Internet Replaces TV for Film Ads
Audiences Get Media Online and Threaten Studio Reliance on Broadcast
As young movie-going audiences search for their films online, the studios fear they can't compete if they rely on traditional TV ads to drive cinephiles to theatres.
Traditionally the people who really make the money in the entertainment business are the studios. However, Hollywood’s studio margins are starting to thin to between 7 and 10% per year. For Warner Brothers this means $1.1 billion a year, but by private equity investor standards this is now considered, “The bottom end of the returns.”
Internet Replaces TV for Film Promotion
Broadcast TV used to make the difference, and has been the lifeblood of the studios for the last 40 years. It had the most concentrated, dependable audience and advertisers paid premiums to reach it. But the broadcast model is failing. People don’t watch the 6 pm news anymore. They read a blog or an email or their Google or Yahoo home page to get the news.
The most avid entertainment consumers are the 18 – 25-year-old demographic who now play video games or spend most of their time online. On-demand/pay-per-view is growing, but this presents a real cashflow crisis for studios who still count on boxoffice to pay upfront costs.
Changes in Film Studio Financing
Hollywood tends to overpay for movies development and production. The current system is bloated and inefficient, which is why we are beginning to see more ventures funded with private equity.
Studios have to lower production costs to keep it in line with weakening television revenues. Reality television, with its already low production costs, is therefore here to stay.
Studios are beginning to:
- Let other people share in the financial risks
- Let private equity help with cash
- Share profits when a production scores big
Dune Capital has had a terrific partnership with Fox. They have financed 28 films each, resulting in large profit returns for their investors. The most profitable films have budgets in the mid range: Borat and The Devil Wears Prada, to name two.
Collecting and Distributing Film Libraries
The studios' empires are built on their film libraries. In order to stay on top, they have to add more content every year to generate long-lived ancillary revenues. A classic title like A Christmas Story has made more money over the years than it ever did the year it was released, but these evergreen properties are harder to come by.
Viewers want on-demand content (entertainment and educational), so traditional delivery mechanisms like theater, network television, cable – even ‘networked’ pay-per-view - just don’t cut it any more. Increasing bandwidth and the digital delivery capabilities of the Internet only hint at greater capacity and competition. If the studios don't adjust their approach, they stand to loose even more margin. Bad news for them, but new opportunities for the entrepreneurial flimmaker on the rise...
For an insider's take on Hollywood and industry tips for up-and-coming producers in the making, check out The New Breed of Film Producers and learn how the Internet Changes Hollywood vis a vis film production and distribution.
