, of which Disney kept $51 million. The remainder of the domestic box office was $225 million, of which Disney kept roughly $112 million, for a total of $163 million. Nearly covering the production cost, and with $430 million in foreign revenues, it is likely that at least some money came back to the US to completely cover the production and marketing costs. Given how well an animated, often wordless kid movie would do overseas.

Now compare the two movies side-by-side after the films are done playing in theaters. What revenue does "The Proposal" bring in DVD, toy, licensing, and other revenue? The answer, not much. With DVD sales dropping, particularly with the threat of both Redbox $1 rentals and piracy, a film like "The Proposal" has little to offer in revenue after its done playing in theaters. It will make some money, from DVD sales, and perhaps TV rights sales, but not a lot.
By contrast, "Up" can be assumed to be a reliable seller, such as it is in the new market for DVD and Blu-Ray home video releases, because it appeals to kids. "Up" is a no-brainer to generate higher DVD and Blu-Ray sales simply because kids will want to see that versus "The Proposal" which is more like a $1 Redbox rental on a Friday night, or a Netflix queue movie. And in contrast to "The Proposal," there are toys, figures, licensing fees, and more to be milked out of the movie "Up," with "Doug" the talking dog, the old man and little boy character, and more. Kids (well their parents) will fork over cash for a toy based on the lovable talking dog. You can't make a toy out of actress Sandra Bullock.

What does this mean? It means money is shifting from films (and this started in 1977 with the release of Star Wars) to characters and toys, games, and so on based on the film. The film being one giant commercial for characters people love. Love enough to buy toys, video games, and more based on the character. The actor, and director, will be less important.

This too, points out a flaw in "AVATAR." The characters are bland, inter-changeable, and not "lovable." Ten year old boys and girls will not pester their parents for an "AVATAR" toy. You can't create and sell "AVATAR" bed sheets and video games. Little boys and girls won't clutch "AVATAR" stuffed animals in their beds at night, as they go to sleep, the way they will with "Doug" from "Up" or, perhaps, Captain America, Thor, Iron Man, Spider-Man, or the Hulk.

It used to be, that movie stars like John Wayne, were the ones who put butts in seats and thus, created the money. Later, stars like Paul Newman and Robert Redford, freed from the Studio system, exploited the power their ability to make money gave them, to the fullest. Now, Disney does not want a sequel to a profitable movie like "The Proposal."

Because the real money (which their debt load forces them to recognize) is not in actors, or directors, but CHARACTERS. The plots, situations, cinematography, and action of movies like "Up" or "Iron Man" may not be as complex or well-crafted as those of adult-oriented films featuring actors and actresses on top of their game, in funny or dramatically interesting situations. But little kids (and their parents, and young adults) don't go out and purchase "the Hangover" figurines, toys, and other paraphernalia. And DVD sales, having crashed, won't bail out Hollywood from recognizing the truth: it is characters (and those characters who can be made into toys children love) that count.

Because movies just don't make money.

On a related note, given that toys (and other merchandise) are what makes money, the creators of characters that kids love, can wield a lot of influence and power, if they organize to extract the best deals. On the other hand, actors and actresses and directors are mere disposable cogs, increasingly. Marvel is filled with characters kids have loved since 1940 (Captain America), but most of their characters that kids actually like date from that period up through the mid 1960's. No one would expect kids to embrace either the Punisher or "Terror" (a forgettable 1990's character from Marvel). Kids can be induced, if movie-makers don't screw it up, to reliably love and beg their parents to buy, Superman, Wonder Woman, the Flash, Green Lantern, and other DC heroes. They have before.

But in order to do so, writers must write not for themselves, or tragically hip editors, critics, peers, adults, and others, but the inner 11 year old boy, wanting wonder and excitement, and entirely devoid of irony, hipness, and posturing. Few in Hollywood are even capable of doing this, much less doing it well.

With barriers to entry (online film distribution, lower-cost CGI production through cheap WETA-style render farms, emphasis on writing-driven character creation, not big stars or effects) lowering, it is entirely possible that some group or collections of individuals will seize the moment, and produce kid-friendly content. This does not mean Disney duds like "Storyteller" or "G-Force" (animated hamsters) but particularly, heroes, characters, and such that young boys like (girls are already inundated with Disney princesses). Non-ironic superheros, fantasy "good dads" for fatherless boys in a single-mother dominated environment, positive male role models for boys to look up to, lovable talking dogs and other fantasy pets adoring young boys, these are the kinds of characters that will succeed in a marketplace where films (and TV, likely) are all just commercials for what really makes money: toys and merchandise. Other people besides Disney can make them too.





33 comments:

Bizen 247 said...

As a long-time comics fan I can tell you that modern comics are insanely violent. In the past two weeks we saw a Marvel comic (Siege) where someone gets ripped in half with his entrails spilling out and a DC comic (Green Lantern) where a character gets his face ripped off in gory fashion.

I know videogames have heavily supplanted comics in the entertainment department, but these books still sit on the shelves of major bookstores like Borders waiting to ruin the super-heroes' safe-for-kids image.

It makes me wonder if Disney and Time-Warner will kill their comics publishing arms altogether or just enact heavy policy changes if they do indeed shift their focus to the children/pre-teen only market.

randian said...

Most companies would be happy with a greater than 20% net margin before debt service and miscellaneous administrative expenses. Why isn't a movie studio? Not everything needs to be a blockbuster.

Whiskey said...

Bizen --

Yes, that's the dirty little secret -- today's comics are written by and FOR 45 year old fan boys. Violent, "edgy," politically correct, hip and all the things 11 year old boys don't like.

DC has a new head of Comics appointed out of Warner Brothers, so the answer to your question is probably yes. Same for Marvel with Disney. The publishing arm does not make much money, but for some characters (particularly Wonder Woman) they have to publish to retain rights to the character instead of the creator estates. Probably, a rejiggering of the publishing arm to appeal to kids/teens and distributed outside comic shops.

Randian -- the answer is the risk profile of studios. They either hedge away risk, by giving up the upside, or take huge downsides. The whole point of an integrated media company is to take money from all sorts of sources, maximizing returns.

John Smith said...

this would explain what ir ead about over at screenjunkies about the spate of toy/franchises in pre-production: erector sets, transformers 3 blah blah.

Kendama said...

Long time reader, first-time poster.

So, what you're telling me is that the movie with a good story is dead. The future is cash-cow franchises where selling toys takes precedence over well-written plots and character development.

At best, we end up with the next Gundam. At worst, we end up with the next Pokémon (the Pokémon video games are fun, but the show is horrible.)

On the other hand, I know that several cartoons from the good old days (the 1990s) were toy franchises, so I guess that not much has changed -- it's just that the tragically hip now realize that their shows and films that "make people think" don't make people spend money on their stuff, and they have to go right back to writing marketable shows that "sell out to The Man/Corporate America/etc." or whatever it is they're saying these days.

To be fair, kid-friendly shows don't have to be insipid; Avatar: The Last Airbender has a very good reputation, and judging from the few episodes I've seen, it deserves its accolades.

Whiskey said...

Kendama -- while the stuff being thrown around based on errector sets and other classic toys is predictably stupid, the Pixar/Dreamworks animated movies have done fairly well on both story and character.

An example would be "Up" which had tight, meaningful story-telling.

But what matters most is characters that particularly, boys love. [Since Disney already has a lock on princess factory production, ala Hannah Montana and the like.] Notice the characters in "Up," a fatherless boy, fantasy grandpa, talking dog, funny bird. All recognizable and developed characters that took GREATER skill than hackery like the AVATAR cardboard cutouts.

AVATAR is the culmination of the effects revolution started by Lucas, and the one branch of those inspired by his visual mastery in Star Wars to push it as far as it could go, without character or story.

Up, or Shrek, or Enchanted, or Finding Nemo, or Monsters Inc. , are the end-product of the characters created (by Lucas script polishers -- his original draft was terrible): the damsel in distress, the wise old mentor, the naive young man, the cynical Bogart-John Wayne tough guy, the dog-like sidekick, and so on.

Transformers, lacking any real characters kids love, will do poorly in the revenue dept. I would guess, compared to the merchandising for say, "Up" which had several characters kids like. A Pokemon or Gundam or what have you is just a fad, what matters is creating a story and characters that kids will want to buy toys from.

Kendama said...

Interesting you should mention Gundam as a fad, Whiskey. Gundam Wing did quite well on American TV, but when they tried airing Gundam 0079 (the very first Gundam series), it failed twice. Indeed, though those weren't the only two Gundam series brought to America, the franchise itself became the preserve of adult geeks (non-pejorative) -- a far cry from its iconic status in Japan.

Anonymous said...

OT, but Whiskey have you watched the new SyFy series "Caprica" (Craprica, I call it)?

I guess the PTB decided that BSG wasn't female-oriented enough, so they produced this slow-moving soap opera.

Anonymous said...

I think you might be wrong on the Transformers v. Up revenue stream - if I'm understanding you correctly. I know for a fact that the children I work with at school talk about Transformers all the time (their toys, games, and books). I've never heard Up mentioned once. While Up is probably the better story (I haven't seen it) and might last longer as a continual re-release on new formats, will that really make more revenue than the short, heavy burst of Transformer stuff?

gaming memory said...

It's easily the best Marvel film, and quite possibly the best superhero film I have ever seen!!!

Anonymous said...

I'm at a loss here. What rise in costs has made movies unprofitable? Computer time too expensive? Actors? Directors? Embezzlement? Advertising?

Cannon's Canon said...

whiskey!!! ... i like to drink it

xandohsa said...

Yes, I agree that Transformers has a lot more marketing of toys going for it than Up ever will, but I still think Whiskey's point is generally right.

Transformers have been popular toys for a long time before the movies, and that very success is what caused interest for making the movies. Transformers and Up are two sides of one coin. The Transformer movie was hoping to cash in on the toys' success, while Up hopes to inspire toys' success. Either way the hope is in leveraging the merchandising component.

I'll add, too, that the first Transformers movie was quite a pleasant surprise. I took the kids to it expecting it be another horrific experience like the Pokemon fiascos which only kids could like. The first Transformers movie wasn't the apex of cinematic achievement, but it sure beat out expectations and we all enjoyed it.

The Pixar films routinely do this. Toy Story, Toy Story 2, The Incredibles, A Bug's Life, Cars, Ratatouille, Wall-e, Up, man! Everything they have put out has been first class family entertainment capable of delighting the kids and carrying the parents along too. Dreamworks, meh, hit and miss, but then again they're the guys who cast Woody Allen in a kids film, so what's that tell you? They're the tragically hip animation studio, meanwhile Pixar seems to be over in the actual Neverland doing magic.

Hollywood would be fools not take notice of how well the simple, tried and true family format really shines when it's done with care.

Too bad they are fools. Too bad they would really rather hit us over the head with their agendas and their seemingly unending legions of morose, navel gazing urbane sophisiticates.

stratomunchkin said...

@ Anonymous

Whoever made this show probably watched nBSG and thought "Wow, this would be great if we removed most of the sci-fi and replaced it with touchy-feely stuff."

Whiskey said...

Costs have been rising out of, in no particular order:

1. Deals with actors and directors taking revenue i.e. "first dollar" grosses.

2. Very costly CGI-render farms, done expensively in-house around LA, instead of say, cheaply at WETA (using cheap Linux boxes to render stuff).

3. Replacing costly physical stunts with even more costly CGI stuff (see above).

4. Using effects/awe in place of story and character.
------------------

Look at AVATAR, Transformers, even Up. The most modestly budgeted film, Up, still had fairly expensive production costs related to its animation. AVATAR is probably the most representative film -- awe-inspiring production values hiding a paper thin characterization, characters, and plotline. With a guarantee that evolving technology can produce even more astonishing images.

OR ... that simple traditional cinematography can capture nature's beauty, better than anything CGI can imagine.

Part of the visual appeal of Lord of the Rings was New Zealand's tremendous physical beauty, or World's Fastest Indian shooting on location at Dunedin, New Zealand, and Utah, two stunningly beautiful places. The sunrise sequence at the Salt Flats were both beautiful, and a wordless evocation of the tough old man Anthony Hopkins played (his best role).

But most of the cost rises from CGI production which if not managed carefully as Peter Jackson did in Lord of the Rings can balloon to hundreds of very highly paid people on very tight deadlines creating huge cost overruns.

AVATAR could have been made for half the money even in 3-D had Cameron dialed down the effects and focused more on story, particularly the human characters who could be shot cheaply in a studio.

Anonymous said...

Regarding movie costs, from 2005.

http://www.weeklystandard.com/Content/Public/Articles/000/000/005/277fmldw.asp?page=2


"In 2000, Gone, an action-thriller, was released to little acclaim and somewhat disappointing box-office returns. The company that produced it, Touchstone, was (and is) part of the Disney empire. That year, Disney touted the global box-office revenue of Gone as $242 million. Not bad. Even if theaters kept $139.8 million from ticket sales, Disney still took in $102.2 million. Surely there was a profit in there somewhere?

Not necessarily. Consider the expenses. The physical production of the movie was $103.3 million. Prints cost $13 million; insurance, taxes and customs clearance came to almost as much. The studio spent $42 million for advertising in North America and a bit more than half of that for the rest of the globe. On the back end, Disney paid out $12.6 million in residual fees and figured in $17.2 million for overhead and $41.8 million for debt service--for a total negative cost of $265.3 million, more than double the studio's take of the box-office receipts."

.
.
.

"By 2002, Buena Vista Home Entertainment International, another division of Disney, had reaped $198 million in sales and rentals from Gone in 60 Seconds videos and DVDs. Only $19 million of that sum was credited to the movie itself, though, thanks to the complicated royalty system that Hollywood employs. This reduced number is an important accounting trick since the movie's star, Nicholas Cage, was contractually entitled to 10 percent of the video gross.

Indeed, one of the key components of the clearinghouse system--boosting studio revenue enormously--is hiding income from a movie's (seeming) profit-participants. There is nothing illegal about it, although the effect is a nasty little game of hide and seek. One of the virtues of The Big Picture is Epstein's astonishing access to numbers that the movie studios go to great lengths to keep secret, so as not to offend people like Cage."

More at the link.

Anonymous said...

Regarding violence in the media.

http://www.laweekly.com/general/deadline-hollywood/i-know-what-you-did-last-summer-again/17220/

"Don’t think the public wants torture porn: Gore icon Eli Roth is blaming piracy and critics for his Hostel Part II’s lousy box office, warning that the R-rated horror film is in serious jeopardy. But he got it all wrong, even before the summer started, when he wished in interviews that “Hopefully, we’ll get to a point where there are absolutely no restrictions on any kind of violence in movies.” Horror flicks are alive and well as long as they don’t venture into torture-porn hell. Problem
is, Hollywood filmmakers are such an inbred bunch that they make films more for each other than for the audience, so they always want to push the boundaries set by their rivals."

That link is dead. You'll have to go to the Internet Archive to read the full article.

randian said...

The whole point of asking for percentage of gross is gross is usually a lot harder to fudge than net. If you can't trust Hollywood's accounting of gross income, because they always try to screw their own partners, how can you trust their accounting of net income? It makes me wonder why anybody does business with them.

Anonymous said...

Transformers would sell even without a tv show. The toys are fun. Cars and trucks that turn into soldiers are a boy's dream.

Also, the new movies sucked arse. Even twenty six years on the original transformers film is still superior.

Anonymous said...

new article on gender bias you might be interested in

http://www.forbes.com/forbes/2010/0301/opinions-women-national-science-foundation-on-my-mind.html

excerpt:

Now any engineering, physics, math or computer-technology program that moves too slowly toward gender parity is inviting a government investigation and loss of funding. The nation's leading programs are under pressure to adopt gender quotas and to rein in their competitive, hard-driven, meritocratic culture--a culture that has made American science the mightiest in the world.

no mo uro said...

Whiskey-

To what extent do you think that accent on character instead of story has to do with changes in our education industry?

My point is, for nearly 40 years now most of the English departments in American colleges have been, to comply with the zeitgeit of postmodernism, deemphasizing story and plot to emphasize character (individual narrative over "big" narratives and transcendant ideas). How much of this has simply pervaded the worldview of those writing and making movies?

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stratomunchkin said...

@ no mo uro

It probably has done so by a great margin. Just a little anecdote from my side here, I was talking to a friend of mine earlier and we talked about our experiences as amateur writers. I prefer sci-fi and epic fantasy with a strong dash of alternate history. Trying to show how and why people work the way they do has been my strength as a writer. On the other hand, the friend in question, is a weird mix of Lovecraft and Stephen King. She self-admits that most of her stories come from her nightmares, a fondness for dystopian settings and a love gothic literature. We bonded out of mutual disgust in our fiction II class for the fact every story tends to fall into one of the following categories:

Pregnancy
Domestic violence
Child abuse

I'm probably forgetting a few repeated categories. I hated the mechanics, she was disgusted by the lack of imagination of her fellow women (who outnumbered men in this class). It was also in this class that I had the charming experience of being told that the professor didn't care about the sci-fi issues of world building and the like, no matter how vital to the characterization at hand. Talking to her earlier in the week, she one upped my experience in fiction I and II with the statement that she's been explicitly told that she is to focus on "character fiction" and that she's not allowed to write sci-fi/fantasy/horror for that class.

I think that's symptomatic for the "academic" establishment and the people it produces in the end, and it probably also is part of the reason why we see so little common sense nowadays. If you don't train the facilities of your mind that allow you to formulate grand and complex problems and the answers to just those (and world-building is pretty much that) and instead focus solely on the emotional impact of an indiviual, what do you get? The modern leftist.

Anonymous said...

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Angin said...

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Anonymous said...

Whiskey,

LA times had an article in th Calender section this weekend (3/27) regarding the tween girl heavy programming. Disney execs claim that boys have changed and now accept "strong female leads...". I thought you might be interested in destroying this nonsense in the next post.

Anonymous said...

Some films for kids work with a "strong female lead". Try "Mary Poppins" or "Wizard of Oz".

Whiskey said...

Hadn't seen that Anon. I note that Disney XD has been a total flop in getting boys. Girls have been all its audience growth.

Basically, boys and men have tuned out of most of popular culture. Heck, something like Danger Man (see my latest post) would have more appeal, from 1962, 48 years ago, than stuff done today.

Boys wanting a strong female lead? Hah. Puhlease. Boys want to see themselves, or men they might be. Not a gal no matter how well characterized. Just as girls don't show a lot of interest in stories about James Bond blowing stuff up. Disney is known for being Hollywood's Gay Colony. No wonder they have Princess factories but nothing more.

This bodes ill for Marvel going to the screens.

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