Hollywood: Split screens

Feb 23rd 2013 | LOS ANGELES |From the print edition

IN “ARGO”, a thriller set in 1979, a CIA agent played by Ben Affleck (pictured) seeks the help of sharp-tongued Hollywood executives, and pretends to make a science-fiction film, in order to enter Iran and smuggle out six American diplomats who have been hiding in the Canadian embassy in Tehran.

IN “ARGO”, a thriller set in 1979, a CIA agent played by Ben Affleck (pictured) seeks the help of sharp-tongued Hollywood executives, and pretends to make a science-fiction film, in order to enter Iran and smuggle out six American diplomats who have been hiding in the Canadian embassy in Tehran.

In the film, Hollywood helps liberate the trapped Americans.

“Schizophrenic” is how one studio boss describes the state of Tinseltown.

Meanwhile, television, once the unglamorous sister, is enjoying record earnings and unprecedented critical acclaim.

Meanwhile, television, once the unglamorous sister, is enjoying record earnings and unprecedented critical acclaim.

Hollywood executives have long been paranoid and insecure.

Hollywood executives have long been paranoid and insecure.

Between 2007 and 2011, pre-tax profits of the five studios controlled by large media conglomerates (Disney, Universal, Paramount, Twentieth Century Fox and Warner Bros) fell by around 40%, says Benjamin Swinburne of Morgan Stanley.

He reckons the studios account for less than 10% of their parent companies’ profits today, and by 2020 their share will decline to only around 5%.

That is because the “big six” studios (the other is Sony Pictures, owned by the eponymous electronics maker) are growing more slowly than TV.

In contrast, film revenues are volatile.

Attendance swings like the moods of Claire Danes’s bipolar character, Carrie Mathison, in the TV show “Homeland”.

Analysts expect revenue from American cinemas to be flat for the foreseeable future.

That is no compliment in a town where ageing puts you out of work.

Hollywood’s movie studios are confronting three long-term problems: less lucrative home-entertainment divisions, the rising cost of making films and the terms they get in fast-growing new markets.

A move from analogue to digital film enabled perfectionist directors to shoot more takes and touch them up afterward, using up expensive production and editing time.

A move from analogue to digital film enabled perfectionist directors to shoot more takes and touch them up afterward, using up expensive production and editing time.

A move from analogue to digital film enabled perfectionist directors to shoot more takes and touch them up afterward, using up expensive production and editing time.

Studios have also started to make more “tent pole” films: big releases that can support the bottom line like a pole holds up a tent.

These typically rely on expensive special effects, rather than compelling scripts, to attract a global audience.

These typically rely on expensive special effects, rather than compelling scripts, to attract a global audience.

These countries also generate puny home-entertainment revenues, and this will not change for years.

Squeezed between rising costs and falling revenues, the big studios have responded by trying to make more films they think will be hits: usually sequels, prequels, or anything featuring characters with name recognition.

Independent filmmakers can still make money on surprise hits but these have limited markets abroad: American dramas and comedies tend not to perform as well overseas as cartoon and action flicks.

Two big ones, William Morris and Endeavor, merged in 2009.

Budgets for the flashiest shows have risen: some episodes now cost $5m-6m an hour.

But Netflix and other firms are changing the home-entertainment business profoundly—and studios are scrambling to keep up.

But Netflix and other firms are changing the home-entertainment business profoundly—and studios are scrambling to keep up.

Their best bet is to beef up digital sales, which offer fat margins.

Several are experimenting with “windowing” (making films available for a certain time in each format), and are releasing digital downloads weeks before films are available on DVD.

The big studios (with the exception of Disney) have got together for an initiative called “UltraViolet”, which allows people to store the rights to watch movies they buy in the cloud.

The idea is to let consumers watch movies at home for a higher price rather than trek to the cinema.

But some are flirting with it.