Time Warner Inc. (NYSE: TWX) will be more conservative in the number of movies it produces in a 12-month period, according to this piece at The Wall Street Journal. As movies are becoming so expensive these days, and studios are becoming increasingly averse to taking on risk in the fickle world of celluloid, the thinking is that fewer investments in theatrical projects will concentrate funds on only the best concepts. These concepts will, in theory, be tentpole productions like The Dark Knight, ones that have enormous franchise potential to spawn sequels and merchandise windfalls and that oftentimes will be based on valuable source material, such as iconic comic-book characters. Sounds great, right?
Only problem is, it's wrong. I've argued this point in the past, and I'm here to argue it again. There's no question that studios such as The Walt Disney Company (NYSE: DIS), Viacom, Inc. (NYSE: VIA), News Corporation (NYSE: NWS), General Electric Company (NYSE: GE)'s Universal, and Sony Corporation (ADR) (NYSE: SNE) put precious capital at risk every single time they greenlight a project. But there's a huge illogicality at work here. Why would you want to put out less concepts as opposed to more? If the movie industry is such a gamble, wouldn't it be prudent to send more pictures to the marketplace?
That's cost-prohibitive, studio execs would argue. Well, that's the issue. Costs have to be brought down. And studio execs have only one group to blame on that count. Themselves. It's not the fault of shareholders that execs are wimps when it comes to negotiating deals and when it comes to realizing that stars aren't as valuable as they appear on the surface. If budgets could be reduced dramatically, and if compensation structures could be tilted in the favor of shareholders (i.e., eliminating large gross-percentage participations to talent), then more chances could be taken, and new franchises could be discovered.
If studios only go for tentpoles, then you can forget funding low/mid-budget projects that might turn up great responses from the multiplex crowds, as well as potentially-great financial returns. You could forget a Cloverfield, for instance. This would be a shame. And I don't mean in an artistic sense. I mean in a capitalistic sense. It's bad strategy. Don't just make a certain number of films at a certain budget. That, my friends, is limiting and risky. Does Time Warner remember Speed Racer? There you go.
Disclosure: I own Disney and GE; positions can change at any time.
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Reader Comments (Page 1 of 1)
8-25-2008 @ 5:48PM
dalgarnif said...
I would have to agree with what you say. If you only fund big budget blockbuster (hopefully) films than you are taking a big risk. If only one of them flops it is all the harder to make up for it with other big budget films. This would be akin to stock investing and putting all your money into one or two stocks in the hopes that they pay off big. Think diversification film studio execs - your limited investment film portfolio will be a busted policy.
It is also true that many smaller films actually make money when you consider the limited budget that they start with. Maybe not the Dark Knight kind of return - but a decent ROI. Besides which of course, who can predict what small film will actually hit it big? Network execs tend to have a very warped view of what film concepts will actually make money and which ones will totally flop.