Film Fund-amentals: Damn the Torpedoes, Full Spend Ahead

We live in strange, absurd times. And everything keeps getting weirder. How else can you explain the recent release from SNL Kagan concerning their projected analysis for Hollywood movies?  I mean, any press release that can keep a straight face while stating that “Overall, SNL Kagan revealed that the recession has been a boon for the box office…” — Well, you just have to love these merry pranksters.

Unfortunately, they’re not kidding. Deluded, yes. Kidding, no. Since their founding in 1987, SNL Kagan have risen in prominence as financial analysts, from their humble days dealing with the thrift industry, working their way through banks, newspapers, real estate and now the media. They have provided financial analysis for such companies as The New York Times, The Wall Street Journal and various government agencies. Now they’re offering for industry use their interactive program called Economics of Motion Pictures with the Kagan Profitability Index, a database covering ten years of revenue data in every genre that will help your movie steer its way through the choppy waters of financial adversity, blast through the stormy seas of audience reception, and find the profitable land of box office utopia.

That is, unless you sink before you even get out of port. Based upon some of the core notions they seem to be using, you might prefer to stay on land while consulting a Ouija board. The idea is that they are offering to hook up the user with the system used by the major studios (which really doesn’t sound at the moment like a heck of a recommendation), even though it isn’t exactly clear who in Hollywood actually uses this thing. Whoever it is, it doesn’t seem to have much of an impact. Last July, SNL Kagan produced a study explaining why Hollywood needed to be making more movies rather than fewer. Obviously this report didn’t exactly make a dent in anyone’s thinking. I kind of like the SNL Kagan idea, but it simply hasn’t gone anywhere with studio honchos.

What I don’t like (and find pretty weird) is the other part of their thinking. In a study that must have taken them all of five minutes, they have concluded that the more money that is spent on a movie, the more money the movie will make. Yep, all you need to do is spend around $200 million, and before you know it, you’re raking in $250 million at the box office.

This is pretty much the theory in a nutshell, which represents a form of logic that Hollywood likes. Too bad it’s actually a type of illogic that is driving the whole industry into the ground. Let’s just make up a film to use as an example. Let’s say that a James Cameron-type director spends years making a movie that costs somewhere between $300 million to $10 trillion (hey, nobody really knows what the dang thing is costing). The film comes out for release on Christmas Day. Every teenage boy in America dashes to the malls to see it. It is the biggest box office opening since the end of the Ice Age. The movie takes in over $400 million during its run.

Big deal! The director could have made (comparatively speaking) more money running a bingo parlor on Sunset Boulevard during the same time. Spending fantastically large sums of money to just barely break even is not called profit. It’s called lunch money, which is about all that the average big-budget movie is currently making.

Sure, the more money spent on the film, the more the studio is committed to the film, which means the more theaters the movie will open in, and the more that gets spent on endless advertising, etc., etc. The film will, most likely, have a big opening weekend. Then everything drops, and after a while the box office creeps up to the $200 million mark. Once all expenses are tallied, it barely breaks even, and everyone is banking on the DVD release (and by the way, earlier this year SNL Kagan also explained how the future belongs to Blu-Ray). Increasingly, not even the DVD release improves the total (Blu-Ray especially). Either way, it is proof of a system that has gone totally out of control.

Just look at the figures provided by SNL Kagan. A study of 50 animated films shows a net profit of $220.5 million (and by the way, they mean gross – there is no way that this is a “net” profit). Since they are using gross (not “net”), they also don’t bother to point out that the average cost of most of these films is around $90 to $110 million (not counting the various publicity and other post-production costs). Likewise, they discover that sci-fi/fantasy films averaged $125.4 million (they say net, it is actually gross). Too bad the average cost for these suckers is around $150 to $250 million. Their study continues in much the same direction.

Of course, they seem to have a few other little problems in the study aside from being net challenged and having an amazing inability to comprehend what might be considered a profit. They are still clinging to the illusion that the current box office has gone up by 5.1 per cent (even Variety is finally conceding that the box office this year is down), which suggests to me that they don’t waste time adjusting financial figures from year to year. And why should they? Hollywood doesn’t. Too bad this failure results in extremely misleading figures as the basis for study, but what the hey….Inflated figures always play a lot better to Hollywood execs than any form of real accounting.

Unfortunately, that is the big problem. The current system is already past the point of any rational control, and functions more like an alcoholic on a binge. The last thing the system needs is an enabler. In some strange way, that would seem to be the position occupied by the SNL Kagan study. Damn the torpedoes and full spend ahead.