Is Hollywood Too Big to Fail?

A few months back, I mentioned a theory that was floating on the fringes of the film business. It’s the idea that 2015 will be the year Hollywood implodes.

To be honest, I only gave the notion half a thought. After all, we have gone through more doomsday predictions than a season’s worth of Doctor Who episodes. I hear there are still a few people living off of their stockpile of canned goods left over from Y2K.

So I have not been inclined to give much thought to the 2015 theory. However, it has a point. In fact, it is starting to feel like a grim inevitability. Now that the summer box office is being viewed as a financial disaster and the major companies are slowly rolling their way through a restructuring of executive staff as well as massive lay offs, the 2015 effect is starting to sound pretty reasonable.

The 2015 theory is quite straightforward….Too many tent pole productions, made for way too much money, are all about to crash into each other within a short space of time. These movies are all sequels, reboots and comic franchise titles, and you have this large set of over-produced films all aiming for the same slice of the market. Mix this with the gradual suspicion that 2014 may be the year that the tent pole movie peaked, and that it is already just downhill from here on out. No wonder 2015 is starting to look like a fifty car pile up on the Ventura Expressway.

So, yes, it is possible that a black hole will form next year somewhere near Burbank, and Hollywood will vanish into its event horizon. Which is also why I have a dreadful feeling that about this time next year, the question will be: Is Hollywood to big to fail?

Sure, it isn’t as if the major media companies are the same as those financial institutions that a few years ago had the ability to argue that if they went down, they were taking the world with them. Most Hollywood studios could vanish tomorrow and their parent corporations would require a few days before they even notice. A few of these parent companies might even be happy to finally have an excuse to unload their media divisions. Tensions at a few of these companies have been building for the past several years (for example, the Sony corporation divided views about its business model.

Other Hollywood companies are so locked into their media division that the collapse would be difficult. Both Disney and Warner have such enormous holdings in TV and cable, which they could (and most likely would) regroup in that direction. The losses that may yet be incurred from the movies may be too sizable for this to adequately cover the damage, but at least they have some options. They are also both “restructuring” with a giddy abandon while banking heavily on building movie franchises.

However, they will all need a massive influx of new cash. But from where? It will not be from foreign distribution (which may also be hitting its peak). The studio’s return on foreign distribution is actually small. On average the foreign return is around 40%. But the foreign release market has been growing, while the American release market has dwindled. Even with the addition of a booming Chinese market, the foreign market will not be enough cash for the current Hollywood system.

Video on Demand and other forms of digital revenue is increasing, which is why the major companies are moving quickly into this realm. But for now, this new revenue stream is primarily being used to replace losses from declining DVD income.

There is absolutely no way that government will step in to save the situation, as it did for the banks. At least, I don’t think so. The political influence of Hollywood is kind of a creepy thing. For many years, the Motion Picture Association of America has peddled the concept that movies are one of the few things that America still manufactures. The idea has always been to promote Hollywood as a major component to our international trade system. Sure, the idea is half-bunk but it plays well to many political figures who also love being wined and dined by the Hollywood elite. The idea of a government bail out for Hollywood would take more gall than Charlie Sheen staggering through the drive thru lane at Taco Bell at 2am. But it is not inconceivable (much like Charlie Sheen staggering…OK, you got the point).

So what will happen if Hollywood really does implode next year? I suppose it is possible that a major collapse could force a radical reassessment of the industry’s financial management with a shift back toward rational budgets, diverse and more creative production venues and a greater emphasis on societal engagement and artistic experimentation. Not likely, but it could happen. I might also some morning find a unicorn in my garden.

More likely, the studios will try to double-down (yet again) and decide that they need to produce only three tent pole movies a year. Nothing else, just those three. The big question: Will it be two sequels and one reboot or two reboots and one sequel?

Either way, get some popcorn. The summer of 2015 may yet be the ultimate studio bloodbath.

Copyright (c)2014 Dennis Toth All Rights Reserved