The 3rd quarter reports are coming in, and it has been a great year for the major studios. Too bad they’re all still stuck making movies, because that has been the consistent downer to the biz.

Disney had a net income rise of 11 percent thanks to the theme parks and TV systems. OK, the film division plummeted by 60 percent, which is one of the reasons why they have stopped work on The Lone Ranger. The proposed $250 million budget for this sucker (which in real money means something around $300 to $350 million) suddenly looked a tad high.

Viacom had a profit increase of 37 percent. Most of this was derived from cable TV and VoD deals. Paramount Pictures (a subdivision of Viacom) had a 29 percent drop in income despite the billion-plus revenue from the latest Transformers flick.

Warner is a tougher call. They have not yet released their 3rd quarter report, and their 2nd quarter report was designed to give everything a pretty rosy spin. By the end of the 2nd quarter, their profit was up by 14 percent, partly due to the NCAA college basketball playoffs. Film returns at Warner were more of a mixed bag despite the 13 percent increase (before adjusted operating profit). In reality, Warner’s film division is largely hanging in there courtesy of home entertainment profits and video games.

What does this mean? First off, if you want to make money, then go into television. Every one of these companies is being propped up by their TV and cable holdings (well, that and a handful of amusement parks). The movies are simply an ultra-expensive hobby.

Which is the other problem. To paraphrase that modern political philosopher, the movies are too damn high. The stalled Lone Ranger production is a good example. Seemingly all you need for this movie is a couple of actors, some horses and plenty of Western landscape. Sure, I am being very simplistic (even simple-minded) in this argument, but let’s get real, we’re talking about the Lone friggin’ Ranger, for gawd’s sake. So you should be able to do this baby for around $60 million easy (unless you’re planning to strap rockets onto Silver and really make things go Hi-yo).

Unfortunately, they probably were planning something like that. The pursuit of spectacle has become the predominate focus of modern Hollywood movies. Everything else (script, actors, etc.) have taken a backseat to the “Oh wow” factor. But there is only so much “Oh wow” to go around, and a lot of people still go to movies because they’re looking for a story. This is an issue that comes up repeatedly in every study and survey done on the audience. Even people working in Hollywood are making the same comments. But this has little effect on the current plans of virtually every major studio. Heck, in the case of The Lone Ranger, Disney is squabbling over a mere $50 million differential (they want the movie made for $200 million, which means they’re willing to spend close to $300 million).

As loony as the system is, it can be viewed as half OK. After all, the steady profits from TV, cable and ancillary markets (video games, etc.) have so far provided enough extra profit to keep the screwy system afloat. The growth of the VoD market also looks good. This is especially important, since the TV and cable market is already showing the first serious sign of loss to the booming online trade. Granted, the actual theater market is dying, and increasingly Hollywood is even helping to shove it onto the ash heap.

But it is a business model that has some major holes. All of the TV, cable and ancillary markets are in a massive state of change. Much of the current change has to do with an undermining of the kind of centralized control that the major companies must depend on. In turn, the major companies and the MPAA have been busy attempting to ram through new laws that broaden the legal definition of piracy and impose increasingly harsh penalties aimed at any website that looks even half cross-eyed.

Likewise, the major studios are still banking on the dubious concept that movies are recession-proof. In the past, movies fared extremely well through normal recessions (those economic events that usually lasted about six months). The current recession started in December 2007. To be honest, this isn’t even a recession anymore. It’s more like a slow-moving depression. And nothing is about to change (at least not for the good). It is a situation that has driven many politicians to wild fits of delusional thinking and a few seasoned economists to bizarre flights of desperate fancy. But no matter what, we are now in a strange zone of political and economic inertia in which unemployment and under-employment will stay at record highs while the general public will be forced to focus on basic needs in a modern struggle for survival. Oddly enough, going to the movies is simply not one of those basic needs.

Which is why we have the current contradiction. Theater attendance is going down. DVD sales have plummeted. Production costs continue to climb, with $200 million as the current going rate. The soaring budgets are a form of unstoppable force while the economy has become one nasty unmovable object. It’s an old dilemma that never ends well, and the Hollywood majors are no exception.

As Ronald Reagan once said, facts are stupid things. In light of this, the impending release of the faux documentary Apollo 18 and the viral advertising campaign surrounding it is a pretty good reminder about the slippery post-modernist nature of facts in the virtual universe.

Much like The Blair Witch Project, Apollo 18 claims to be found footage that conveniently milks thirty years worth of urban folklore and displays an odd resemblance to the equally bogus (well, most likely) “lost footage” from Apollo 20 that has been on YouTube since 2007. Likewise, everyone involved with the movie is playing it cagey (for example, no names have been released for the actors in the movie). Maybe it’s real and maybe it’s not. It’s practically up there with the Alien Autopsy video.

Viral marketing isn’t really a new concept, though the term wasn’t widely used until 1996. In the film industry, the old Hollywood studio system of peppering magazines and gossip columns with manufactured tidbits about their “stars” was a forerunner to the approach. It was a means of creating a marketing presence that extended beyond any single film by etching out a persona that represented the star as a concept.

The key has always been to create a buzz that extended beyond any conventional forum created by any PR department. At its most successful, viral marketing results in a situation in which the consumer is actively engaged in pursuing (directly or indirectly) the product (either knowingly or unknowingly), which in turn allows the product to become an increasingly major component to the consumer’s environment. At its best, the viral marketing campaign will appear spontaneous. In reality, it is an induced state.

As The Blair Witch Project demonstrated back in the late 1990s, the internet is an ideal forum for such marketing strategies. This movie created the core model for viral marketing (and distribution) that was later advanced even further by Paranormal Activity. Both films have become essential studies for indie distributors. They have also demonstrated the wild power of such marketing techniques when released through the internet.

Thanks to social networking sites, the potential for viral marketing is now greater than ever. Contrary to what some people would like to believe, the approach is neither easy nor necessarily cheap. The Blair Witch Project spent nearly $1.5 million on its viral marketing campaign. Paramount Pictures spent nearly $10 million on advertising for Paranormal Activity. Viral marketing can be done for a lot less, but so far the success ratio has also been much lower. This is lunch money compared to what is spent on a major movie, but it is still a lot of dough.

Paranormal Activity made incredibly effective use of Twitter. In a way, it was almost too effective. Some folks have gotten it into their heads that all they have to do is set up a Twitter account and then kick back. It doesn’t quite work that way and the rules for creating a successful Twitter campaign are still evolving. So far the single greatest success in Twitter awareness has been achieved by Charlie Sheen in a grim reminder that it’s all publicity. Personally, I prefer the more honest state of Twitter befuddlement provided by Roger Corman in his account.

But one of the most unique aspects to viral marketing is not the marketing itself. Increasingly, the dominant focus of any viral marketing approach is to shape (and alter) our perception of reality. When it first came out, lots of people thought that The Blair Witch Project was a real documentary. A major part of the success of Paranormal Activity was its ability to look like footage from a security camera. Leaving no trick unturned, Apollo 18 is heavily promoting itself as the “truth” behind the “vast conspiracy.”

Pretending to be real is a big factor to this marketing method. Several years ago, when The Dark Knight was filming on location in Chicago, cell phone videos began popping up online from fans who managed to sneak onto the set. Of course this was all bunk (then and now, The Dark Knight sets are guarded more zealously than the NSA) and the amateur videos had been created by Warner’s PR department. It worked (and worked brilliantly) thanks to the already heightened fan interest in the movie.

On the negative side, publicity for The Fourth Kind kept hinting that the movie was based on a real case. If anyone were to Google the name of some of the main characters, the search engine would steer them to bogus newspaper stories that seemingly confirmed certain aspects of this claim. It was all bogus, and while the movie made a decent profit, it didn’t seem to have been helped all that much by this smoke-and-mirrors stunt.

The creation of this alternate reality can, when successful, heighten audience awareness of the movie. Unfortunately, it also heightens the general state of unreality that extensively pervades our culture. A lot of the recent political debate on the debt ceiling issue has been a dark tribute to the warped power of bad information and false realities. Everything has its up and down qualities, but the unique power of viral marketing through the internet has a potent feel that is sometimes almost scary.

But for many filmmakers, it is also becoming essential. Just watch out for going to the dark side.

I would like to tell you about the recent Unites States long-term credit rating downgrade by S&P.

Now surely, the Republic will stand regardless of the doom and gloom the S&P minions may see in their crystal ball. Rather than piling in right away with Hegelian negativity on steroids, please allow me to indulge in one of my most cherished childhood memories. Beware, though, for I’m about to tell you a cybernetic story, so if you have better things to do right now, please stop reading. Despite my best literary efforts, what follows is likely to be about as exciting as reading the Wall Street Journal, although Rupert seems, of late, to be doing his best to “raise the bar,” so to speak.

Many years ago, I was addicted to a TV show called Kung Fu. It was a typical 60-minute weekly drama set in the old American West and relating its myths, lies and fantasies. The hero (David Carradine) was presumably a Chinese immigrant whose early childhood had been spent as a pupil at a Buddhist monastery somewhere in China, where he had received extensive training in self-control, martial arts and philosophy. He was kind and merciful and would spend approximately 55 of the 60 episodic minutes preaching peace, understanding, self-abnegation and friendship among men of good will. He would then spend the remaining five minutes beating the living hell out of everybody else on the show. The moral of the story, at least it seemed to me at the time, was that in some cases peace and love just don’t cut it.

The episode I most vividly remember is one during which two young novitiates, one of whom (Cheng) is our hero, the other (Chang), are given cash to travel to a nearby village to buy food for the entire household. On the way, they encounter a nice-looking old man who inquires about their journey. They tell him the truth, as young boys are wont to do, whereupon he proceeds to tells them about a secret shortcut to the village that will save them about half an hour. They thank him and happily take the shortcut. Unfortunately, this was a con job. In the middle of it all, they fall prey to an ambush and lose the cash. They return to the monastery, clearly with their tails between their legs, and are immediately asked to join a woodshed meeting with the Master in residence. It went something like this:

Master: Tell me, Chang, what did you learn from this?
Chang:  Not to trust strangers!
Master: Tell me, Cheng, what did you learn from this?
Cheng: To expect the unexpected.
Master: Chang, you will be leaving us soon.

And the rest, as they say, is history. Why am I telling you this?

For openers, let me tell you why I am not telling you this. Not because I expect you to spend your early years in China learning martial arts and philosophy at a Buddhist monastery, and not because I think violence is an acceptable way to resolve problems, for it obviously is not. On the other hand, even if you did hang out in Chengdu for the next ten years, you would probably not even miss a beat on Wall Street, and would most likely be able to resume right where you left off. Voltaire said, plus ça change, plus c’est pareil: The more things change, the more they stay the same. Can a Frenchman really be totally wrong, especially a self-maid man? But no, I have a more mundane goal in mind today, one I already warned you could only be reached indirectly and painstakingly.

Are you still with me? Please don’t quit now, for the worst is yet to come.

The world of credit ratings does not exactly connote Hollywood-style sex appeal. Historically, the average credit analyst was usually someone with a social profile lying half-way between a misfit and a nerd, very much like me, I’m afraid, going about his business with the naïve certainty that the world is better off because he exists, defending the human rights of widows, orphans, institutional bond-fund managers and other defenseless creatures. When the alternative is something as profoundly rewarding as clearing & settlement or custody, one can easily understand the attractiveness of a job in which recognized business leaders actually return your phone calls and call you by your first name, apparently because deep down, you’re such a pal. If only it were true. The only occupations with more ego-stroking potential are probably journalism, movie stardom and fashion design.

With the advent of structured finance, though, a market solely predicated on the existence of primary market ratings and thus, on the prior possibility of value, credit analysis acquired an exalted, quasi-mythic status, the moral equivalent of the Oracle at Delphi. Ordinary mortals with ordinary jobs had suddenly been made into rock stars. A formerly inconsequential human being was now referred to as a Bodhisattva, while invitations to Louis Vuitton cocktail parties were no longer unthinkable, or infrequent. Credit analysts went from limp losers to Latin lovers in one easy step, and their financial exploits were now recounted in hushed and respectful tones. Their new issue reports got more web-views than Paris Hilton, and seven-figure salaries went from unattainable to lived experience. At Midas Mufflers, you were just a “somebody,” but at S&P, you, erstwhile unacknowledged toiler of the netherworld, had suddenly turned into a big swinging you-know-what, literally a general of the capital markets. Now clearly, every man is a general to his dog, hence the popularity of dogs.

Is this not the quintessential American dream, the faint but still non-zero probability that every US citizen can one day become a hero and marry a fashion model? What’s wrong with a little Yankee self-actualization, with getting that proverbial piece of the action? After all, isn’t it true that no man is an island, in itself entire? Apparently, reciprocity is the key to every lucrative relationship. So, cooperation with Wall Street was obviously the right thing to do.

What’s wrong, of course, is that it was just that, a beautiful dream.

One day, you had to wake up and realize that, when all is said and done, you never understood a thing about finance, that Warren Buffett is not really your high-school buddy, and that the captain of the swim team is still more likely to wed the fashion model you were ogling so fondly just a few moments ago. At some point, it had to dawn on you that you never were the master of your own power; that you commanded without authority, attempting to live your life in reverse. In the end, you were still just who you had always been, only less so because you actually believed the dream. If only investors would forgive your trespasses while punishing those who trespassed against you, all would be well in the quiet countryside, to say nothing of the not-so-quiet Countrywide.

Mea culpa, mea culpa, mea minima culpa!

Dear repentant credit analyst, finance is an analysis of time, of non-linear time that is, i.e., of something apparently beyond your ken. Mind you, the same type of fiasco would have happened had anyone else been in your shoes. Wall Street bankers, self-proclaimed former masters of the universe, are actually glad they have someone else to blame but themselves, for the truth is they would have done exactly the same thing, and most likely worse, given that the average investment banker has as much self-control as Bill Clinton at a Playmate convention. As that famous playwright would surely have said, “The fault, dear trader, lies not in your deals but in yourselves.”

But wait, say you, what about the S&P downgrade? I know what you’re thinking right now. “Can’t this guy say something nice for a change? Can’t he say something righteous, and loving? These are beautiful people!” In the end, isn’t it just easier to shoot the messenger simply because you don’t like the message? Ah yes, the downgrade. What about it? Essentially, S&P said there is too much politics in Washington, and that $2.4 trillion is not enough; it needs more. I’ll bet Monica Lewinski said that too.

First, to say there is too much politics in Washington is like saying there is too much “greed” on Wall Street, too much reckless driving at the Indy 500 or too much sex in a brothel. This shocking news is neither shocking nor news. Second, just a week ago, S&P admitted publicly that it had a bug in its CMBS rating model, most likely for the past 20 years or so, and canceled all future CMBS deal ratings until further notice. Goldman was impressed I’m sure. But that’s not the best part. Just a few months ago, it also admitted not understanding the waterfall-distinction between pro rata and pari passu. I guess S&P can speak neither Latin nor Excel correctly, which may go a long way towards explaining its reluctance to rate Latin American countries AAA.  On its face, this downgrade-thing is chutzpah taken to the limit, akin to a priest downgrading God, or a husband telling his wife, “Honey, this time I’m putting my foot down!” Basically, it’s a joke on many fronts.

On the political front, S&P no longer has the moral authority to downgrade an entire country after the fact, when this is precisely what they are accused of having done, no doubt coincidentally by that very same country, just a couple of years ago. If anything, the downgrade is way too late, not to mention way too smug and convenient. In a self-respecting sport like football, late hits will get you a big fine. What will this get S&P? God knows! But that’s the whole point, gentlemen. God is now dead, and S&P is responsible.

A famous Russian proverb says: После боя кулаками не машут. Don’t swing your fists after the fight. When it’s over it’s over, guys.

Perhaps S&P ought to use its credit-rating principles on itself and apply its outrage at the nefarious influence of politics to its own pathetic situation, contemplating the countless lawsuits it is now defending, suits that arose directly as a result of S&P’s mammoth incompetence and inability to know when to downgrade something much less problematic to grasp than Beltway politics. Yes, it is wrong to shoot that oh so Standard, but decidedly not Poor, messenger arbitrarily, but this is someone who’s been walking around for years with a bull’s eye on its forehead.

On the technical front, the thorniest issue is the fact that the US credit rating is the ground, the basis of all other ratings, the equivalent of zero in mathematics. Moving the zero on the scale, apparently without a Plan B, makes as much sense as switching from Fahrenheit to Centigrade in temperature reporting, and then claiming it is “colder” in New York this summer. At this juncture in world history, please tell me who is more creditworthy than Uncle Sam? Do they have nuclear weapons? Do they have cruise missiles? Do they own the Internet? Does their currency also count as international money, in addition to gold? Viewed in the proper context, the S&P downgrade is a meaningless, exculpating, cynical and naïve move that can only result in the immediate focus of the nation’s attention on how badly these people behaved, and continue to behave, despite clear pronouncements to the contrary and innumerable acts of contrition. A savvy US president once remarked that if you’re not part of the solution, you must be part of the problem. Sadly, S&P seems to have crossed that thin red line.

The last bump on the road to righteousness in this S&P saga is likely to be the inconvenient fact of the sovereign ceiling. As you all know, no corporation can have a credit rating higher than that of its sovereign for the simple reason that the sovereign has an implicit, if not explicit call on its country’s assets via taxation and other legal mechanisms. So far, no one has denied this. Therefore, in a few days or so, S&P will have to either downgrade every American AAA-rated corporation, presumably telling them they are sorry, because to such companies a downgrade is not just politics, or else do nothing, thereby covering itself with additional vainglory and demonstrating once again that it is better to remain silent and pass for an idiot than to speak and prove it.

Finally, what about Chang and Cheng from Kung Fu?

You will recall how Chang was fired from the monastery for failing to understand the principle that whatever happens to you should not always be ascribed to others, and that taking responsibility for your own actions and their consequences is the origin of all wisdom, not to mention of all wealth.It is painfully obvious to most observers that S&P needs to take a good look in the rear-view mirror and ask itself, in addition to the army of lawyers now on its payroll, whether it still likes what it sees, or whether, as most of us have already concluded, this sad reality-TV episode wouldn’t be a great excuse to spend some time in a Chinese monastery. From what I know of S&P analysts, I think they might just love it. And who knows, China might begin to love them back!

There are two ways to raise money for a movie. Dumb luck is one way. It is certainly preferable to the other method, which involves lots of hard work and a high tolerance for failure. A wistful hope for dumb luck can be found in the numerous “comments” peppered on every social networking site by people seeking rich sources of funds by way of desperate random postings. Mostly they find scam artists working every trick this side of the Spanish Prisoner.

The alternative is to create the dreaded business plan. I say “dreaded” because creating a business plan is about as much fun as beating yourself over the head with a ball bat just to see how long it takes before you pass out. But creating this plan is essential, as we are reminded by Louise Levison in her concise and excellent blog piece Why You Need a Film Business Plan. I’m sure that I’m the two hundredth person to recommend this article, and I strongly suggest that everyone should read it (heck, print it out and pin it to your desk).

Levison’s seven key points are a crucial guide, whether you’re approaching major donors or taking the crowdfunding approach. Arguably, a huge mistake some people have made with crowdfunding is the assumption that they don’t have to create such a plan. The result ends up sounding like a bad replay of Spike Lee’s old trailer for She’s Gotta Have It. The stunt worked for Lee but it will not work for you (besides, he already had the film in the can).

Of course there are some basic questions that a beginner needs to address before writing a business plan. One place to start is at the U.S. Small Business Administration, which provides a quick outline for such a plan as well as various other articles and services. At MyOwnBusiness.org you can go through a more detailed discussion on developing a small business plan along with various samples that can serve as a guide. At Bplans.com you can access an even more detailed discussion concerning the development of a business plan. They also offer a free simplified version of business plan templates from the Business Plan Pro software package.

As you pursue your business plan, you will discover that lots and lots of companies are looking to sell you various software programs to “help” you create a business plan. There are so many such “helpers” that you may need a business plan to create a business plan. The price range on the software alone will vary from $59 to $350 or more. To be honest, you ought to be able to develop your own template and other material yourself. Sure, it may take more time but it is a lot cheaper. Likewise, the cost of some of these software programs is way too high and probably should be avoided. Some are obviously borderline scams. As always, buy nothing until you have thoroughly researched the supplier. And remember, you don’t always get what you pay for.

As always, there are freeware alternatives. About.com provides some useful references to various types of free business software. Also, Cnet.com offers a wide range of free business software systems along with detailed consumer reviews. You might also want to check out the Free Film Business Plan Template page at SoftwareTopic.Informer.com. As always, keep in mind the difference between freeware and shareware.

Levison gives a great breakdown of how your business plan must operate within the movie industry. However, business is business and a beginner might learn from a wide sampling of plans written from a variety of different fields. Just Google “Sample Business Proposal” and explore the various items that pop up. Use Levison’s seven-point checklist as your guide, but also carefully study the approaches used in a variety of non-related businesses. Even if the company is simply selling hot dogs, there are still things to be learned. A good place to start is Reference ForBusiness.com.

One of the hardest parts of preparing a business plan is the first item, called the Executive Summary. Levison warns that you have to do items 2 through 7 before you can backtrack to the first item. Unfortunately, Levison is correct on this point, and you may want to learn more about the Executive Summary and how best to approach it. Both eHow.com and About.com provide a good breakdown of the process.

Another potentially tricky part on Levison’s checklist is item 5 (potential audience). Major film companies spend oodles of bucks attempting to determine what kind of audience a movie might reach. As is true with many things in life, it sometimes works and sometimes doesn’t. Your best estimate will be a combination of extensive research and educated guesswork. I have previously dealt with this issue with my tongue only half in my cheek. For better or worse, the standard reference on the subject is the annual Theatrical Market Statistics from the MPAA. The single most detailed discussion on this topic available online is the MA thesis Media at the Movies: Analyzing the Movie-Viewing Audience, by Sean Michael Maxfield at the University of Florida. After you’ve done all your reading, you will still need to make some good guesses. But at least you will be better informed as to how to guess.

Or you could just fall back on the dumb luck strategy. So just go to the social networks and ask people to send you money. Let me know if it works.

What do Sarah Palin, Ayn Rand and David Zucker have in common? They have all given us proof that political posturing often translates into box office poison.

The spectacular no-go of the recent release of the documentary The Undefeated may not have an effect on Palin’s own future plans, but it certainly tells us that Tina Fey doesn’t have to worry about being upstaged. Likewise, the quick defeat of The Undefeated follows a pretty consistent pattern of ultra-conservative movies and extremely empty theaters.

The pattern was first established in 2008 with the Zucker comedy An American Carol. Made for a modest $20 million, this farcical presentation of Michael Moore as the most dangerous threat since Soviet communism barely took in $7 million during its month-long run, despite heavy “grass-root” promotion through various right-wing websites and radio shows. Its DVD release has been equally lackluster, and it is now available in various $1 movie bins.

Next up to bat was the recent release of Atlas Shrugged: Part 1. Made for an extremely modest $10 to $15 million by hard-core Ayn Rand adherents, the flick barely took in $4.5 million during a singularly miserable five-week run made more lively by the movie’s producer insisting that he was the victim of a vast left-wing media conspiracy. Again, the film depended heavily on a “grass root” promotion campaign through various right-wing websites and radio shows.

Finally, the trend reached an inverted zenith with The Undefeated. Made for a meager $1 million, the movie barely squeaked out a box office return of $31.5 thousand (yes, thousand, not millions) during a disastrous two-week release in some of the most uber-conservative theater markets they could find. Again, the movie relied on a “grass root” promotion effort via right-wing websites and conservative radio shows. A re-release of the old John Wayne western would have been more successful. Heck, a few paying customers probably thought that they were going to a Wayne movie.

Obviously, the first major lesson we can learn from this is that you do not conduct a “grass root” campaign for a movie on right-wing websites and radio shows. These folks just don’t go to movies. Personally, I suspect that they are much happier venting their spleen either online or by phone rather than sitting quietly in a theater for a couple of hours.

Actually, I’m not joking. One of the problems with these films is an issue of demographics more than politics. The promotion campaigns for these movies have largely been targeting the talk radio audience model: a white male, 50-plus in age (often closer to 70). The current movie audience is primarily an ethnically mixed collection between the ages of 15 and 45, with females making up more than 50 percent. To be honest, it would be more accurate to describe these PR efforts as a “gray root” campaign, not “grass root.” Either way, they’re not even preaching to the choir. It’s more like shouting at the bass section only.

But these movies have also forgotten another important rule of the commercial film industry: The audience has a virtual Constitutional (and certainly God-given) right not to go to your movie. They just don’t have to spend their money to watch whatever you put on the screen. Even worse, the audience is quite capable of exercising this right on a regular basis. They can simply go to another film instead. This type of free and open selection by the audience is called capitalism. I don’t quite understand why I am having to explain this to right-wing filmmakers, but all I can add is, “Welcome to the pain of the marketplace, pal.”

The failure of these three films also reminds us of the old Sam Goldwyn quote: “If you want to send a message, use Western Union.” Today you would use a blog site, but otherwise Sam was basically right. As a general rule, people won’t pay money to see a movie that appears to be a political lecture, left-wing or right-wing. Ironically, one of the few exceptions to this is Michael Moore (Fahrenheit 9/11 took in over $220 million globally, more than half of that in the US alone). Sure, many right-wingers view Moore’s success as proof of the vast media conspiracy, but that theory makes about as much sense as my claim that George Clooney is stalking me. Besides, I think George has given up on me. Must be part of the conspiracy.

Nobody has a real clue as to the political convictions of the current movie audience. It is quite possible that even the audience doesn’t have a clue. But that is OK. Most people go to movies for a form of emotional engagement, not politics. In some respects, that has been the key to Michael Moore’s success. Fahrenheit 9/11 captured the anger and frustration of lots of people (while the arguably more “political” production of Sicko was vastly less successful). At his best, Moore engages the audience through a combination of smart-aleck commentary, man-bites-dog one-upmanship and a shrewd mix of farce and didactic arguments.

Otherwise, most attempts at political statements in movies end up sounding as if the filmmaker is hectoring the audience. As a rule, people won’t pay to be hectored. They come to see a story, not a harangue. Heck, they might even want a little romance on the side. OK, nobody is going to pay good money to see Michael Moore in love, but they want something more than a lecture.

Gosh, they might even want a story, and if the filmmaker is looking to send a message, he or she might just try slipping it through the back door while otherwise focusing on the story. It is an old approach to this issue, but it tends to work more often than not.

Long considered a staple of the movie market, the romantic comedy appears to be dead. Well, maybe not dead. But it has taken a beating and seems to be mutating. The new variation could be called the anti-romantic comedy with an emphasis on mismatched lovers that are more missed than matched.

Or you could call it the no-mantic comedy, a term coined by reporter Jordan Zakarin in his recent article on the upcoming movie Friends With Benefits. Zakarin may be only half-right about this film and the genre. However, the modern romantic comedy has been headed in this direction for a while, either through conscious intention or just plain old fashioned ineptitude. Just look at the films of either John Cusack or Ben Stiller. They are the anti-Cary Grants of this anti-romantic age. Cusack weirdly excels at playing whiny manic depressives, while Stiller has created a unique combination of passive/aggressive hostility made mildly lovable by random incompetence.

Future sociologists will have to determine the how and why of these developments (though one possible cause may be the modern TV sitcom, which has conditioned viewers to a comedy of insults). But from a box office perspective, it’s a problem. The romantic comedy has long been viewed as a pretty stable form, and the shifting currents now make it potentially more iffy than a horror film (another genre that has undergone some major shifts). Most romantic comedies are made for budgets of around $20 to $50 million (extremely modest today). The low budgets make them desirable. If they do well, they can make anywhere from $90 million to $130 million. Few do well. Many have recently bombed. The genre is a risky gamble involving high effort and, more often than not, low rewards.

A quick look at the top 100 box office winners in the genre from BoxOfficeMojo.com provides some insights. Technically, nearly half of the titles were made within the last ten years. However, you then have to adjust for inflation. Once you do that, the list radically changes. Pretty Woman suddenly becomes the highest grossing romantic comedy (adjusted box office of $293,780,157.81). Once you start adjusting these figures, the top ten on the box office list will primarily be movies made during the 1980s (to test this, just use an online inflation calculator). In some respects, this is the period when the genre last truly thrived.

Now, start pecking away at the titles from the past decade. A few of the titles (e.g. My Big Fat Greek Wedding) are obvious choices. Sex and the City isn’t. It’s actually a comedy about sexual mores rather than a romantic comedy. There is a difference. So we remove some of the stranger titles in the list and reduce the recent decade to what becomes a more manageable group. Once we do that, the top ten romantic comedies of the past decade become a strangely schizophrenic lineup. The first three titles are reasonably traditional in form (My Big Fat Greek Wedding, What Women Want, and Hitch). With the next three titles, things get a tad more varied as The Proposal, Knocked Up, and Bringing Down the House move up the line.

So what does this list tell us? Absolutely nothing. Which is my point. In the old days of the classical Hollywood system, the romantic comedy was cookie cutter simple. Heck, you just had to decide what actress would play opposite Cary Grant and line up Ralph Bellamy for what became known simply as the Ralph Bellamy part. Experienced screenwriters and directors were readily available. The resulting movies often had the flat insincerity of a greeting card, but they also had the acceptable emotional response of a good greeting card. Basically, the romantic comedy was a type of movie ideally suited to the old Hollywood system.

But now it is a wild crap shoot. Few modern screenwriters actually have any experience with the form. In turn, many modern screenwriters have problems writing strong roles for women, and the genre normally demands such roles. Basically, they are just “guy” writers and they haven’t a clue what to do with a “girl.” This is one of the reasons why the female leads in many modern romances come off as either boring or bitchy. The writer is often at a loss about how to build their character.

Likewise, romantic comedies are extremely difficult to direct. A mediocre director can turn out an OK action flick or horror movie. But romantic comedies need a more skilled touch. It’s a bit like real life, where often the important moment is not the kiss but the sudden fleeting emotion just before it. Most modern directors are experts in rapid cutting and digital effects and other techniques that are largely useless in the romantic genre. Timing, subtle nuance and careful handling of actors are more the forte of old school directors (many of whom are now dead).

Round all of this off with the biggest obstacle of all, casting. The male and female leads in a romantic comedy have to successfully achieve several key objectives. First, they have to get the audience to like them. Yes, the audience has to really, really like the performers (sometimes known as the Sally Field effect). Even worse, they have to like watching the two leads together. This is the part that most modern movies miss. In a romantic comedy, the viewer needs to care enough about the leading players to actually feel invested in seeing the couple get together.

These are the three main pillars for any romantic comedy, traditional or modern. Most modern romantic comedy movies cannot achieve all, or even most, of these requirements. Failure in any of these areas cripples the commercial prospect of the movie. Failure in any two of these areas will doom the movie. This is why the romantic comedy is the trickiest genre around.

Everybody is looking for the next game changer — something radically new that is pretty obvious and doesn’t necessarily alter anything, but that is still a clear indicator of future developments and concisely changes the whole structure of the industry while not exactly changing anything. In other words, a major revolution that magically reinforces the status quo. Unfortunately, revolutions don’t really work that way, which is one reason why the concept of a “game changer” is pretty lame.

Mostly, “game changers” are meaningless PR concepts.  The phrase is so vacuous that it ought to be banned from public discourse. But reporters like the term, and we are being whacked with the latest stories about game changers in film production. And remember, we need to pay attention to these things because some day there may actually be a “game changer” that actually results in some type of change.

For example, the recent news story about how actor Colin Hanks has just raised $50,000 through Kickstarter for his indie documentary about the rise and fall of Tower Records. It is a reasonably impressive achievement, especially since Hanks has successfully adapted to a mix of social networking sites and crowdfunding techniques.  Also of interest is the suspicion that his father (some guy named Tom) may be quietly following in his son’s footsteps while looking at prospects for some modestly budgeted projects.

Contrary to the Huffington Post news story, this really isn’t a “game changer.” Crowdfunding has already proven itself despite a generally dismissive attitude  from the mainstream film industry.  What Colin Hanks does represent is a significant (if through the back door) crack in the Hollywood mindset.

But the Hollywood attitude may need more than a few cracks. Just look at the short but furious history of 3D. Just over a year ago, 3D was going to save Hollywood. Two months ago, it was the doom of the industry. With the release of Transformers: Dark of the Moon, 3D is once again the magic game changer that will fix everything. The flipflops are quick enough to give us all whiplash (heck, I’ve already filed a workers’ comp claim).

Once again, the reality is a little less. The new Transformers movie has done extremely well, especially in its IMAX 3D presentation. It is the biggest box office hit of an otherwise dismal season.  But it is still running behind the box office of the previous sequel, despite having a much more advantageous opening weekend (let’s be honest, this movie actually had a five-day long opening weekend). So yes, the new Transformers flick is crushing everything in sight.  Too bad everything was already being crushed by the vast drop (20+ percent) in the American box office. It is a drop that will undoubtedly continue with or without 3D.

Flipflopping is an old Hollywood art form, and the speed with which the game changers can change the game is measured by the quick pursuit and rapid abandonment of Comic Con. Last year, Hollywood barn-stormed this annual fest of geekdom with enough celebrities and special previews to turn the event into a comic book version of Cannes. This year, the studios are treading lightly as they toss a few obvious bones to the fanboys and otherwise keep an unusually low profile.

Since Hollywood is heavily committed to making mega-buck movies based on comic books and video games, Comic Con would have to be a no-brainier for promotion. However, Hollywood has discovered two alarming things. Fanboys are extremely picky about how you adapt their heroes. Even worse, a movie that is a hit with the Comic Con crowd doesn’t necessarily mean anything to a regular audience. Arguably, an interesting chunk of the current drop at the box office is reflected by the sagging ticket sales for comic book movies.

This doesn’t mean that Hollywood is about to abandon the approach. Heck, comic book adaptions are clogging up the current production pipeline so much that it will take the end of civilization in 2012 to change this strategy (maybe). Instead, the studios are looking to desert the only innate audience that they even have for these type of flicks. Sure, none of this makes any sense, but by now we all know that logic has nothing to do with it.

This may be best demonstrated by the greatest game changer of the week. As part of their weird war against Netflix, a collection of major studios conducted a test run of their own version of a premium VoD (now known as PVoD). So far, this experiment in releasing recent movies (within 60 days of their theatrical release) to VoD distribution at a price tag of $30 a pop may not actually be producing fantastic results (the little bit of information that has leaked out does not suggest a rip-snorting success story). Besides, with the possibility of accessing many of the same titles via Netflix at $9.99 a month, most people would be willing to wait a little longer to see a movie that they were not willing to see for full price in the first place.

That was the case until Netflix decided to up its own prices. The new rental structure is still modest compared to the studio concept of home entertainment. But the current economic forecast (which is bad) would seem to argue against any undue rise in prices. This move by Netflix is bound to change something, but the change could be their bottom line. 2011 has actually been a very good year for the company, but that has been based on a marketing plan that they are slowly altering.

This is either a bold move or a major misstep. After all, game changers can go either way.

Who exactly goes to movies these days? It’s an important question, and the current answer is a tad murky. It is especially murky when you are trying to pinpoint the modern representative model for the movie audience.

More than fifty years ago the answer seemed pretty straightforward. It was primarily a Midwestern, middle-class white family (husband, wife, 2.5 kids and a dog waiting by a white picket fence). This was the early days of the Baby Boom generation, and the only question was the .5 kid (a statistical generalization that covers the third child in some of the families — I know; I am a .5 kid). Yep, these were simpler times when Eisenhower solved political problems while playing golf, and the only man in women’s clothes was Milton Berle.

The reality was dramatically different, but the model was kept this simple for a very long time. But this model is dead. Kaput. Gone and mostly forgotten. As recently reported on NPR, numerous studies are discovering that the contemporary movie audience is moving into a variety of different, divergent models. What once was viewed as a “mainstream” culture has given way to a network of “sub-cultures” that sometimes merge in viewership and at other times scatter into more narrowly defined areas of interest.

This change is not exactly obvious, based on the most recent MPAA Theatrical Market Statistics Report (which is the main study used by both the theaters and the studios). The approach taken in the study by the MPAA largely focuses on gender and age and mostly confirms that a lot of men between the ages of 18 and 24 go to movies. This is the one part of the report that the major companies in Hollywood have ever bothered to look at. However, if you start playing with the MPAA figures, you suddenly discover that the older audience is much larger, and the female audience is equal to (and often greater than) the male audience. Basically, the average moviegoer is actually a woman between the ages of 15 and 40. By comparison, the male audience is significantly lower through almost all of the critical age ranges.

The MPAA avoids the issue of race and possible racial preference at the movies. But a recent study by BET manages to gather some strong impressions of African-American film habits. The results in their study aren’t all that surprising. A majority of African-American moviegoers tend to go to the standard Hollywood fare. What is interesting is that they appear to be bigger repeat viewers than is currently the case among the average white viewer. They also go more frequently in general. Most studies indicate that the same is true of the Latino audience, though the variations are wider in parts of the American West and Southwest. Add in the gender split from the MPAA study, and suddenly the average model of a modern moviegoer will be a black woman between the ages of 15 and 40.

There is one major difference between the average white film viewer and the black audience. The black audience has no problems going to movies with either few or no black characters. The average white American viewer is not so relaxed (as shown in a recent study in the Journal of Communication) when it is the other way around. In a sense, the study could be viewed as optimistic. Acceptance of black performers in major movies has risen, but it is also still extremely limited, and the minute you get into the leading man zone, look out. Personally, I think this is still in a process of change, which is strongly suggested by another recent study on current American perceptions of beauty. The traditional archetype of the blond American rose is rapidly moving toward a biracial (black and/or Latina) model. The evidence suggests that it is already moving in that direction so quickly that in a few more years the average moviegoer will be a biracial female (between the ages of 15 and 40).

Now let’s throw another monkey wrench into this model, sexual orientation. To be honest, I cannot find any current studies on gay American viewing habits. Most studies have been focused on gay viewing of gay-themed movies, which isn’t the kind of broad-based viewing study I need. Heck, there is currently a major debate among surveys attempting to even figure out how many gay Americans there even are, with current estimates running from 1.5 percent (obviously way too low) to 25 percent (sounds a tad high to me). At the moment, the data is almost as nonsensical as it is important. So I will have to fall back on anecdotal information.

Over the past decade, I have worked with and known a lot of gay men. Most of them go to movies. Lots and lots of movies. A few of them spend so much time in dark theaters that they are in danger of turning into mushrooms. Many straights I know haven’t been inside a theater in the past three years (I know some straights who still think that most movies are in black and white). So I am of the suspicion that movie-going is more prevalent among gays than straights. I have little to support this theory apart from the chitchat I’ve heard over the past decade. But I have a hunch that I am not too far off the mark.

So I am willing to suggest that eventually the average model of a moviegoer will be a biracial, bisexual woman (between the ages of 15 and 40). Of course, this is a good moment to remind everyone of what Mark Twain once said (“There are lies, damned lies, and statistics“). The worth of any statistical model is nowhere good enough to get you a decent cup of coffee at a cheap coffee house. But the half-screwy model I just created is probably more sound than the current mainstream model used by Hollywood (which is basically white males between the age of 12 and 25). Everything that can be gleaned from current studies overwhelmingly indicates that the Hollywood model is pitched toward only a fraction of the real audience. At best, the Hollywood model barely covers 35 to 40 percent of the actual audience.

So yes, Hollywood is out of touch with the American moviegoer. Likewise, the American audience is fragmented in so many different ways that I doubt if Hollywood can easily get in touch even if they tried. This is one of the reasons why the market is beginning to split and evolve into a niche marketing structure that is more advantageous for indie filmmakers.

Rudyard Kipling never worked in Hollywood. That’s why no one is paying much attention to his old advice. China is now the new market that everyone wants to own. Odd thing, the Chinese seem to view China as being their own turf, and the current move by American film companies toward the East may yet prove that Kipling — old fuss-budget that he was — had a point.

Rupert Murdoch has spent the past several years trying to dictate to the Chinese about opening their market to American films. OK, what Murdoch means is that they should just step to one side and let him run riot through the country. Since most senior Chinese officials have taken a gander at Fox News, I doubt if they are in any way fooled.

At about the same time, Chris Dodd also was in China making the same pitch on behalf of the membership of the MPAA. In each case, the Chinese have taken the stand that they are moving as fast as they can to open their market to American movies, but they also feel that they must move slowly due to problems caused by piracy in the film market. They have a very good point. I understand that it’s pretty easy to get DVDs of American movies in Hong Kong these days before the film opens in the States. On the other hand, China’s Youko.com has just cut a VoD deal with Warner in spite of the so-called piracy concern.

OK, I suspect the piracy concern is really a diplomatic way to stall the process. For a variety of reasons, the Chinese may not be excited at the prospect of being converted into a multi-billion dollar market for Hollywood products (within the next few years the Chinese domestic box office will hit the $11 billion mark). After all, the experience tends to be a one-way street and doesn’t do much for the country being used. Besides, the Chinese are extremely interested in making their own moves in the other direction.

The road between the East and West is getting bumpier with every passing day. Since 1972 (when Richard Nixon arrived in Beijing), China and the US have gone from being distant enemies to now very distant “friends.” Economically, the two countries have become so intricately intertwined that they are virtually stuck with each other. Politically, the two countries are at a coolly polite loggerhead on a wide range of issues from the fate of Taiwan to problems of common courtesy. Many Americans privately view the Chinese as a repressive dictatorial regime that is ruthlessly blocking free enterprise and American business expansion. Not surprisingly, the Chinese view Americans as a pesky rude pack of jingoistic looters who simply want to move in and take everything. Each side is half right about the other. So Hollywood may not get far in these business maneuvers.

Especially not with some of the current trends going on here in the States. With the collapse of the Soviet Union and the end of the Cold War, some Americans decided that they had to find a new adversary. Over the past decade, various conservative political outfits have been grooming China as the new opponent. Last year the organization Citizens Against Government Waste scored attention for themselves with a slick little ad that deftly combined elements of 1984 with The Manchurian Candidate to deliver a hysterical attack on Chinese/American economic policies. Sure, the ad is a collection of partial facts underlined by a subtle use of racist stereotypes, but it has influenced some of the current political thinking in the US (for example, the recent political ad used by Mark Amodei in the Nevada congressional race).

Granted, the present state of US “political thinking” is practically turning the phrase into an oxymoron. I don’t know about the average American voter, but the average American politician is so dumb that many of them couldn’t find China on a map even if you circled the dang spot for them. Likewise, much of the past 40 years of US and Chinese economic and political interaction has been pursued by a unique American mixture of fear, ignorance and casual indifference. While many major businesses are now trying to play a game of catch-up (beginning with a somewhat belated realization that in order to do business in China they just might want to hire some people who actually speak Chinese), both Washington and Hollywood are still way behind the learning curve.

Don’t believe me, just look at the redo of Red Dawn. Sorry, I mean just try to look at the movie. Originally produced by MGM (before the studio went bankrupt), the film is currently looking for a distributor. Its also looking for a villain. Seems that nobody involved in making this new version considered the notion that using the Chinese as the bad guys invading the US might mean that they were pretty much writing off most of the Asian market for distribution (since China’s position is the single biggest economic powerhouse in Asia). Likewise, the Asian market is extremely critical to the box office success of many American movies, and gee gosh golly, seems that the filmmakers just didn’t realize that the Chinese were so touchy about how they were presented, and well… guess they will have to find a new Asian bad guy. This is why they’re still looking for a distributor while working overtime with CGI in a desperate effort to change the movie’s evil army from Chinese to North Korean (heck, those Asian dudes all look alike anyway).

To be honest, most of the Red Dawn mess is attributable to a handful of people in the business. But a lot of the rest of Hollywood isn’t really any smarter. The Chinese will often take the long-term view; Hollywood has problems looking past opening day. The Chinese have a strong sense of maintaining their own vested interest in political and financial deals; the major American film companies have traditionally viewed the international market as free money from overseas, and largely resent the idea that the local-yokels (like say the French) should expect to get a fair cut of the deal.

So the current pitch to the Chinese market is bound to go far. Probably all the way to the dumpster.

Stop the press! Paramount Pictures has just crossed the billion dollar threshold, and the summer has barely begun. Oh whee! They are rolling in it and everything is beautiful (at least along their legendary gates on Melrose Avenue).

Hollywood loves the smell of success, and Paramount’s chairmen Brad Grey has seemingly produced the one bright shaft of sunlight seen recently in town. Too bad it isn’t exactly accurate information and the light is a tad dimmer than thought, maybe even a bit twilight-like. But a billion sure sounds good.

Until you start looking at the numbers, figure out the totals, check and cross-check the actual averages and all of that dull stuff that studio executives don’t much like doing. Suddenly, you find out that a billion just ain’t what it used to be, and the news is really neither here nor there. For example, in the first six months of 2011, Paramount has produced and/or distributed six feature films that took in a global total (so far) of $1.4 billion. Paramount’s own announced figure is closer to $1.2 billion. Presumably this is the amount taken out of deals for the three films they primarily distributed. Still, these figures are very good.

Of these six movies, we are looking at a total production budget of $518 million. However, several of them have estimated budgets that are being pedaled on the low side. For example, Thor is listed on the IMDb site as having a budget of $150 million. In reality, its budget was more likely somewhere between $200 to $250 million (based upon the various estimated budgets that exist for the film). These days $150 million is just a standard PR line when someone is rude enough to ask about the cost. So we can safely raise the production budget by at least 50 percent, bringing it to $1.2 billion.

By the way, did we mention the PR cost attached to many of these movies? Didn’t think so. The average tent pole movie currently results in PR costs that are almost equal to the estimated production budget. So most likely a film like Thor had a promotional cost of around $150 million. Again, we have to adjust the figures. I will be generous and boost the count by a mere 30 percent (based on the production costs before I made the first adjustment — to be honest, I’m cutting them a lot of slack). This would add another $420 million for a total of $1.6 billion.

And did I mention that Paramount’s own figure of $1.2 billion is most likely a high-ball estimate and the real figures are probably at — or just below — $1 billion? Either way, it doesn’t matter. They’re not exactly making money. They are spending money at an incredible level, but they’re not really making any. It should also be noted that Paramount is actually in better financial shape than some of the other major companies.

The estimates and adjustments I’ve made are all extremely rough figures. Since I made a point of low-balling on some of the adjustment, it is very probable that the real figures are even worse. Hollywood accounting is notorious for being less of a science and more of an occult ritual with a wide range of variations in how the numbers magically flow. But the basic pattern presented above is most likely a reasonable assessment. Which brings us to the obvious question: How the hell do these people stay in business!

There are no good answers to this question. Even many of the key players in Hollywood are, I suspect, beginning to ponder the same thing. There is a quiet sense of desperation lurking in the shadows of the sun-lit streets of Los Angeles. There is something going wrong, yet nobody can exactly put their finger on the problem.

Just a quick glance at the Paramount track record brings up a few of the more notable quirks in the current system. Two of the titles on this list were released in 3-D. As we all know, 3-D is supposed to be the salvation of the industry. Oh wait, that was last year. The new story is that 3-D is bringing the industry down. As the cost of 3-D tickets have gone up, the audience has decisively diminished (oh gee, what a surprise). Some analysts are now suggesting that the average tent pole movie would do better by either minimizing 3-D release or skipping it altogether. The main current exception appears to be animated movies. At least for now.

Foreign distribution is the main godsend at the box office. With only one major exception, most of the Paramount movies did better outside of the US than at home. In the case of both Kung Fu Panda 2 and Thor, the foreign market dominated by a ratio of 2 to 1. The only significant exception was Justin Bieber: Never Say Never. Much like Pop-Tarts, Bieber is sort of an American thing.

The ancillary market (DVDs, VoD etc.) has become ever more important. At best, theatrical release will only get most of these movies to a break-even mark (and currently, not even that). Any real profit is made elsewhere. That is one of the major reasons why Hollywood is fighting so hard to take control of the internet by any means possible. For a variety of reasons I have previously discussed, they will undoubtedly fail in this effort (no matter what Congress does). Combine that with the rapid drop in the DVD market and it becomes obvious that the major companies are fighting a losing war.

So we are still stuck with the question of how they stay in business. After several years of thought on this matter, I have concluded that ironically, the question really doesn’t matter. The key to modern Hollywood is that you are dealing with an industry in which none of the financial issues make any sense (don’t believe me, just ask Jonathan Demme). Vast sums of money come and go in a bizarre manner that defies any rational explanation. Most of the accounting is fictional, and the actual figures are too high to be comprehended by any sane person. So the real question is not how do they stay in business. Rather, how do they get anybody in the financial trade to keep giving them money?

What did you say? Haven’t I kept up with the news about the current state of the financial world? Oh, good point. It is more of the same, isn’t it?