Creativity: the Measurable and the Immeasurable
HOLYWOOD’S HIDDEN ADVANTAGE
- Creative Suits
ASPERA 2012 – JUL 2 ND – 5TH
QUT
How do you measure creative success?
How do you measure creative
$uccess?
Depends on you look at it…
Visible Creative:‘The Magic’
Actors
Auteurs
Artists
Wizards
The Invisible Creatives: The Business
Presidents of Studio, CEOs, COOs, CFOs, Marketing,
Lawyers, Agents, Consultants, Market Research, Distributors,
Heads of Production, Producers, Executive Producers,
And everyone one who works for them
etc etc etc etc etc etc etc ….
One source of tension…
‘creatives’
vs
‘suits’
And soooo MANY ‘suits’!
Root cause of such tension?
Power?
Creative control?
Ego?
Artistic expression???
The Money
“We have a tendency to
demonise the suits”.
One thing is for sure…
For any film or movie to actually get made and become successful
The ‘creatives’ and the ‘suits’ need to share the same vision
Its about collaboration
The biggest phallacy…
…and this is where Hollywood
leaves other film industries in the
dust is ……
…that ‘suits’ are not Creative
TOO!
Film is a Creative Industry
Developing a film project is a creative process
Raising the finance is a creative process
Making the film is a creative process
Marketing and distributing the film is a creative process
And in all parts it is about telling a story effectively!
A Case of Creative Financing
The movie broke even theatrically
Production costs: $94 million
Prints & Advertising (P&A) costs:
$44 million (U.S. $22 million + ROW $22million)
Total costs: Est. $138 million
Gross Box Office:
$274 million (world)
(Cinemas keep approx. 50%)
Split: $137 million each.
German Tax Shelter
Investors in German-owned films can
claim an immediate 100% tax
deduction.
Paramount sells a German company the copyright for
$94 million.
Paramount Pictures leases back the film for $83.3m with an option to repurchase at a later date. Paramount’s nets $10m ($94m - $83.3m) profit which
covers ATL salaries of Angelina Jolie’s ($7m) and the other principal cast.
German company gives Paramount total control signing a production service
agreement and a distribution service with the studio.
Paramount nets $12 million under the UK’s Section 48 pre-production tax
relief – key locations shot in UK and British actors including Daniel Craig.
Paramount gets $65m in pre-sales to six territories where the Tomb Raider
game is popular with teenage boys.
Paramount gets $7m from TV licensing fees from Showtime (owned by
Viacom which also owns Paramount) for the U.S. cable TV rights.
$10m profit + $12m tax relief + $65m pre-sales + $7m licensing fee =
Total $94 million.
Source: Epstein 2005.
THAT IS CREATIVE
FINANCING!
By comparison what is mostly done here in Oz is fairly
pedestrian.
Historic Case of Creative thinking
The Birth of Paramount
America 1913
It is a time of tumultuous change. A new epoch in the movie
industry is about to begin….
U.S. economy is about to enter alpha growth phase during WW1.
Urban populations are growing rapidly.
Movies are booming fuelled by the arrival of movie stars & the cult
of celebrity.
Larger theatres dedicated to movies are being constructed – The
Strand in New York 3,000 seats.
Embryonic cinema circuits are about to emerge.
America 1913
Battle to control the industry. The Trust v the Independents.
The Trust’s business model is based around the short film. It operates the
only national film distribution company – the GFC.
Europeans are making longer 5-reel films with impressive production
values = much bigger budgets
U.S. Producer Adolph Zukor (Famous Players) believes the future is the
feature length film following the success of his film ‘Queen Elizabeth’.
Independent U.S. producers are under-capitalized - they have to pre-sell the
rights to film exchanges in order to finance their films.
Very few bankers & financiers have any knowledge or understanding of the
movie business.
Producers have no collateral to use as security for loan finance.
The Problem
Feature length films cost $10,000-$20,000 to produce in the U.S.
How can under-capitalized U.S. producers raise the money to make
feature length films to compete with Europe?
Enter…Paramount Pictures
National distribution.
Formed 1914
W.W. Hodkinson & 4 States-Rights Film Exchange owners.
Zukor covertly buys shares and takes over Paramount by 1916.
Paramount signs 25-year deals with producers for their entire output. Paramount gains
exclusive distribution rights to their films.
Famous Players (Zukor) agreed to provide 52 movies per year to Paramount;
Jesse L. Lasky to provide 30 films; Pallas and Morosco supply 22 films.
Paramount has 104 films to distribute annually – enough to meet any theatre’s
programming needs for a year @ 52 weeks x 2 feature films per week
Paramount provides each studio with an advance guarantee of $20,000-$25,000 on each
five-reel film produced.
Paramount agreed to advance the cost of prints & advertising.
All advances (production costs and P&A) were to be recouped first from gross film rentals.
After that Paramount charged a 35% distribution fee (25% covers company overhead +
10% profit).
Costs and Profits
After P&A advances and distribution fees were deducted from film
rental revenues the net split 65% (studio) :35% (distributor).
Average net film rentals for Paramount films in the U.S. market in
1910s was $100,000 per movie.
Famous Players received $65,000 (65% split of $100,000) on average
per film. Production costs averaged $35,000 per film.
So Famous Players’ net profit averaged $30,000 per movie. Foreign
sales averaged $10,000-$20,000 per film.
Sources: Hampton 1931 reprinted in 1970 pp. 119, 122; Donahue 1985 pp 14-16 .
Outcomes?
Paramount solved the producers’ perennial problem of
raising finance through a brilliant piece of creative
thinking.
Paramount quickly became market leader and the
dominant firm during the silent film era.
The historical lesson for filmmakers worldwide?
Creativity in Hollywood is not just about telling stories on-screen.
The Great Gatsby
Baz’s trailer….circa 2012
http://www.youtube.com/watch?v=rARN6agiW
7o
Paramount trailer circa 1974
http://www.youtube.com/watch?v=cTxxXK9
PQT0
Netflix
Reinvented the video store
Order online - DVD by mail
Take out your subscription online - convenient 24/7 ordering
Do one-time online survey of your movie & TV preferences
The Queue pre-ordering system – checklist up to 50 titles you want
The Queue optimises Netflix video inventory – less stock-outs
Less customer dissatisfaction - you always receive a DVD you want
Next-day postal delivery + return pre-paid envelop – NO late fees
You rate titles you watch and get recommendations based on likes
110,000 titles – wider selection than any video store
Benefits to Netflix
The Queue & customer ratings provide depth knowledge on users.
Better understands demand & post-purchase satisfaction than rival
video stores = better purchasing decisions = lower costs.
Personalized recommendations enable Netflix to steer customers
towards back-catalog titles.
Typically, video store rentals are 65% new releases (expensive to
acquire) and 35% older titles. Netflix is the inverse – 65% older
titles and 35% new releases = lower acquisition costs.
Lower operating costs than bricks and mortar video stores.
Case: Web Series
Kate Modern on Bebo.com
KM is a teenage soap web series spinoff of YouTube hit series Lonely Girl 15.
Bebo – UK social networking site 40+ million female users aged 13-24 years.
KM - 4 minute webisodes attracted 54 million views over 2 seasons
Production costs UK 6,000 pounds per episode.
Profitable before production because it pre-sold sponsorship and product
placement.
Orange, Toyota, Cadbury Crème Eggs, Microsoft, Procter & Gamble paid
up to 250,000 pounds for brands to be integrated into storylines.
Even kids can do it…
Case: Crowdfunding
Three British schoolboy filmmakers think-outside–the-box
to find a way to get their film made
Discover a little-known Jules Verne novel Clovis Dardentor.
It is in the public domain – they want to make it into a movie.
Innovative twist on crowd-funding they set up Buyacredit.com.
Anyone can buy a credit as a producer of the film for UK 10 pounds. Have raised over
UK 105,000 pounds.
Attracted many celebrity sponsors – Jude Law, Stephen Fry, Whoopi Goldberg, Jeremy
Irons, Rowan Atkinson, Sir Ian McKellen, Joanna Lumley…
Attracted national publicity in the UK for their crowd funding efforts.
Sources: Pidd 2009; www.buyacredit.com
Nice piece of creative thinking
lads!
Key Lessons?
The big annual magnet – Cannes - everyone goes – industry who’s who…
There-in lies the problem – for the ROW – the cluster is annual.
Hollywood is not just the ‘creative capital’ for making the magic.
It is also the black hole at the centre of the entertainment universe.
It attracts the best talent from everywhere … there is critical mass.
Everyone you need to get movies made is there.
In Hollywood – the underlying strength is you are IN the cluster.
But there are clusters in London, Sydney, Paris, Tokyo, Rome…..
Ask yourself this….
So is it just the cluster’s critical mass in LA or
is it also the M.O. (modus operandi) ?
Do we really see this kind of creative
thinking from the suits in other parts of
the world?
Rest of the World (ROW)
We see fantastic innovation on-screen from ROW filmmakers.
What percentage of the great off-screen innovations in the
movie & TV industry were created outside Hollywood?
Can anyone here name any?
“Suits” Must Be Creative
TOO!
If the ‘suits’ don’t create….