Nor does the box-office race provide an accurate measure of popular taste, since it lumps together movies that open on thousands of screens with those that choose to open on a few dozen screens, hoping to build gradually, benefitting from good reviews and strong word-of-mouth. Take, for example, Moonrise Kingdom, which opened on May 25, 2012, in only four theaters in two cities, and finished in 15th place, while Men in Black 3, which was first, was booked on 4,248 screens. Indeed, when studio marketing departments want to know the actual audience appeal of a movie, they track the per-screen average, the drop-off between Friday night (when there is no word-of-mouth) and Sunday, and the percentage drop after the first and second week. MIB3 was all but dead after three weeks, while Moonrise Kingdom moved to 924 theaters, and was still drawing audiences in late September, the 19th week of its run.
What a box-office victory actually measures is the breadth of the opening and the efficacy of the studio’s marketing arm: In other words, based on a barrage of 30-second TV commercials containing snippets of the film, which most moviegoers will have seen an average of seven times that week, how many people will show up on Friday night? This is a job the studios do amazingly well, but it has little to say about the intrinsic appeal of the movie.
To be sure, the race produces bragging rights every week for the winning studio’s marketing department, which then exploits the “No. 1” title in newspaper ads (for which studios spend, on average, about $4 million per title). And of course the publicity derived from this game further enhances the studios’ revenue.
But why does the media play along in the promotion? Generally, it is the only “news” available in the entertainment news cycle surrounding the opening. Any real digging into the economics of a movie takes considerable time, since the studios tightly seal all relevant information, such as the terms of distribution deals, financing, subsidies, and stars’ compensation, through Non-Disclosure Agreements. Even extras at times must sign NDAs (as I found out when I was an extra in Wall Street: Money Never Sleeps). By the time the economic picture becomes clear, if indeed it ever does, the news value of the project has faded.
At the same time, the media’s fixation on the box-office race diverts its attention from the ongoing transformation of Hollywood’s business. It neglects the reality that today, the six major studios get less than 20 percent of their total revenue from showing their films in American movie houses. Most of their money comes from another, nearly invisible source: licensing their intellectual properties. Each studio has a vast library of thousands of movies, animated shorts, and TV series it licenses out to worldwide cable networks, pay-per-view TV, and broadcast television. A top executive at Time Warner recently did the math for me, demonstrating that between 85 and 90 percent of its entertainment earnings comes from licensing its movie and TV titles to television; it is more or less the same story at the four other largest studios. (Paramount, because it ceded its television production arm to CBS when they split, is the only major studio without a television production arm.) The reason that licensing is so immensely profitable is that studios do not have to pay advertising, print, or logistical costs, as they do when distributing a movie to theaters. Almost all money received—except for residuals paid to actors’ and others’ guild pension plans—goes to the bottom line. The same is true with the new business of licensing products to Internet companies, such as Hulu, Netflix, Apple’s iTunes Store, and Amazon, for streaming. The continued cranking of this money machine depends on the studios’ retaining absolute control over these intellectual properties—a requisite that, given the threat of digital piracy, is reshaping strategies for how they release movies. For example, the studios’ entire system of “windows,” in which a film’s payoff is optimized by delaying for many months its release on video, pay television, and other platforms, may have to be compressed, if not entirely abandoned, to counter this threat. There is also new urgency to studios’ international diplomacy, since minimizing the availability of pirated copies requires the assistance of governments. No matter what political opinions their movie stars espouse, the corporate executives behind the scenes now must play nicely with those in power.