Whio Invented the Golden Globes

If the Golden Globes infomercial did not exist, NBC might have had to invent it to compete with ABC’s Oscar Awards. Fortunately, for NBC, the Hollywood Foreign Press Association (HFPA), an otherwise obscure group, had invented this award-ceremony in 1944 during a free lunch for its members in the 20th Century Fox commissary. Although its dozen or so "members" were mainly war refugees in LA. The German occupation of their homelands had made most of them correspondents without a country, but they loved movies. , Twentieth-Century Fox’s ingenious studio head Darryl F. Zanuck instantly saw that this ragtag group offered another highly-valued product for Hollywood: awards for studio movies. Since the Academy of Arts & Sciences had passed over his studio's “Song Of Bernadette” for the Oscar in 1943, why not accept the "Best Picture" award-- as well as Best Director" and Best Actress-- from the Hollywood Foreign Press Association? So, with a little largesse from the studios, another annual Award ceremony-- and opportunity for placement of the ultimate product, movie stars-- was born.

In short order,the Hollywood Foreign Press Association came up with a slew of other awards that appealed to studio chiefs, such as "Best Film for Promoting International Good Will," "Best Film Promoting International Understanding," "Best Non-Professional Acting," "Hollywood Citizen Award," "Ambassador of Good Will," and a special award for "Furthering the Influence of the Screen" (which went to the Hindustani version of Disney's Bambi.) With them, it managed to promote free dinners for its members at celebrity hangouts including Ciro's, the Coconut Grove and the polo lounge of the Beverly Hills Hotel.

For a while, it was run by Swedish twin brothers; Gustav and Bertil Unger, who were tap dancers. Gustave wore his monocle in his right eye, Bertil in his left, and one consideration in picking winners was who they could get to show up.

But despite the fun, the enterprising group only began to make real money when Ted Turner elected to televise the Golden Globe in the 1980s. Since few stars could resist the ego gratification that came with an award, they provided free talent. The show was taken over by NBC in 1996, which paid the HFPA roughly $3 million a year for the broadcast rights.

Nowadays it is of no matter that the 82 members who vote the awards are mostly free-lance writers and photographers with day jobs or that they have little, if any, connection with the Hollywood community. As the Hollywood Reporter observed "The studios couldn't care less whether the awards are decided by isolated Benedictine monks in the Himalayas or angels on high, at least not since the Globes have evolved into a tremendous marketing tool." As such, it offer scripted speeches by stars, promotional clips from movies, and nostalgic eulogies to some 20 million viewers. And by this time the value of public self-congratulation has become so inculcated in the Hollywood culture that one producer complained to me, "These ceremonies have taken over our social life. Almost every week we get into our formal gear, push through a gauntlet of paparazzi to get to some ballroom, give ourselves awards for everything from movies to lifetime achievements, and then applaud ourselves." Nevertheless, Hollywood’s star troopers suited up last night for yet another black-tie award ceremonies, NBC got its high ratings, the media could report, as if it was a news event that Social Network, won best movie, and Hollywood got yet another infomercial

Hollywood's Brilliant New Money Machines

The ways that Hollywood loses money is the red meat of news reporting on Hollywood. The headlines screamed in early 2012:“Movie attendance falls to 16-year low,”;“Hollywood in turmoil as DVD sales drop,” and “John Carter Financial Disaster For Disney.”
What goes largely unreported, however, is that the studio have found other ways to make money. Despite all the hand-wringing in the press over losses, the 6 major studios made record profits. Consider Disney for example. Despite the“John Carter” fiasco, the studio made record profit in fiscal 2012. How is this possible? The studios have found new ways of making money.

1. They are licensing to new media. Since 2010, there has been an explosive growth in license fees for studio-owned TV series, both still-on-the-air and older ones. The big studios have tens of thousands of TV episodes, movies, and animated shorts in their libraries. Price is soaring as the competition heats up between Amazon. Hulu, and Netflix. And they are buying exclusive rights to compete which each other. As a top Warner Bros executive recently wrote me, “license fees that were chump change two years ago are now mind boggling.” Since studios do not pay for advertising or prints on licensed material, almost all the revenues, except for residuals, goes directly to the bottom line. As a result, the surging license fees have more than compensated for the decline in DVDs.

2. They are also turning Video-On-Demand into another bonanza While pay-per-view never before produced substantial profits, the proliferation of cable VOD have suddenly made this profitable. By 2012, studio lawyers were working at a feverish pace making agreements with cable networks to carry their new movies, such as the ones which now can be downloaded via HBO and Comcast on iPads, phones and other digital devices. The money that is flowing in from these deals is expected to adds hundreds of millions of dollars to the studios’ bottom lines in the next two years.

3. They are also improving foreign yields. The Hollywood studios have found that their 3-D comic book and fantasy movies have such enormous appeal in many developing markets, such as Russia, China, South Korea, and Brazil, that they have succeeded in jacking up their share of the box-office. In China, for example, which now has 2500 3D screens, the studios have raised their cut on these blockbusters up from a measly 13 percent to 20 percent. They have also pushed their yields up in many other new markets. Since a single comic book movie, such as Disney’s Avengers can generate over three-quarters of a billion dollars overseas the increase in the foreign yield results in a windfall (Marvel’s The Avengers, for example, took in to date $84 million in China, $63 million in Brazil, $43 million in Russia, and $51 million in South Korea.) So even though the US box office revenue was down in 2011 by 4 percent, the big studios were actually able to make more money as their share by getting higher yields abroad.

4. Studios have also managed to reduce actual production costs by paying stars only a fraction of their official “quote” or asking fee. In exchange for having them sigh a “side letter” in which they agree to the cut, studios allow them to claim they got their full fee in the contract .For example, a big name star may have a quote of $10 million, which is inserted in the contract, but he or she will be paid only $2 million. The $8 million vanished through a side letter which the star simultaneously signed relinquishing part of the sum in the contract. Since side letters are kept secret by studios, the star can pretend to receive far more than he does. . Stars accept these drastic cuts because they (and their agents and business managers) would rather make a fraction of their quote than no money at all, as long as the world does not find out. For studios, these side letters substantially decrease the cost of making movies

5. Hollywood’s biggest under-the-radar profit center is television. The major studios (with the exception of Paramount) produce TV series for network and cable television. And cable has become an exceedingly rich lode. The A&E network alone is now valued at over $20 billion. As these cable networks largely rely on Hollywood for their filmed entertainment, they have become its cash cow. A top Time Warner executive recently calculated that over 85% of the company’s profits come from TV.
     So don't cry for Hollywood yet.

Hollywood's Pirates of the Internet

Now we learn why Christopher Dodd, the retired Senator from Connecticut, is receiving over $1.5 million a year to head the Motion Picture Association of America.

The MPAA, the trade organization for the Hollywood studios, is financed by Warner Bros., Fox, Universal, Disney, Sony, and Paramount. Each provides about $10 million per year. Aside from efforts to suppress digital piracy, it lobbies Congress and regulatory agencies. Its crucial job here is to protect the Big Six’s crown jewels: their intellectual properties. Without their libraries of movies, animated shorts, and TV series, they couldn’t survive.

Consider Warner Bros. Its library has more than 60,000 licensable properties, including 6,500 movies and 40,000 TV episodes. Whereas its DVD sales have been on the wane, its TV licensing has skyrocketed. In 2010, according to sources at Time Warner, Warner Bros. harvested over $4 billion from worldwide licensing to TV. Nearly 80 percent came from just four cable customers—HBO, Turner, ABC Family, and NBC-Universal’s cable channels. Not only did this far exceed its share of theatrical box-office receipts, which were $2.4 billion in 2010, but this licensing is highly profitable: The studio pays none of the cost of advertising, prints, or logistics. Almost all proceeds, minus some residuals paid to third parties, go to a studio’s bottom line. Whatever the vagaries of the box office, licensing is the largest and most reliable source of profits for the studios.

But these golden geese are in danger of being strangled to death by video streaming. New age companies, notably Netflix, Amazon, Apple, and Google, now compete with cable TV by streaming movies and other video directly over the Internet. Netflix, for instance, offers unlimited streaming for $1 extra a month with its mail-in service, Amazon offers free streaming to its 10 million Amazon Prime customers, and Google offers YouTube free.

How can they afford it? Whereas the old-line cable and satellite companies have enormous building, servicing and amortizing costs, the Internet is essentially free to transmit over. Even if the new age streamers paid the same to license, buy, or produce content, they have a comparative advantage. “I don’t see how cable can compete with free transmissions,” a savvy top executive of Time Warner told me, pointing out that Netflix, after sublicensing Starz’s content, offers it for a fraction of what Starz charges its subscribers. No doubt Starz will end this bargain rate when its Netflix contract ends in October 2011, but so long as transmission remains free, streaming will chip away at the cable audience. “Cord cutting” will leave the cable systems with diminished revenue but the same overhead. “If 5 percent cut their cord, it would be a financial disaster for cable networks,” said a pay-TV executive. The result: cable nets would cut back on the amount they pay for content (which has happened in the case of pay-TV channels).

The Hollywood studios not only risk losing billions of dollars in licensing revenues, but their corporate parents own almost all the big cable networks. Since anti-trust law prevents the studios from meeting to restrain trade, they must act through the MPAA.

Enter Dodd. While technically prohibited from lobbying Congress until 2013, he can provide guidance to the MPAA’s massive D.C. lobbying operation. And as a former chairman of the Democratic Party and former head of the Senate Banking Committee, he knows how the who-gets-what system in Congress works.

Among other things, the MPAA has sidled into the battle raging at the FCC over regulation of the Internet regarding so-called net neutrality, which would guarantee anyone could send anything at no cost over the Internet. Proponents argue that free, untampered with transmission is vital to democracy (and their businesses). They have the support of FCC Chairman Julius Genachowski, a former IAC executive.On the other side are the telecom and cable companies that argue it’s their right to manage traffic that goes through their pipelines as efficiently as possible. Just as cities should be able to manage vehicle traffic by discriminating against trucks on certain streets, they say they should be allowed to segregate traffic along their routes, even if it results in slower, and possibly more expensive, video streaming. Here the interests of the telecoms, the cable networks, and studios converge.

The PR-acceptable issue that Dodd can use his considerable skills and connections to both solidify such an unwieldy alliance and lobby Congress is internet piracy. So we now have the MPAA supported Stop Online Piracy Act (SOP). The formidable roadblock to it is the powerful influence that the Internet titans have over the Obama administration. Hence the current war over SOPA.

The 69th Annual Golden Globe Infomercial

If the Golden Globes infomercial did not exist, NBC might have had to invent it to compete with ABC’s Oscar Awards. Fortunately, for NBC,the Hollywood Foreign Press Association (HFPA),  an otherwise obscure group,  had invented this award-ceremony in 1944 during a free lunch for its members in the 20th Century Fox commissary. Although its dozen or so "members" were mainly war refugees in LA. The German occupation of their homelands had made most of them correspondents without a country, but they loved movies. At this point, Twentieth-Century Fox’s ingenious studio head Darryl F. Zanuck saw that they offered a highly-valued product in Hollywood: awards for studio movies. Since the Academy of Arts & Sciences had passed over his studio's Song Of Bernadette for the "Best Picture" Oscar in 1943), why not accept the "Best Picture" award-- as well as Best Director" and Best Actress-- from the Hollywood Foreign Press Association (although the "association" had not yet put together enough money to design the "Golden Globes.") So, with a little largesse from the studios, another annual Award ceremony-- and opportunity for product placement-- was born.

In short order, the Hollywood Foreign Press Association came up with a slew of other awards that appealed to studio chiefs, such as "Best Film for Promoting International Good Will," "Best Film Promoting International Understanding," "Best Non-Professional Acting," "Hollywood Citizen Award," "Ambassador of Good Will," and a special award for "Furthering the Influence of the Screen" (which went to the Hindustani version of Disney's Bambi.) With them, it managed to promote free dinners for its members at celebrity hangouts including Ciro's, the Coconut Grove and the polo lounge of the Beverly Hills Hotel.

For a while, it was run by Swedish twin brothers; Gustav and Bertil Unger, who were tap dancers. Gustave wore his monocle in his right eye, Bertil in his left, and one consideration in picking winners was who they could get to show up.

But despite the fun, the enterprising group only began to make real money when Ted Turner elected to televise its informational in the 1980s, a gig taken over by NBC in 1996 (which paid the HFPA roughly $3 million a year for the broadcast rights.)

Nowadays it is of no matter that the 82 members who vote the awards are mostly free-lance writers and photographers with day jobs or that they have little, if any, connection with the Hollywood community. As the Hollywood Reporter observed "The studios couldn't care less whether the awards are decided by isolated Benedictine monks in the Himalayas or angels on high, at least not since the Globes have evolved into a tremendous marketing tool." As such, it offer scripted speeches by stars, promotional clips from movies, and nostalgic eulogies to some 20 million viewers. And by this time the value of public self-congratulation has become so inculcated in the Hollywood culture that one producer complained to me, "These ceremonies have taken over our social life. Almost every week we get into our formal gear, push through a gauntlet of paparazzi to get to some ballroom, give ourselves awards for everything from movies to lifetime achievements, and then applaud ourselves." Nevertheless, Hollywood’s star troopers suited up last night for yet another black-tie award ceremonies, NBC got its high ratings, the media could report, as if it was a news event that Social Network, won best movie, and Hollywood got yet another infomercial

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THE HOLLYWOOD ECONOMIST
RISE & FALL OF DIAMONDS
AGENCY OF FEAR
HAVE YOU EVEN TRIED TO SELL A DIAMOND?
THE BIG PICTURE
THE JFK ASSASSINATION THEORIES
JIM GARRISON'S GAME
ARMAND HAMMER:
ZIA'S CRASH
MYTHS OF THE MEDIA
WHO KILLED GOD'S BANKER
THE ROCKEFELLERS [August 9]
THE CRUDE CARTEL [Aug 9]

KILLING CASTRO [Aug 9]
TABLOID AMERICA:
CRIMES OF THE PRESS [Aug 9]

How Hollywood Reads The Latest Numbers

The latest market research by the MPAA carries a clear message to the marketing arms of the studio: target the young.


This is important to what we see because the six major studios rarely, if ever, green light a project unless it is certified as “marketable” in America. What makes a movie “marketable” is that the marketing arm finds that it contains the action, stars, visual effects or other elements that it needs to put in 30 second television ads to activate millions of people on a particular weekend to go to the opening of a movie at thousands of screens across the country. This operation is extremely costly. The average ad budget was $32 million for wide-released movie in 2010. But even with such huge budgets, given the cost of TV advertising, studios usually can only afford seven times coverage, which means hitting the same television audience 7 times in the weeks prior to its opening. To be effective, not only must the ads resonate with those targeted, but those targeted must be people who are frequent movie-goers. If they are not, even if the ads excite them, they are unlikely to go to that movie. So the marketability decision really comes down to a single issue: Will a proposed movie yield the kind of ads that will reach frequent movie goers at a cost the studio is willing spend?

In the pre-television era, there was no problem finding frequent movie goers. That job description indeed fit most Americans. As late as 1948, sixty percent of all Americans routinely went to the movie theaters in an average week. But, alas, that is no longer the case. According to the 2010 Theatrical Market Statistics Report, “frequent movie goers,” now defined as people who go at least once a month, constituted “only 11% of the population.” The MPAA, which published the research in February 2011, correctly pointed out, “This relatively small group is the locomotive of the industry, now responsible for more than 50% of ticket sales.” If anything, that assessment may be an understatement. Without these frequent movie goers, and their popcorn and soda purchases at concession stands, the multiplexes could not remain in business. In 2000-2001, for example. just a 5% decline in theater attendance drove almost half the movie theaters in America to file for bankruptcy. The clear mandate of studio marketing department thus is to sift out the few frequent movie-goers from the masses, and then, once isolated, to laser-beam them ads.

But who are they? According to the MPAA report, 47 percent of the total are under 25 years old. Fortunately for the marketing arms this demographic group is easily reachable because its members to concentrate their attention on the same cable television shows. Even better, they also are of prime interest to the merchandisers, such as McDonald, Dominos, and Pepsi who are willing to make merchandising tie-in deals with the studios (such as handing out toys based on the characters in the movie.) Such deals greatly amply the reach of a movie’s ad budgets to this prized frequent-goer group.

Of course, with the aging of the American population, there is also a sizable grey-haired audience of frequent movie goers, but it is much smaller and more difficult to locate. The MPAA research shows 8 percent of people 50 to 60 are frequent movie goers, but, as this more elderly audience does not cluster around MTV-style programs, attempting to bombard them with 30 second ads is a risky business. Even if they find programs watched by people 50-60, 92% of them are not frequent movie-goers. And marketing executives are not prone to taking such risks with the studio’s money. After all, they have to worry about losing their jobs if their campaign goes wrong. So while adult-oriented films can garner critical acclaim, Oscar nominations, and even make money, they are not likely to be deemed marketable.

The 2010 data merely reinforces what has become the marketing play book of Hollywood: Green-light the movies whose action, visual effects or iconic stars can be used in 30 second ads to stampede the herd of youth into the multiplexes .

Netflix's Brick Wall

In the past three years, Netflix has been merrily speeding ahead on the streaming highway.


It has induced a large portion of its 20 million mail-in subscribers to watch movies that are electronically transmitted, or “streamed,” to their television sets, computers, or mobile gadget. Perhaps 5 million or more of its monthly subscribers are now using the streaming service instead of getting their DVDs in the mail. In the process, Netflix saves hugely in its postage and handling charges.

While Netflix’s conversion of a mass audience to a geek technology in such a short time period is no doubt a phenomenal achievement, it is now heading straight toward a brick wall. Its crucial 3-year licensing contracts for the electronic transmission of both movies and TV programs will begin expiring in just 7 months. When Netflix had made these extraordinary deals in 2008-9, streaming movies was of such little monetary value to traditional media that its newly-created digital sales divisions were willing to license these rights to Netflix at a small fraction of the price that the rights for the same content was licensed to cable and pay-TV channels.

What content-providers had not reckoned on in making these digital deals in 2008 was that Netflix’s streaming would directly compete with its cash cows such as cable and telecom systems. Netflix, with its bargain-basement licensing fees, could offer an unlimited number of streamed movies and TV programs, instantaneously delivered to their TV screens, for $8 a month, while pay-TV channels were charging $14 a month.
Not surprisingly, as Netflix became an increased threat by 2010, the cash cows made it crystal clear to the content providers that this bargain had to be ended when its contracts are renewed. 
The first speed bump Netflix will hit is in October 2011 when its contract with Starz Entertainment runs out.

Starz, which has output deals with Disney and Sony, had sub-licensed in 2008 to Netflix the electronic right to stream those movies for less than $30 million. That amount was about one-twentieth of what the studios charged pay-TV for the same movies.

But there is no way that Starz can renew that deal at the expense of its cash cows. Indeed, it has already assured its cable, satellite and telecom customers that it intends to establish “pricing parity,” as its CEO Chris Albrecht made clear. So if Netflix wants to continue getting Disney and Sony new movies via Starz, it will have to pay the equivalent as Starz’s conventional licensees. In dollar terms, according to industry insiders, this will mean that Netflix will have to pay an additional $300 to $400 million a year to stream new movies.
And this is just the beginning.
As Netflix’s other contracts expire in 2012-3, its other content suppliers, including television networks, will also hike the price. To stay in the game, Netflix’s licensing cost will rise, according to the estimates of content providers, by at least a half billion dollars.
That is in addition to the $1.2 billion it is presently paying to license digital content (including its deal with EPIX).

Netflix would require 5 million or so new subscribers to offset the additional $500 million cost. Finding them will be far more difficult than when it launched its service and had no formidable competition in the streaming arena.

Now it has competition from all directions: Amazon has just launched this year a movie streaming service that is absolutely free to its 10 million users of Amazon Prime. Apple’s iTunes store and Google (YouTube et al) are also moving more deeply into the streaming business.
Then there is Facebook. Here Warner Bros broke the ice by using it to stream the Batman movie “The Dark Knight.” And by now all the major TV networks and Pay-TV platforms are streaming their programs from their websites on demand.
Through the power of its brand and computer savvy of its management, Netflix may well garner a big enough herd of streamers to plow through the brick wall of rising licensing fee. But it won't be easy.