Film Fund-amentals: Hollywood Versus the Market Place

You can’t spend more than two weeks dealing with movies without hearing numerous references to the infamous William Goldman quote concerning Hollywood: “Nobody knows anything.”

Goldman was referring to the level of ignorance that he found in the Hollywood system. Or at least that’s what I always thought. It now seems that Goldman was merely advocating a business model. That appears to be the logic behind the responses so far from the MPAA, the National Association of Theater Owners, the Directors Guild of America, the Independent Film & Television Alliance and the International Alliance of Theatrical Stage Employees in regards to a proposed film box office derivative market. They have collectively presented to the U.S. Congress several nicely typed and very long documents stating in no uncertain terms that Hollywood is run by people too stupid to know what they’re doing and how much money they are spending.

OK, this wasn’t exactly where they were going with these statements, but that’s pretty much the result. In their filings against both Media Derivatives, Inc. and Cantors Future Exchange, the collective brains of Hollywood have insisted that the film industry is too unpredictable, way too poorly managed and basically just completely out of control, and can’t possibly be rationalized into any kind of futures market — and even if it could, it would all be mere guesswork, because the entire industry is just a bunch of smoke and mirrors, and besides, nobody really knows what they’re doing, and even if they did know, they’re not going to tell anyone — and by the way, they make up most of their phony budget figures, and that is why it’s an art form. So there!

Please read these documents for yourself. Read them carefully. You will discover that I just saved you a lot of time by the way I have just condensed 40-plus pages of blarney into a quickly readable run-on sentence. Just in case you think I’m not being fair, you can go to a pretty interesting summary provided by Schuyler M. Moore at The Hollywood Reporter. I would also recommend the blog post “Where There’s Smoke, There’s a Smoke Machine” by Buzz Potamkin. I especially recommend the blog piece by Potamkin. OK, as a producer his biggest claim to fame is “The Bernstain Bears’ Christmas Tree” TV special, but his reduction of the Hollywood system to mere commerce is exactly what the current system is all about.

Hollywood is basically six guys running a closed-shop system that they use as a license to print money. Nothing more, nothing less. Likewise, the only real difference between Hollywood and Wall Street is the name of the ocean each side borders. On the surface, Hollywood and Wall Street are two radically divergent cultures. But at their core, they’re much the same, as each side chases after a heavy-handed and well-oiled pursuit of the “deal.”

Which is also why one of the few valid points made by the MPAA is the issue of possible insider trading. The concern is based upon two possibilities: one, that a studio might attempt to short a film in order to cash in at the market. As a general idea, this is absurd. Ironically, it does occasionally happen. A good example was the poor box office showing back in 1988 of the movie The Adventures of Baron Münchhausen. Technically, this $46.6 million dollar production barely made over $8 million in its US release. It also played at a lot of theaters for months on end. The reason for this was simple: the studio heads were so angry with the filmmaker that they proceeded to give theater owners the most lopsided, pro-theater box office split in history (if I remember correctly, there was one theater that was actually getting a 20/80 split for the movie). Yes, they actually sabotaged distribution of the movie just to spite Terry Gilliam.

Fortunately, examples of the Gilliam effect are few and far between. In the best of times, studios screw up the process enough that they don’t really need to do it on purpose. Besides, they mostly could pull this off in the past because nobody would talk about it (in the case I just referred to, the theater owners would only talk privately and off the record – they were enjoying the easy money too much to blow the arrangement). Thanks to the Internet, it would now be very difficult to pull off this stunt. It would be especially difficult if the closed-shop system of Hollywood was placed under some degree of greater outside scrutiny.

As for their second point, which is the claim that the process of making a movie involves extensive knowledge and information that is not available to outsiders, and that even the information involving the impending release and distribution of a film is subject to too many radical last minutes changes… mostly that is horse hockey (as Col. Potter use to say on MASH). For the most part, the only place where the information concerning a movie’s production is lost in a haze of murkiness is somewhere in the brain of a hopelessly confused studio executive. Everybody else (from Harry Knowles on down) already knows what’s going on. There really are no secrets any more. Instead, we all have to wade through information overload.

Which is what Hollywood really resents. They have no secrets anymore. If a producer has a 10 a.m. meeting to sign Tom Cruise to a movie, every waiter in Los Angeles will know by noon. By 12:30, the news is all over Twitter. By 1 p.m., Tom Cruise might finally get a call from his agent confirming the deal. By 1:30, several web sites will be set up to complain about Cruise’s casting in the film.

And this is what Hollywood really resents about the derivative market idea. For decades the film industry has operated as a closed system with tight-fisted control over information. Those days are long gone, but many folks out West still despise the new (uncontrolled) access provided by virtually anyone with a laptop and a broadband connection.

And I strongly suspect what Hollywood truly dislikes about the proposed market system is the threat of a greater degree of scrutiny it forces upon the film production system. After all, it almost sounds like a back door approach to financial accountability. OK, Wall Street is a bizarre place to go for accountability, but Hollywood is even worse. And that is the real root of their opposition.