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.

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Monday, February 15, 2010

Are Women Forgiving John Edwards and Exiling Sarah Palin?

A rule of thumb regarding women's attitudes towards fallen political figures, is that "Big Men" who are hard-left are forgiven any sin, and those living ordinary lives that rebuke the tragically hip (or those who aspire to that status) are viewed with hatred. Ann Althouse links to a an LA Times story by author and personality Ann Lamott, on how she forgives John Edwards, hates Sarah Palin, and trusts Barack Obama.

The question regarding John Edwards would be if women forgave him, and if he could restart his political career. While that question remains open, there are signs that opinion makers in media, particularly women, forgive him. As with Charlie Sheen, still popular with women and promoted endlessly by CBS for "Two and A Half Men," women will forgive "the Alpha male" any transgression, really anything, as long as he remains "Alpha Male." Part of that is of course, pushing hard-left politics that as we see in the original LA Times story, are part of the wealthy "New Class" or "Gentry Liberals" (Joel Kotkin's phrase) that constantly struggle to separate themselves from the mass of ordinary people.

The money quotes:

But after a few days on the subcontinent, I came to the unshakable belief that we will have decent enough healthcare reform, and soon. What's going to help America rebound from Bush/Cheney is what saved and saves India -- love, nonviolence, a lot of help, radical playfulness and perspective. I saw Indians living in spaces the size of my bathtub, giddily colorful amid the squalor and deprivation, making themselves beautiful and focusing on what they do have.

The second decision I made in India is to forgive John Edwards. If no one else is going to, I will. My mother would have. She was an old Adlai Stevenson/Jack Kennedy liberal, and I am too.


But she would have railed against Edwards for a few months and then forgiven him. She had a sense of decency that was common in my parents' generation. She would have piled on when Edwards became this season's Old Testament goat, but then at some point she would have let it go and gone on to register voters.

Edwards' fall from grace is the oldest story in America, and probably the world. He was a gorgeous, powerful man willing to torch his family, his career and those who trust him to get laid -- by someone whose name the rest of us can't even pronounce.

But where does Edwards even rank on the scale of loathsomeness when compared with, say, Dick Cheney? Not very high. Twenty names below John Boehner; 27 below Sarah Palin; directly after the TSA security people at the airport; and tied with Susan Collins. He has little children, as innocent as the Haitian and Indian babies we ache and care for through charitable donations. So I am going to forgive Edwards as a way to help them, two of the world's children.

My third decision: I am going to trust this guy Obama. I am going to get my head out of the darkest place on Earth, and I am going to help his election remain a miracle. He was not my original choice, but I think he is a great man, trying to get a crushed nation back on its feet the best he can. And besides, who else are we going to trust? Bart Stupak? Evan "Boom-Boom" Bayh?

Now of course, the woman herself to be fair is not representative of most women. She is far more wealthy, is by all accounts from a wealthy family, and a professional writer. Her books and columns in and frequent appearances on PBS make her, however, a formidable taste-maker and driver of women's attitudes towards politics and power. Lamott like almost every female media figure, has a special fury for Sarah Palin.

Note her forgiveness of Edwards and figuring that Palin is far more despicable. This is not any surprise. Women, particularly those like Lamott who embody single motherhood and feminist dreams (of politically correct, expensive consumption such as trips to India), find women like Palin "betrayers." Betrayers of the ideal of landing the "Alpha Male" who is forgiven anything (a John Edwards, a Bill Clinton, a Barack Obama), of not moving upward in class (Palin's accent, large family, failure to abort Trig Palin, and lack of Ivy League credentials make her poison to female opinion-drivers like Lamott), betrayers of the idea of "magical" Third World people and non-Whites, and the horrible "average Whiteness" that is the bane of the existence of the tragically hip.

It is true that few women are as wealthy and tragically hip as Lamott. Most struggle day to day to simply pay bills. But ... and there is always a "but," women consume in media form the opinions, attitudes, and desires expressed by authors and media personalities such as Lamott.

Quick, name a conservative, nuclear family oriented, Palin-loving author of "chick lit." From Elizabeth Gilbert, author of "Eat, Pray, Love," to Oprah Winfrey, to the View, to Ellen Degeneres, to Elizabeth Wurtzel, to Candace Bushnell ("Sex and the City") all, without exception, are to the left, embrace a broadly anti-traditional values agenda, leftist status-consumption, and "magical" attributes of non-White, non-Westerners.

In my view, women will forgive John Edwards, in the way they never turned against Charlie Sheen in the first place (Two and A Half Men remains beloved by its female audience who dream of taming the bad boy). Women probably have not on balance forgiven Edwards as yet, but critical opinion makers have prepared the way.

Meanwhile, Sarah Palin remains in eternal, internal exile in women's appraisals of her. She will never be forgiven for her sins: marrying "down" to a man lacking in status and prestige, having a large family, having a middle American, middle class accent, failing to abort her Down's syndrome baby, and lacking Ivy League credentials and/or approval of elites such as Oprah or Jon Stewart.

Why is Palin hated so, by women? Kay Bailey Hutchinson is at least as conservative, and holds office. Hutchinson is running for the nomination in the Texas GOP Governor's race. Yet Hutchinson, or Scott Brown, or Jeff Sessions, conservative or cross-over threats, remain ciphers in the pantheon of female hatred for political figures. This is because, unlike Brown, Hutchinson, and Sessions, Palin is not a political so much as cultural threat. One that could redefine what it means to be successful in life and politics (i.e. a traditional marriage ... where the HUSBAND is not a big shot "Big Man" but rather a supportive partner). Making the consumptive status lives of female taste-makers like Lamott seem sterile and empty.

It is consistent with the stories about women dreaming about sex with Obama. As noted in the story, it is about class (the SWPL consumption-status Yuppies hating ordinary people and identifying with the tragically hip) as well as sex. With a "hip, Black President" being the sensual dream for anxious, status-struggling, Married female writers.

Collectively, these stories don't find a female audience and readership rejecting them. Rather, they embrace them. Despite the far different, more struggling lives of the audience and readers.

Increasingly, the dichotomy in lives for men and women, make political and cultural attitudes of the two groups (among Whites) almost like separate peoples. Women have borne relatively little of the economic crisis, while men comprise 82% of job losses. Government spending and employment is biased towards White women and non-White men, with little of the defense spending and contracting that favors White men. While women will, eventually, confront the pain of the recession, as job losses eventually filter down to the female-dominated government jobs, for now they face fewer threats, particularly with high divorce, delayed marriage, and chaotic cohabitation rates.

Barack Obama will keep White female support far longer than with men, with profound electoral consequences, not the least of which is the transformation of the Republicans into the White male party and that of Democrats of the White female party, with various groups aligned "on top" of the core. Obama is the Alpha Male, with female NYT writers, married, openly writing of their dreams of sex with the Big Man. He will keep them and thus the women who follow them, longest.

Meanwhile, women seem poised, with the influence of taste-makers and opinion makers, to forgive John Edwards. Edwards career is not dead. For most women, his betrayal of his cancer-ridden wife and fathering a child with a new-Age bimbo pales in comparison with Sarah Palin's "betrayal" of their lifestyle. Because the bottom line is, women will forgive the Big Man anything. Just so long as he remains the Big Man.

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Tuesday, February 2, 2010

Avatar: Money Maker or Hype?

The Reuters new release reporting News Corp quarterly earnings has some interesting results. Suggesting that while AVATAR is creating a lot of box office sales, not much of it is accruing to Fox Studios directly. Making the fuss over AVATAR's box office more hype than a Hollywood game-changer.

The release noted:

News Corp, which also raised its dividend by 25 percent, said fiscal second-quarter net income was $254 million, or 10 cents a share. A year earlier, it posted a net loss of $6.4 billion, or $2.45 a share, before items.

Last year's loss included a writedown for its purchase of Dow Jones, and other items.

News Corp's bottom line in the latest quarter included a $500 million litigation settlement payout to Valassis Communications.

Excluding one-time charges in both periods, second quarter adjusted profit was 25 cents a share, up from 15 cents a year ago. Analysts were expecting the company to post earnings of 20 cents a share on average, according to Thomson Reuters I/B/E/S.

Revenue rose 10 percent to $8.684 billion, ahead of analysts' average forecast.

News Corp's Hollywood studio business saw its operating income nearly triple to $324 million thanks to a record-breaking performance from the 3D sci-fi movie "Avatar," which James Cameron directed.

"Avatar" has sold more than $2 billion in ticket sales at the worldwide box office, overtaking "Titanic" to become the biggest movie of all time.

Its worth noting that total, world-wide box office for AVATAR in December (the close of News Corps Second Quarter, which does not match the calendar year) was $268.9 Million, according to Alt Film Guide, and $525.3 million foreign box office for a total of $794.2 million globally. So for total global box office revenues, News Corp (through subsidiary Fox) gained about $212 million. That's a rough gross margin of 26%.

The COST of AVATAR to produce and market in the US has been estimated at $430 million by the Financial Times, other estimates run higher to $500 million. At the current rough margin of 26%, that's roughly an operating income of $520 million against global ticket sales of $2 billion.

Of course, this assumes that there won't be any increased charges for prints, digital conversion, marketing, cost-sharing to convert foreign theaters to IMAX-3D, and so on. Assuming that this is not the case, and that increased costs from later foreign release nations such as China, Japan, Italy, etc. get booked for the next Quarter, AVATAR will still make a profit from its theatrical box office run. News Corp claims that it has booked most of the costs for AVATAR in the past quarter, but will see most of the revenue in the third and fourth quarter. Because of course, News Corp likes to be paid later rather than sooner by those who owe it money. As a practical matter, it is unlikely that significant amounts of revenue remain to be booked in the later quarters, particularly from foreign releases. The only possible reason to delay recognition of revenue is expected large operating losses in other divisions, i.e. an ad-market collapse in print and broadcasting. This does not seem to be the case.

But it won't make much. It is at best mildly profitable, purely from the box office. Note the low gross margin Fox gets (again roughly 26%). Add against that the far lower DVD/Blu-Ray sales. Fox will be unable to charge a premium price as exhibitors did with fully 20% higher IMAX 3D ticket prices. Consumers are turning to Redbox rentals (the most explosive growth) which is why Wal-Mart and others have been pressured not to sell to Redbox (i.e. the five DVD limit per customer for new release titles). Redbox of course can simply dispatch legions of employees to buy five titles each of say, "AVATAR" and rent them for $1.

If you are a consumer, and like 90% of the consumer base, have only ordinary TV, and an ordinary DVD player, which looks like a better deal to you? Renting AVATAR from Redbox for $1, or buying it full price?

AVATAR had the ability to be a game-changer for Hollywood. Make IMAX 3-D movies that generate big box office to more than cover production and marketing costs as home video, the most profitable segment of Hollywood's revenue stream, declines under discounting pressure. Its not just Redbox, Netflix, Amazon, and others provide cheaper alternatives than buying a DVD or Blu-Ray at full retail price. However, Cameron made AVATAR just too darn expensive. And, there is only one movie that will be the first serious, effects driven CGI 3-D spectacle (and not "Spy Kids 3-D"). Marketing expenses for the home video releases will be nearly as much as for the theatrical release, after all.

This is why Hollywood is not rushing in to make AVATAR clones. They know how much money was spent and how thin the marginal return overall will be.

To quote Rupert Murdoch on the AVATAR sequel

Murdoch also said News Corp. is pushing for an Avatar sequel.

"There's no agreement, budget, or timing yet. Since it's Jim Cameron, I wouldn't hold your breath to have one soon, but we'll be pushing for one," he said.

Murdoch also said this about Conan O'Brien:

The company's Fox Broadcasting Co. has expressed interest in signing Conan O'Brien for a late night talk show following the recent controversy that resulted in the comedian reaching a deal with NBC to terminate his contract just seven months after he was named host of "The Tonight Show."

Although formal negotiations have not taken place with O'Brien, Murdoch said the company is giving "a lot of thought and examination" to the idea, and 'if the programming people can show us that we could do it and be fairly confident about making a profit, we'd do it in a flash."

If AVATAR were such a money maker, Murdoch would have waved another half a billion at Cameron who'd be busy on the sequel, instead of a movie about a Hiroshima survivor. Just as FOX is not throwing money at Conan O'Brien (who is free to talk to them) because of the latter's poor ratings and limited appeal.

As always, ignore the hype and follow the money.
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