Copyright Material – 9781844573806

Copyright material – 9781844573806 © Tino Balio 2013 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published in 2013 by PALGRAVE MACMILLAN on behalf of the BRITISH FILM INSTITUTE 21 Stephen Street, London W1T 1LN www.bfi.org.uk There’s more to discover about film and television through the BFI. Our world-renowned archive, cinemas, festivals, films, publications and learning resources are here to inspire you. Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries. Cover images: (front) Avatar (James Cameron, 2009), © 20th Century-Fox Film Corporation/© Dune Entertainment III LLC; (back) Justice League (Dan Riba/Butch Lukic/Joaquim dos Santos, 2001–6), Warner Bros. Animation/DC Comics/Warner Bros. Pictures Set by Cambrian Typesetters, Camberley, Surrey Printed in China This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library A catalog record for this book is available from the Library of Congress 10 9 8 7 6 5 4 3 2 1 22 21 20 19 18 17 16 15 14 13 ISBN 978–1–84457–380–6 (pb) ISBN 978–1–84457–381–3 (hb) Copyright material – 9781844573806 Contents Introduction 1 1 Mergers and Acquisitions: The Quest for Synergy 7 2 Production: Tentpoles and Franchises 25 3 Distribution: Open Wide 66 4 Exhibition: Upgrading Moviegoing 88 5 Ancillary Markets: Shattering Windows 101 6 Independents: ‘To the Rear of the Back End’ 114 Conclusion 149 References and Further Reading 152 Index 163 Copyright material – 9781844573806 Introduction On 10 January 2000, Time Warner, the venerable entertainment conglomerate, announced that it was merging with AOL, the world’s largest internet service provider. AOL purchased Time Warner for $166 billion in stock. Gerald M. Levin, the Time Warner CEO, justified the merger by stating that the internet had begun to ‘create unprecedented and instantaneous access to every form of media and to unleash immense possibilities for economic growth, human under- standing and creative expression’ (Arango, 2010). The merger was considered ‘the deal of the century’, and climaxed a decade of mergers and acquisitions during which the largest media conglomerates jockeyed for market dominance. In the belief that bigger is better, media moguls asserted there were competitive advantages in marrying content – movies and TV shows – and the means of dis- tributing it to consumers via broadcasting, cable, satellite and broadband. Consequently, every sector of the business was put into play during the 1990s, as media executives pursued the consolidation of all aspects of the business within huge media conglomerates guided by the principle of synergy. Yet within weeks of the AOL–Time Warner merger, the dot.com bubble burst and internet stocks plummeted. At the time of the merger, AOL Time Warner had a combined market value of $342 billion, placing it among the four largest companies in the USA. AOL Time Warner’s worth had been propped up mainly by AOL’s inflated stock at the height of the dot.com bubble. By the end of 2002, AOL Time Warner posted a loss of nearly $100 billion, the largest in corporate history. The conglomerate continued on a downward path, eventually losing 83 per cent of its market value. As for AOL itself, the company was a leader of the internet revolution throughout the 1990s, but was slow to take advantage of broadband delivery during the 2000s and lost customers in droves to other internet providers. Linking content and distribution had not delivered the promised synergies. Time Warner removed AOL from its masthead in 2003 and spun off AOL itself from the company in 2009. Time Warner was not the only media company hit by the bursting of the dot.com bubble. Vivendi Universal Entertainment, the result of a merger of Vivendi, the French telecommunications company, and Seagram’s Universal Studios in 2000, posted a $14 billion loss at the close of 2001, the biggest loss in French corporate history. Jean-Marie Messier, who was aspiring to transform Copyright material – 9781844573806 2 H O L LY WO O D I N T H E N E W M I L L E N N I U M The largest merger in American history Vivendi from a French water utility into a global media conglomerate, had acquired stakes in wireless internet and media assets in Europe and wanted Universal’s movies and music to distribute across a multitude of platforms worldwide. Like the AOL–Time Warner merger, the expected synergies of con- vergence did not materialise. The dot.com bubble burst decimated Vivendi’s stock, which it had used to finance its buyouts, and the company was put on the block, to be sold to General Electric in 2003. But the internet had arrived, and its customer reach was so great that no stu- dio could afford not to embrace new media in one form or another. The internet sector had rebounded from the dot.com bubble burst by 2005, which sparked another buying spree as the majors searched for promising internet entertainment and social network sites. The majors have yet to discover a satisfactory formula to monetise digital media. This failure became acute in 2007, when DVD sales for the first time in eight years began to fall. An industry cash cow since 1999, DVD sales of new releases and library titles had grown to become the largest single source of revenue for the studios, far outstripping theatrical exhibition. ‘For a time it seemed as if studios were printing money, with an explosion of DVD sales reaching some $24 billion in 2006,’ said Marc Graser. ‘Then the business started to shrink, with revenue from DVDs down to $21.6 billion last year [2008], and slumping another 13% this year [2009]’ (Graser, 2010a). Sales of Blu-ray discs beginning in 2006 did not stop the decline. Two of the culprits were Netflix and Redbox. The explosive growth of Netflix’s DVD-by-mail and internet streaming services and Redbox’s rental kiosks offered cheaper options for watching movies than buying them on DVD. Such options became even more of a draw after the start of the recession in 2008. The downturn in the economy meant that many people had less discre- tionary money to spend on entertainment. This was especially true with teenagers, the most coveted age cohort of the studios. And there was increased competition for leisure dollars, which had a significant impact on the movie industry. The total domestic box office increased from $7.75 billion in 2000 to a record high of around $10.6 billion in 2009 and 2010. However, admissions – the number of tickets sold – declined from 1.57 billion in 2002 to 1.34 billion in 2010, after fluctuating several times (MPAA, 2010). In need of escape, people were still going to the movies, but not quite as often. Actually, the downturn was worse than the numbers suggested. After adjusting for inflation, the annual Copyright material – 9781844573806 I N T r O D U c T I O N 3 box-office take in the first years of the decade exceeded the 2009 and 2010 fig- ures. This despite the higher ticket prices exhibitors were charging for the glut of 3-D films that reached the market beginning in 2009. In the following pages, I describe how the arrival of the internet, the decline in DVD sales and changing consumer viewing habits impacted the American film industry. The time frame is 2000–10. Chapter 1 outlines the round of mergers and acquisitions in the media industry, which began in the 1990s. Going into the new millennium, the same six media conglomerates, some renamed, emerged larger and more powerful than ever. But one thing changed; the major Hollywood film studios now played a relatively minor role in the bottom lines of their conglomerate parents in terms of revenue. As a result, they were more beholden than ever to calls for increased profitability from their conglomerate chiefs and from stockholders. The pressure to increase profits became more intense when Time Warner and Viacom reversed course by jettisoning distribution to concentrate on exclusively on content. Distribution entities would come and go in the era of the internet, but the survivors would always need movies and television shows to attract customers, the thinking went. Chapter 2 describes the impact of corporate realignments on Hollywood’s production policies.

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