The Hollywood Way of Making Movies
A key principle of our business model is to avoid the systemic problems that plague the film industry. In today’s Hollywood, movie budgets are frequently out of control and productions are often being swept away in a tidal wave of cost. A clear pattern and practice emerges:
- Action movies cost anywhere from $60 million to $80 million and occasionally, the production cost will far exceed $100 million (i.e. Mission Impossible III released in 2006 had a reported budget of $150 million).
- At any time, thousands of projects are in development at the major movie studios. Development cost for a project can be substantial and will frequently exceed $10 million. However, most projects will only languish in development and very few will actually be produced. In 2005, according to the MPAA Worldwide Market Research & Analysis, the MPAA studios (all the major studios comprising some 95% of the global distribution market) only released 190 feature films for the year.
- Script prices, in the millions of dollars, are being paid to writers. Moreover, script doctors are frequently being employed at a cost of millions more to rewrite a screenplay. It is not unusual for more than ten writers to work on a script. The problem is that this process produces significant operating expenses and very few compelling scripts.
- The above the line cost for directors, producers, and actors is soaring into the stratosphere. Stars are frequently making more than $20 million per picture. In addition to their upfront salaries, stars frequently receive a percentage of the box office gross and generous amenities that can add millions to the film’s negative.
- As a result of the studio way of doing business, production personnel have a very narrowcast perspective and are rarely concerned about what is in the best interest of the production or with the bottom line. For example, directors will frequently build expensive sets and then not use them. Elaborate scenes will be filmed, only to be left on the cutting room floor.
- Budgets are frequently generated with little relationship to reality. Many times budgets are established before the structure of the script has been finalized, without a reliable shooting schedule, when locations have not been selected, and with no understanding of how scenes are to be filmed. Such a budget is more than worthless. It creates bogus operating assumptions, that decisions are based upon, with dire consequences for the production.
- Productions frequently begin without a finished script and with inadequate pre-production which inevitably leads to major cost overruns (i.e. Jaws, Waterworld, and Speed II).
In the future, we will be discussing in-depth these and many other examples of the Hollywood way of doing business. More importantly, we will set forth how to overcome these problems by using leading edge theories from business and other industries.
Tags: budget, business, business model, cost, films, hollywood, movie budgets, movies, mpaa, prices, and salaries
