The Hollywood Economist: The Hidden Financial Reality Behind the Movies Paperback – February 23, 2010

This is Epstein sequel to The Big Picture: Money and Power in Hollywood released in 2003. Unfortunately, it adds little new information. Here are some of the main themes that are repeated from the previous book:
1) The history of Hollywood with the Studio era (stars are just studio employees; and box office captures 100% of the business) from 1929 to 1950 and the new Studio era (stars make the real bucks, and movies account for just 20% of revenues).
2) Movie financing considerations including cast insurance, completion bonds, pre-sales distribution contracts as collateral for bank loans, and investors ready to lose their shirt to make the whole thing work.
3) The pop corn economy where movie theaters make more money from pop corn and sodas than movie tickets.
4) Hollywood's focus on male-teenagers because they go to the movies and buy the merchandising follow ups (DVDs, video games, toys).
5) The Hollywood formula for blockbusters: a PG rating, a vulnerable character turning into a hero who will vanquish evil forces, etc...
6) Arnold Schwarzeneger's lucrative success in the Terminator movies.
7) The financial fiasco of "Gone in 60 Seconds" even though it grossed several hundred millions.
8) The emergence of VHS and DVDs that first threatens Hollywood business model. Ultimately, Hollywood will learn how to make more money from videos than from movie tickets.
9) The difference between studio produced moronic blockbusters with sequels, prequels, and merchandising follow ups, etc... aimed at male teenagers vs intelligent independent movies doomed for commercial failures but often reaping Oscar awards.
10) Big stars demand tens of millions to work in a studio produced movie, but will work for little to work in an independent movie. This is to have a chance to work with Woody Allen.
11) Stars are not worth their money. It is more about advertising, distribution budget and release date.

If you read "The Big Picture" you already know all that. So, what is new? Here are two themes I found pretty interesting.

The first one is the death of the independent movies. This is because foreign distributors pre-sales contracts are disappearing (this was the main source of collateral for bank financing). With the advent of broadband the availability of pirated movies are undercutting the stream of revenues from theaters and DVDs overseas. A French executive stated: "Why should we buy in advance the exclusive rights to a movie when our potential customers can download it before we can release it?" Many banks have left the movie financing business. This includes John Miller formerly from JP Morgan who resigned in 2008 after being the lead banker in for the past two decades. In 2008 five major independent film distributors announced they were closing.

The second theme is the emergence of movie downloads. Download is the cheapest and fastest way to distribute a movie worldwide. The studios could easily make a lot of money facilitating the download of movies for only a dollar or two just like ITunes did for the music world. But, this cannibalizes their sales of DVDs and would upset their biggest customer, Wal-Mart. So, the studios would have to defer the download of the movie well after its DVD release. When it comes to illegitimate piracy this is obviously a loss. There are now pass protected websites where subscribers already trade movie downloads (the Napsters of the movie world) that are impenetrable to outsiders. How will the studios deal with that?

Otherwise, the book has other flaws. It repeats itself. The history of Hollywood, movie financing, and Hollywood's formulaic approach are all covered numerous times ultimately confusing the reader.

Another flaw is that on certain topics the author is as clear as mud. When talking about movie financing, it is unclear if Epstein is talking about studio movies or independent movies. And, he does not spell the differences between the two. Yet, studio financing is not dead; While, independent movie financing is.

Another ambiguous topic is how much do the studios make. In one passage, they supposedly reap internal rate of return (IRR) of 15% even on unsuccessful movies because of their distribution fees of 30% of gross. And, such IRRs can go up to 60% when they produce a blockbuster. But, outside this passage the book invariably portrays the stars as making the money and the studios struggling to breakeven. Also, whenever Epstein shows an income statement or budget for specific movies, it shows staggering losses even after all auxiliary revenues are taken into account a decade down the road. In such situations, it is unclear how the studios would earn a positive IRR. Also, in "The Big Picture" Epstein showed a movie business that was not viable on a stand alone basis as all major studio companies became subsidiaries of larger diversified conglomerates. So, what about those IRRs of 15% to 60%?

This book is pretty much straightforward in its storytelling. For a slow reader like me, finishing it in only three days felt really good.

It's a report style, facts-only story on how the movie industry keeps up with the times. Nothing wrong about how movies make money these days, with video retailing and renting, free and pay TV rights, product licensing - and now the new digital platforms of downloading and streaming. Multiple sources of revenue has been around that for quite a good amount of time and it will always follow models like that for as long as this industry keeps existing. As companies, movie studios will always look forward to obtaining easy money, tax breaks and whatever is considered legal - but not necessarily ethical - to get their projects done.

As someone who was always particularly interested in the movie business, although I'm not a part of it, I've always heard about how it all worked in a superficial way, but not with such amount of details like described in the book. Nice work.

I had never heard of Epstein's previous book on the movie business, but after hearing him interviewed on the radio I was excited for this one. The author knows what hes' talking about, clearly explains the ins and outs of film finance and he gives interesting examples. I will be thinking about Arnold Schwarzenegger's elaborate contracts for a while now.

My two gripes? It's just, well, it's a little boring. This might be partly my fault, as I just finished William Goldman's fantastic, more general Adventures in the Screen Trade. Goldman has such a lively voice and illustrates his points with longer gossipy anecdotes. Switching to this was like eating a granny smith after a bowl of ice cream. I know it's good for me but it's not as fun. Issue two is that it's so short. 219 pages and an appendix is slim to begin with but the margins on my paperback copy are huge. The actual text on each page takes up about the space of a postcard. Parts of the book appeared previously in magazines, which makes me feel like four articles were slapped together here.

The Hollywood Economist is serious about its subject, professorial in tone, should be very helpful to anyone working in the movies or aggravated that so few good ones get funded.

The cover is also beautiful, if you're into that sort of thing.

This book is perfectly average in its genre. The articles are as short as newspaper columns (average seems to be about 300-500 words) and so there's not much ability to discuss a topic in any depth. The longest piece is the first one, so if you download the Kindle sample you'll get a wrong idea of how much depth you'll find in this book.

That said, the actual pieces are decently-written. The author probably has some interesting insights into the entertainment business, even if they don't come out very often because of the short length of his sections. There are better books out there on this topic: Jason Squire's "The Movie Business Book" for an overview of the industry and Arthur De Vany's "The Hollywood Economist" for a more economics-wonk analysis. Buy those instead.

This book is full of interesting information about the economics of the movie industry. However, I wonder if some aspects of it aren't a little dated, as it came out over 3 years ago.