Production, exhibition, and good old fashion power are all being violently uprooted in tinsel town and where we land twelve months from now is going to look very different from the last twenty years.
Cue creepy music and a slow track into a crystal ball.
POWER: Well before the pandemic there was a shift happening. In the 1980’s super agent Michael Ovitz positioned his talent agency CAA as one of the most important chess pieces on the board controlling actors, scripts, producers, how studios were bought and sold, music rights, all the way through to sports contracts. Agents held the power. But today the world of agenting is very different and a major power shift is underway.
First, most of the big agencies have sold out to major hedge funds where their first responsibility is to revenue and profits which means yearly growth at all costs. This need to feed the engine has forced agencies to dig their tentacles deeper and deeper into the entertainment community, eking out every possible penny. Spreading tentacles isn’t new. Just read ‘When Hollywood Had a King’ to see how Lew Wasserman came up against the U.S. government in 1962 as he tightened his powerful grip over all things entertainment. In Lew’s case the U.S. government stepped in forcing him to choose between being an agent or running what is now Comcast NBCUniversal — he chose Universal. Today, it’s not one single thing that is cutting off agencies’ far reaching tentacles but a storm on many fronts that is leaving most agencies with very little space to move. The result: massive damage that will likely take years to rebuild, leaving space for others to fill the void.
For one, the Writers Guild of America’s has been standing firm that agents not be able to produce/finance movies. This is essentially exactly what Lew came up against in 1962. This strange practice of your agency, who negotiates your deal, also being your employer has been going on behind closed doors for a long time. But in recent years the agenting world got more brazen about including it in their business model to look more attractive to their new Wall Street owners. This backfired with the Writer’s Guild, seizing the opportunity to win back a little more power into the hands of the writers and their membership, agreed to strike in April 2019. Top Hollywood writers fired their agents and in doing so a key piece of Hollywood power was taken from the agents: 360 packaging (the process whereby agents package their writer, director, producer, and acting clients together so that a studio buys a package and the agency can charge a premium packaging fee which some argue incentivized them to keeps clients’ fees lower so they can make room for their own fees).
If this were all the agencies faced, they could overcome this hurdle and still reign supreme. Historically, agents were masters of their craft in coming up with complex structures for their top clients’ ownership, profit participation, merchandise, box office bonuses, etc. Needless to say, studios were also masters in creative accounting, working to keep as much money in their accounts and away from the talents’ bank accounts as possible. But the game was there. A game of give and take, all pinned to public data around international sales and box office. Playing this game helped agents look powerful and valuable to their clients so they remain signed to a ten percenter.
But then came Netflix and the likes.
Global distribution, hidden streaming numbers, and clear data driven decisions vs booking talent based on industry ‘heat’. Now agents have many of their bargaining chips taken off the table and their creative dealmaking tools are a shadow of what they once were. How much extra value do agents now offer compared to lawyers and managers?
At the same time agencies have pushed hard into new entertainment revenue streams. The biggest: live events for their music artists — the last remaining cash cows for a music industry decimated by streaming technology in the late 1990’s and early 2000’s. But with the global pandemic many of these agencies have gotten caught without a chair to sit on as the music stopped playing in global arenas and stay-at-home orders swept the globe. With COVID-19 nobody is going to concerts — and they won’t be for a good time yet. Similarly agencies were hit with cancelled sporting events where big margins were also made by the agents not only representing athletes but integrating brands and driving marketing strategies.
Through these multiple one-two punches, the biggest players in Hollywood are on wobbly knees and the bell isn’t going to save them anytime soon.
With the erosion of power at a corporate level, many great agents will be asking themselves if it’s worth it to stay. As a result, we’re going to see more agents going out on their own. Possibly shifting to managers where they are legally allowed to produce and where they can control their own destiny. With Hollywood writers having fired their agents to show solidarity with their union, many will be wondering if they still need to be giving 10% of their income away or if indeed they can make do with a manager and lawyer. Seeing this, other talent will be thinking the same. Make no mistake, great agents are worth their weight in gold. But, for many, they will see bigger opportunities and greater rewards making a change to the job title on their business card.
So if the true power is no longer with the agencies where does this power transfer to? Yes, a part of this goes back to distributors — the streamers and the new incarnation of studios and networks (more on that in a minute) — but the real transfer of power goes to producers.
For years producers have been a shell of their former selves. On the one hand they had their agents doing the deals and on the other they were beholden to TV network and studio development teams driving the creative oversight of their projects. Except for a few great producers, this position had become occupied by great mediators stuck between a rock and a hard place growing more and more frustrated with their own lack of power and assuming the analogical role of a Chief Operating Officer.
In the 90’s producers of TV shows had their last power piece taken away from them when networks realized that there were bigger upsides to be had by paying producers flat fees for their services vs simply buying the US rights and letting producers sell the foreign rights themselves. Many producers became ridiculously wealthy under this old model and many producers lost their shirts when it changed.
So why do producers now get passed the mantle of power? Content demand.
Today there is so much content needed to be made that it’s becoming harder and harder for TV networks and studio development teams to have such a hands-on approach to developing projects. Netflix is going through a massive commissioning spree as traditional broadcasters and studios pull their content from the Netflix catalogue to launch their own services. As consumers we’ve become accustomed to a slew of content being added monthly and we still need to be fed. So Netflix has to make more original content. So does Hulu, Amazon, and Apple TV+. But, so too do the incumbents.
Once upon a time, CBS, NBC, Showtime, AMC, etc, had to focus on filling 24 hours of programming each day. A mix of new content during prime time, daytime fair, reruns, old movies, 24 hours of programming, and done. But that doesn’t work in the streaming world when consumers have come to expect deep libraries and where they can binge watch an entire season in one day.
Take Disney+’s library for example. There’s not enough in there (yet) to compete with the new players. They need much more new content. The saving grace for Disney+, and why it will always do well, is that it’s family fair. Kids will watch Finding Nemo over and over again for six months with that one movie justifying the price of subscription for mom or dad to get a ninety minute break as they plonk the kids in front of the iPad.
Everyone has to be producing more content and networks, studios, and streamers just don’t have the teams — or the time — to develop content the way they used to. And this is where a new (or old) breed of Hollywood producer comes into play. Producers who can find content, fully develop it quickly, and earn the trust of financiers who simply look at the budget and a new rich data set behind cast, genre, and other key talent that validates potential audience numbers (data that has only really been available for the last 5 years), and send them off to make the project, delivering it with a big fat bow ready for consumption. The producer COO will get the promotion they’ve been wanting and become the CEO once more. It’s a big leap for many producers stuck in the old world and many will lose their shirts just as they did in the 90’s. But there’ll be fresh blood (and old dogs who remember the old game) that will emerge victorious, forming partnerships with filmmakers and writers, birthing their own mini studios, developing and delivering content to a machine with an insatiable appetite. Essentially Hollywood will be putting more and more trust in producers — you may even say it’s going more indie — and don’t be surprised to see many ex-agents forming partnerships with creative producers to form these new companies.
And with the content engine gearing up to meet consumer demand, the exhibition market is about to see a dramatic upheaval. Movie theaters are going bankrupt in the next 12 months.
EXHIBITION: AMC, Regal and Cinemark can’t survive paying multi-million dollar leases on massive buildings that are sitting empty. Even when we are allowed to gather once more in large groups, so many people will choose not to. It’s going to take at least 18 months to get back to any normality and movie chains don’t have enough liquidity — or access to willing backers — to make it work. And that’s not the only problem these exhibitors face. As we’ve all spent more time streaming content while in lock down, studios have pushed more of their ‘filler’ content (non-tentpole releases) straight to their newly launched streaming services as they hope to bolster subscribers during the pandemic and demonstrate growth to their shareholders. This move has panicked many theater chains with AMC taking the bold move to ban Universal Films from exhibiting in their theaters after the ‘Trolls’ sequel (what was to be a tentpole-ish release) went straight to Pay VOD. It’s estimated that this move raked in an estimated $100 million in on-demand rentals in its first three weeks in North America, more than enough to put the film on the road to profitability, according to the conglomerate.
With all this content going straight to streaming, once theaters open back up they will have a content problem with not enough new movies to fill all their screens.
Is this the end of movie theaters? No. It is their rebirth.
As streamers fight to get A-list filmmakers like Quentin Tarantino or Martin Scorsese, one of the biggest downsides to going with cash rich streamers is that these filmmakers want to see their content on the big screen. They don’t want to see their projects go straight to home viewing. Is it nostalgia or truly a better viewing experience? I’ll leave that up to you. But for Hollywood talent, theatrical distribution is still the golden ticket that they don’t want to let go.
All of this coincides with a change in law that will allow distributors such as Warner Bros., Disney, Lionsgate, and yes, Netflix, Amazon, and Apple, to actually own movie theaters.
In 1948, the U.S. Government passed the Paramount decree making it illegal for studios and distributors to own movie theaters. The argument, rightly so, was that it gave monopolies to a few film titans as nobody else could get their movies seen by an audience. After the Paramount decree was put into place, we saw an explosion of indie spirited movies finding an audience and the film industry was forever changed. Today, there are so many distribution outlets for filmmakers that it’s hard to argue that studio ownership of theaters restricts public access to content and allows them to control the market. You could shoot something tomorrow, upload it to YouTube and have a million views by the end of the week.
So here’s what’s going to happen…
The Paramount decree is going to be terminated. The department of justice has already asked a federal district court to do this.
As a result, movie theaters are going to turn into entertainment centers with big money pumped into them, creating premium experiences in a way that the current owners never could. Amazon will buy AMC or one of the big three. They’ll do special screening deals for Prime members. They’ll program content based on the viewing data of Amazon Prime members around each of their theaters and they’ll market directly to audiences on their own platform to create hype before bigger roll outs both in theaters and via streaming. As such, they won’t have to rely purely on tentpoles (which they’ll still need to keep as they’ll be the main attraction on the marquee), but streamers can look at the old Disney/Katzenberg model of hitting a good number of singles and doubles vs. home runs. From an audience point of view this is going to give us more choice and provide more filmmakers the chance of seeing their content on the big screen — even if it is just in a few sporadic theaters that share similar audience interests in the local community where interest can be tested to see if wider releases offer any value.
Amazon will also integrate these entertainment venues with Twitch (which they bought for $1B in 2014). With esports leagues taking off (Valve’s The International had a $34M prize pool in 2018 giving each OG player about $3.1 million in prize money and to put this in context, Tiger Woods ‘only’ pulled in $2.07M for the 2019 Masters), screens will be adjusted to double up as esports venues where audiences can watch players compete live with other players from around the world. Gamers will spend hours at the venues eating from the cafeterias and buying from the Amazon retail and pick up points located in these buildings which traditionally have a huge amount of under utilized space. Movies. Gaming. Retail.
And then there’s Disney.
Hit badly by COVID-19 with closed theme parks, cruise lines, and no live sporting events, we won’t see a cash purchase from Disney, but every shareholder of a failing movie exhibitor won’t pass up on the chance to see their certificates exchanged for notes that bear the mouse.
Why would this make so much sense for Disney? So many reasons.
Disney already has over 200 retail stores in dying shopping malls across the country — just go to any business journal right now and look at how many retailers are reporting that they have stopped paying rent and they won’t be in a position to reopen many of their stores even once the all clear has been given. Shopping malls were already dying. This will be the final nail in the coffin for many of them.
For Disney to transfer their stores over to movie theaters is a no brainer. As anyone that has been to Disneyland knows, there’s a feeling of dread as you exit each ride and are funneled through yet another perfectly laid out gift shop where your child’s eyes go wide and you begin to hear “Daaaad, can I have…”. Disney will create amazing experiences in theaters from carefully positioned merchandise that you have to pass to exit the theater, through to characters greeting you at the door. The experience will be elevated so far beyond current movie theater experiences that watching Finding Nemo on your 55” LED with surround sound at home just won’t fully transport you the way every moment of a Disney movie theater visit can. The exhibition industry has long been battling bigger and better home entertainment setups, but they had neither the money or the brand ownership in the movies themselves to elevate. Studios like Disney do. Other studios will have to focus their content and build niche experiences that speak to specific audiences’ needs so they can operate experiences at scale and build audience affinity around their brand just as Disney has done, or how Universal did in their early days with Horror.
And then there’s Apple. As the initial music industry upender with iTunes, Apple has struggled to stay relevant in film and TV. Recently it’s taken big gambles on a few pieces of original content that failed to position them alongside other streamers as a platform worthy of regular attention. But it still has a massive grip around the music industry and the opportunity to mix music events, movies, and, just as with Disney, relocating their 270 U.S. stores is a very attractive one. Apple has a ton of other companies it owns that can easily integrate and offer value to entertainment venues across the country. As a company CEO Tim Cook said recently, they typically buy a new company every two to three weeks on average. Take for example Platoon, which they purchased in December 2018 and works directly with musicians, bands, and writers to produce, distribute and sell their work (cutting out the record labels), we could see movie theater stages being used for live concerts backed and promoted by Apple. It could make a lot of sense. With this, their original content arm for film and TV will have to take a closer look at the type of content they are developing and again the argument would be for them to hit singles and doubles for their core demographic vs. appealing to the masses which seems to have been their recent goal.
Filmmakers will naturally be worried by these moves. But they shouldn’t be.
Movie theaters will, in general, be better for it. There will be a large number of theaters that close for good and many film minded entrepreneurs will try to open art house theaters in their place which will ultimately close because they can’t deliver a high enough experience to have audiences leave their living rooms and the new mom and pop owners don’t have diversified business models to cross collateralize rent and staff. But a wider selection of films can be programmed in the remaining screens due to both lower marketing costs and stronger data sets that are able to demonstrate where movies should initially open to get buzz. Additionally, filmmakers can already ‘self distribute’ on Amazon through prime video direct, loading up their films and taking a share of the rental or purchase price. Could producers now have easier online access to four-walling screens in certain markets (a process through which a studio or distributor rents movie theaters for a period of time and receives all of the box office revenue)? It’s entirely possible.
But the success of indie movies once again comes back to the producers. Indie producers have to become real entrepreneurs building brands, direct-to-audience relationships, and building strategies to generate the heat that agents once did for a very select few. If they can do that, they’ll be able to leverage the streaming platforms’ distribution network and get the attention they deserve, gaining more power and trust for future projects.
And this leads us to:
PRODUCTION: Much has been written over the last few weeks about how studios and networks can get production back up and running. There are a couple of big things at play here. 1. Completion bonds and insurance 2. Actors’ willingness to return to work 3. Unions and crew rates.
The biggest is insurance. When you are spending hundreds of thousands a day, you can’t afford to have actors, directors, and heads of departments get sick. Forget dying, a virus that spreads quickly among a group of people working closely together can cause millions of dollars worth of damage in delays. Filmmakers (indie or studios) can’t afford that. And now that insurance companies can put a Coronavirus type situation into their model, they are going to want to exclude it from payouts wherever possible. Movies under $500,000 with actors who are willing to take the risk to bolster their career will be the most produced content over the next few months. That’s providing, of course, that these often independently financed movies can find backers who haven’t closed up their purse strings to speculative investments in fear of a lasting recession. The problem with these movies is that nobody earns any money on them — but the hope is that it gives rise to interesting voices and new ways of filming that can be adopted by the broader industry. And for those that do get made, streamers, networks, and distributors, will snatch them up due to a lack of supply.
For studios and networks to kick back into production, they’re going to need to see strong health and safety plans to both protect their investment and convince A-list actors to get back to work. Health and safety plans are going to be easier to solve than convincing an actor that it’s time to work. In many cases, these A-list actors who are well aware that they won’t be able to wear masks and have to work in close quarters with other cast members, won’t be easily convinced that it is safe to return to ‘normal’ anytime soon. Those contracted to network shows will have no choice but to turn up on set when they finally get the call. But for those who are fielding offers on movies and new pilots/shows, many household names will be quite happy to wait out the year until they are sure we are all in the clear. Networks and studios have a great deal of persuading to do if they are to catch back up to original production levels, let alone claw back four months of no shooting AND meet the aggressive targets needed for their new streaming services.
Which brings us to unions. Unions often dictate what can and can’t happen on set, including how many people need to be employed. It’s been a constant frustration for producers for years — this project doesn’t need these positions but because it’s a union show you have to employ them. Technology has made us more flexible with filmmaking and for many projects you can get away with less people than you once could. Everyone will have to get used to smaller crews, less travel between locations, and smaller set pieces. It’s inevitable. Less people on set and less location moves means less risk of bringing in a virus that could shut you down. Studios and producers want less crew and the unions have to agree in order to protect the health of their membership.
Additionally there’s been a love-hate relationship with working hours. Most crew don’t have a life beyond filmmaking, working 12–14–18 hour days — sometimes 6 days a week. The hours can be brutal. That’s got to change. No sleep equals lower immune systems, tired crew means opening yourself up to basic health and safety mistakes that could allow a virus to run rife. The alternative is longer shooting schedules, 8 hour days, 5 day weeks — the French model.
Everyone making a film would rejoice at this news but fight the flip side. The flip side being a reduction in daily rates. For most crew you work like crazy for 8/10/12 weeks, then have a month off and then another crazy work schedule. Work is sporadic. In the new model, you’ll earn the same amount of money working the same hours in a given year but over a longer period of shooting days and with less weeks off where you sit at home wondering when your next gig is coming in. This also means you can actually have a life while you are shooting — getting to experience your kids growing up? How about that???
This also impacts two other areas.
Crew shortages. We don’t have enough experienced film crew across the country to meet these longer schedules and the increase in projects that are needing to be shot not only to catch up with all the shooting that should have happened during the lockdown, but to feed the streaming beasts. For people looking to get into film and TV, there has never been a better time in history. But with this means more inexperienced people on set which is going to slow productions even more.
The other area is film locations. Sound stages will be more important due to the ability to completely control the environment and build many different sets which reduces crew moves and the risk of exposing units to the general public. For times when production must go on location (which will be scheduled over the last week or two of production), there will have to be an ability to lock the location down in quarantine for three days before a crew begins to shoot so that actors feel safe in the sterile condition of their work environment.
Expensive shooting locations such as LA, NY, Chicago and even Atlanta where renting a soundstage or location for two/three/four days instead of one (together with all the associated costs) is going to be cost prohibitive for producers. They are going to be forced into looking at cheaper shooting locations where overall lower costs of living can be achieved and where money simply goes further. Many of these locations have tax incentives and rebates for productions, but these smaller states tend to have low yearly caps on the maximum amount of dollars they can award each year. We’re going to see one or two of these states becoming more aggressive with their legislation and, as a result, a couple more billion dollar film hubs will pop up like Atlanta has done over the last ten years.
But the shooting will be different. We’ll see smaller cast and crew numbers. Less films shooting across a myriad of international locations (Bond, Mission Impossible and the likes), and more green screen being used or, for bigger budgeted projects, the use of virtual high-definition backgrounds for exteriors — as used recently by Disney+’s “The Mandalorian.”
California will see runaway production once again. Only this time, with the head offices of streaming giants like Netflix and Amazon already not calling Los Angeles their true home, and the ability to stream rushes, take Zoom meetings, perform remote castings, and keep cast and crew out of densely populated cities, it’s going to be difficult for Los Angeles to protect its position as the filmmaking mecca that it once was.
For crew, facing more weeks shooting but less crazy hours and the opportunity to move from a $1.2M 1,000 sqft 1950’s LA bungalow to a 3,000 sq ft custom built home on an acre of land close to one of these new film hubs, it won’t be difficult to make the decision on a move. As more studio campuses pop up in smaller, easier to shoot cities, we’ll see a dramatic shift in the quality of life for all involved. Technology and the coronavirus have shown us we don’t have to build our lives in densely populated cities.
The death and rebirth of Hollywood is upon us. There are opportunities in every sector of the industry. There really is no greater time — wherever you live in the world — to be in film and television. BUT it’s time to innovate and hustle.