TENT POLE ECONOMICS - HOW HOLLYWOOD STUDIOS WILL BE MAKING MONEY IN THE DIGITAL AGE AND BEYOND...
Thanks to the digital release of my company's latest feature film, "Mortal Remains," I have finally uncovered the science to ROI (Return On Investment) in the digital age. Why is it that Hollywood films are making money while the indie film market still struggles in this new digital economic paradigm. After all, indie filmmakers can now distribute their films to a world wide audience, correct? Aside from the fact that the Hollywood marketing machine is behemoth and often times will out-finance the marketing campaigns of some presidential elections, there is a two phase economic structure to how Hollywood movies make money, which I will discuss first in this series on film economics in the digital age. We'll call this portion...
So, this whole tent pole model that Hollywood relies on, what Linda Obst refers to as "pre awareness" in her book "Sleepless in Hollywood, is beginning to make all the sense in the world to me now. In trying to figure out why Hollywood is awash in sequalitis and franchise dependency, I have come to discover that piracy is the main issue driving the
Hollywood money machine right now. So follow me here....
The Studios are making their money upfront on theatrical release, which is where they have always made their money. Because it is the only platform where they know the consumer is spending roughly $10 to $15 (or more) a ticket (save Sunday mornings at Regal Cinemas where the early show is only $6.00 -- thank you Regal). So the studios put all their money in advertising campaigns marketed to their target audiences, trying to convince them that they must be the first to see a film. The question then becomes; why is being the first to see
a film such an important marketing strategy.
The answer is UGC, which is the key acronym in this recipe, and it stands for User Generated Content. And this is where you start to see the real economics begin to play out in this business model. Hollywood must convince users that they need to see the film immediately, so a user can be the first to post about it on social media or more specifically, on their Youtube channel, because this is where consumers themselves can generate ad revenue based on traffic. And as you may or may not know, a user needs millions of hits in order to generate any substantial income via digital ad revenue. Thus, being the first to see a film, at say a midnight showing, is key for users to get that jump start in what will eventually become an over saturation of reviews and commentary on Youtube or in the Podcast world. It's all about money and Hollywood understands how important that early inertia is and they feed into the frenzy. Because users are now part of the fiscal makeup. Users need fans to subscriber to their channels, blogs, vlogs, podcasts very early in the process and long before someone else steals away any potential revenue related to a specific film. My god… this explains why there are hundreds of "Star Wars" theory clips on Youtube long before the next "Star Wars" film is even released. It's all about capturing the attention of your
suspected fan base and luring them away from other avenues of information.
It is important to also note that this phase of the release process also skips the piracy bombardment that is guaranteed to follow once a film is released digitally. Ad revenue made from pirate streaming services is a whole other topic of conversation for another blog to come, but it too plays into the economics of what we are talking about here. You see, studio lawyers have better legal standing to fight piracy during phase one of a film's release, because that is when the game is far more of a risk for a pirate. A studio can sue someone for stealing, and posting or even possessing copyrighted content far easier during phase one because it is outright theft. It gets more muddy when it comes to suing a consumer for sharing content after they have legally purchased it. So, making as much money as possible on the opening weekend of a domestic theatrical release and then immediately releasing it in the foreign markets, is vital in guaranteeing a return on investment. Long gone are the days when my cinephile buddy in Japan had to wait a year to see the latest Marvel Comics movie. In some cases, the overseas markets are getting it before we do here in the states, because most of the ROI of any film is in the foreign markets (also perhaps a
conversation for another upcoming blog post.)
Now… from an indie film market position, this business model still holds true. For example. at the theatrical premiere for our film "Mortal Remains" we made over $1,200 in ticket and DVD sales and merchandising. This is more than we made in any one day of digital downloads (which I will talk about during Phase Two). With this knowledge, we are now encouraging indie filmmakers to use the same approach and 4 wall their films. Find a theatre that will promote your film who will also share in a percentage of the Box Office take. Do not work with any theater that requires a buyout and stick to premier locations where the majority of your cast lives, as they will bring family and friends and help to pad your ticket sales. If your film has a "b" list actor or actress attached, that should help to attract a fan base in alternative markets. Although it isn't necessarily key to have a brand name actor or actress attached to your film, it sure helps sell your film both overseas and in markets where people don't know you from Adam. Unless your are a brand name director, such as Kevin Smith, who already has a following, having a brand name component will also help to drive digital sales, which takes us into Phase Two of film release process-- which I will address in next week's blog entitled, "HOW MUCH DO INIDIE FILMS REALLY MAKE IN THE DIGITAL AGE".