December 15, 2014

8 Things You Must Know About the Film Business Today, from James Schamus

At the PGA East's Produced By Conference in October, former Focus Features CEO James Schamus offered up a treasure trove of wisdom about the film industry. Moderated by producer William Horberg (The Talented Mr. Ripley, The Kite Runner, Cold Mountain), the conversation ranged from financial to creative (Schamus is also an accomplished screenwriter, and soon-to-be-director) to conspiratorial (see point seven, below, about our unwitting contributions as filmmakers to the treasure trove of marketable data).

Note: there was no recording at the conference, so some these quotes will be paraphrased — hopefully I have gotten all/most of them right. But I am not a court stenographer (nor am I a full-time journalist, which is why this recap of the conversation is delayed by over a month)! Without further ado:

1. "When looking for guidance, ask yourself what someone you admire would do." For Schamus it was David Picker, who ran United Artists during the days when UA was making a Bond film at the same time they were winning an Oscar for an X-rated film (Midnight Cowboy). By the time Schamus worked his way up to co-founding Focus Features (after working his way up from being a P.A. on low budget films in the late '80s with Ted Hope, Christine Vachon, and Todd Haynes), he would try to run Focus like David Picker would.

2. "The best way to break into producing is to be a billionaire, or be the daughter of one." Despite this tongue-in-cheek reference to Megan Ellison, Schamus had nothing but good things to say about her, and he did not lament the changes in the world of film funding that have movies being funded by high net-worth individuals more often than ever:

"The billionaires are paying for all of our politics, why shouldn't they pay for our movies? With the equity markets what they are now, extremely wealthy people don't have any place to put their money. Hollywood has always been very good at vacuuming all of that up and never giving a cent back. But if you have Megan Ellison making 5 out of the top 10 films in a year and American Hustle pays for a few misses, how is it any different if the money is coming from billionaires instead of studios?"

Schamus gave the example that Little Miss Sunshine was funded by a high net-worth individual because the financing partners couldn't show that it could be made in a more traditional sense, which is to say through pre-sales — and the film may not have been made if not for a high net-worth individual.

The movie theaters are in the business of trapping you in a dark room long enough for you to get thirsty and for your blood sugar to drop so you go to the concession stand.

3. "This is what pays for your job if you work in film: 'no outside food or drink allowed.' Taking five cents of syrup and selling it for four dollars is what makes movies matter [to businesses]. This is because the per-screen average for a theatrical opening is in the thousands. The cost of keeping a theater open is higher to the exhibitors than what they make from the screen. The movie theaters are in the business of trapping you in a dark room long enough for you to get thirsty and for your blood sugar to drop so you go to the concession stand."

4. "Even a successful theatrical release barely pays for the marketing costs." The average MPAA budget today is $60-70 million, with pre-opening marketing costs running $30-40 million. Thus you're at the $100 million cost range by the time the film opens. If you gross $100 million at the box office, theaters take 50-65% (lower for studios, higher for independents), and that means a $100 million gross at the box office only paid for your marketing costs — not production of the film itself.

5. "More people eat Big Macs than eat at a nice restaurant." This was Schamus's response to the question of whether movies still matter, and whether more people are talking about TV shows like Breaking Bad and Game of Thrones today than feature films. "Culture has always worked this way," Schamus said, implying that, in his analogy, feature films are like nice restaurants.

"300 of your data points will be sold today."

6. "What you do as a filmmaker today is you create the occasion for increased surveillance of data points." The value proposition of being a filmmaker [to larger corporations] is you're creating something that will allow them algorithmically to sell something else to your viewers — a subscription or a sign-up — based on the audience's affinity for your film. You're creating "exhaust data" and they know the net worth of the audience. They notice that people who sit in one place for a while — those sitting in the theater around you — have a particular profile, via credit card data, purchase history, and geography. It's a predictive business, and what they want is for when you pick up your phone or laptop for certain things to pop-up: namely, something you will buy. 300 of your data points will be sold today (by companies like Acxiom). What about filmmakers having access to data for their own films? "That's fundamentally a political problem as much as a business problem. Do you have any idea who has your data? As a person, not just as a filmmaker." (Sidenote: go see Citizenfour!)

7. "It's not at all clear what the economics of Netflix are." In the '80s, everyone thought the VHS tape was going to kill the studios. The studios stayed away from things like Vestron, but that actually gave a huge lift to filmmakers. And that's happening now with Netflix as an original studio — they're new and they're disruptive but we don't know how it's all going to shake out. Outside of the high-net worth individuals, "the river of money is flowing to the people with algorithms," and that has changed film finance.

8. "The DVD business has stopped free-falling — it is now a flat-line, and it has a pulse." In the heyday of DVD sales, many independent films were financed thanks to healthy projections of DVD sales. While DVDs sales figures have since fallen off a cliff, Schamus claimed they are now a reliable (though much smaller) source of sales. Hopefully, digital will pick up the slack. Separately at the conference, Cinetic Media founder John Sloss expressed hope for exactly this, which is where I'll leave it... on a hopeful note:

I tweeted dozens of quotes from the Produced By conference — see them all on Twitter here    

Your Comment

7 Comments

Great post! Nice to hear from you again Ryan!

December 15, 2014 at 2:03PM, Edited December 15, 2:03PM

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Ed Wright
Director, DP, Writer
417

Agree; distribution on internet would eventually surpass DVD sales revenue. The question is when and not if.

December 15, 2014 at 7:54PM

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thank you for mentioning #6. Not enough people realize that the film itself isn't the end product.. the commitment to view a film creates an EVENT which becomes a node of a bunch of related meta-data about the attendees. All this data spread out across the world in different regions, creates services/jobs/products by people who can correlate the information into forecasting trends.

For example...
Within a month, you see new memes born online and evolution in women's fashion.
Within a year, you start seeing new inventions, and engineering-design trends.
Within 5 years, new social policies and flavors of sub-cultures.

Entertainment is a powerful thing. =)

December 16, 2014 at 7:26PM

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Julia Howe
Digital Asset Manager
88

I didn't quire grasp your last part, care to elaborate please?

December 21, 2014 at 8:48AM

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*quite

December 21, 2014 at 8:49AM

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Just to sum up total revenue sources to the studio : US theatrical + foreign theatrical + Pay Per View + DVD + TV/cable/satellite both the US and foreign + streaming + airlines/hotels.

A common assumption is that the US theatrical gets only a quarter of total revenues per project. Successful action films usually do better overseas than in the US but the marketing costs can be higher and the studio cut lower as well.

And marketing costs are often quite inflated as well, especially if the distributor is studio's own arm. In that regard, the studio is de facto double dipping. (the same goes for financing).

Many films that are officially only marginal winners are huge profit earners once proper accounting is done.*

*Read some of those leaked Sony info.

December 17, 2014 at 11:22AM

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Dan Leo
234

Have always wanted to know the real truth behind studio profit accounting, anyone know of good sources for this?

Is it legal for us to read that leaked Sony info?

December 21, 2014 at 8:52AM

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