I have started to shift from writing one long piece to writing more briefly about two or three topics. People do not always need 5,000 words and eight charts to get the point that movies are perceived better when you release them to theaters or whatever the case may be. I hope that’s ok!
Today is about budgeting films and the future of SVOD networks.
Making Money in Film
I must say, certain embarrassing recent indie films I won’t name have I think been acts of charity with no prospect whatsoever of, or intention of, making money – which I think is a bit of a sickness in recent indie film. Indie film could wind up, like magazines, becoming a bit of a hobby horse for the wealthy, in which case you can get films that really had no business getting made. So there are some people out there in the business who do not care about making money. But for those who still want to, let’s talk about – making money in films.
How do you make money in films? You can just make cost plus movies, but you typically will not make that much. You can make more money with a subscription video service (“SVOD”). Or, if you are making films to slot into someone else’s distribution, you do very much want your most enthusiastic fans to pay more to see it early or to have a permanent copy or something and you personally have to have access to that money. That is to say that there must be a variable or contingent element to the comp and the distribution pattern must somehow capture enthusiastic demand. A demand curve looks like this:
The point of theatrical and IMAX and PVOD and DVDs and Blu-Ray and so on is to capture all of the demand under the (orange) demand curve. Your Netflix or Paramount+ or in any case your “pay one” deal captures only the revenue under the fixed orange line below:
This leaves quite a bit on the table. I think it could be worthwhile to think through whether there is anyway to revivify the ownership format in the form of Blu-Ray. Obviously customers like subscription because it is relatively cheap. And services like ads because while it seems relatively cheap it begins to scale revenue up with usage. But producers of movies should like early windows where customers with high demand pay extra to get a special version of, or experience of, the film – like Premium VOD. They also should like to retain windows on films.
Although I can make an argument for buying Blu-Rays, DVD is extremely minor now. So the only real variable revenue sources are Theatrical, Premium VOD and Free TV, as well as foreign markets. Most people bundle foreign markets with the US in a global deal and they can make money this way. There are cases where someone makes a movie for $8MM and they sell it for $20MM in a global bundle. Usually though, the buyer knows the cost of the film and there will be an implicit or explicit “cost plus” calculation in any deal, which you would rather avoid. In order to obscure the cost-plus element, people can “checkerboard” their worldwide rights deals, selling one country at a time. Some SVOD buyers will not buy rights this way. Traditionally, Netflix did not (though they did on May December for some reason). Nevertheless, this will allow you to sell off rights one at a time, to have them expire one day, and to retain the rights you can retain.
Many producers and prodcos and mini-studios (big studios tend to be subsidiaries of streamers) have it in mind these days that they are going to reduce budgets substantially on their movies. They might have been looking at $10MM to $30MM in the day, but now they really want to look at $5MM to $10MM. This price point is not too big a bite for a streamer and the risk is not too high for the producer. It is realistic in terms of let’s say the median independent film.
Personally, I think this $5MM target is not great. Unless it is a horror movie and it naturally fits in that budget, usually you are foregoing too much (a strong cast in particular) and you are making the movie not good. There is no future for the not good movie. Yes the $20MM to $30MM movie has risk but it has Emma Stone in it. It is directed by Yorgos. It has a shot.
I really do not recommend finding a way to make your $20MM movie for $5MM. Yes there is risk at $20MM but … this is the movie business. You don’t think there is going to be risk? I think that the correct strategy is to make fewer better films at the correct budgets and to try to hold back as many rights as you can, selling the rights you must to finance production. I think that if you are going to have access to a better sort of deal, you will need leverage. If you are going to get some leverage, you have to have a great title. If you want a great title, it just has to be great.
I know you have to work and eat, but try to minimize the risk that you make a movie you hate. Those have a very bad track record.
The New Style SVOD Service
If there’s one thing I am good at it is predicting the future of TV, so here goes. Things change. In the beginning of SVOD, the target audience was small (maybe 30MM) and you could serve and attract that audience with fairly specialized programming. Essentially, you could pursue a sort of HBO/Sundance strategy and get about 30MM US subs and that was a good start. Then you could mature into bigger broader titles like The Boys or Jack Ryan, etc. and you were off to the races. And those two phases were the two phases for a while. But I think things are morphing a bit again.
The other day I was on Twitter and I randomly came across this video of Liberace in the 60s.
I don’t know much about Liberace, but I guess I have seen enough clips to sense that that was not his normal schtick, and it brought to mind for me the fact that … things evolve. What was cool in one decade is usually not cool in the next decade, and if you want to stay relevant, as a person or an SVOD service, you may have to evolve as well (though hopefully you choose wisely and do not jump on every ‘groovy’ fad). It’s remarkable how quickly things can shift.
As the target numbers rise, it is not about Transparent anymore. It is not about Russian Doll. We go from Chanel to The Gap. In The Gap phase, House of Dragons is relevant. The Boys is relevant. The NFL is relevant. The goal is broader.
Once most services have 65MM+ subscribers in the US and have added advertising, they still want to grow but there are limits to how much one can grow in terms of subscribers. You aren’t going to get every home. At some point, you shift to reducing churn, retaining customers, and maximizing engagement for the customers you do have. So in the Transparent/Russian Doll era you might look in your Weekly Business Review at Customers Engaged, Customers Acquired and Customers Churned, in a more mature phase one will focus more on customer engagement – Percent of Customers Engaged (Per Day), Hours Per Customer (Per Day), etc. Because your total subscriber number isn’t changing that much and the major revenue delta is driven by engagement.
It is in this scenario, approximately where we are now, where people depart the “Gap” era and move into the Amusement Park era (or “Mall” era?). As discussed earlier (about a year ago), in “4 New Formats to Expect,” certain new formats will likely become relevant in the quest to reduce churn and maximize engagement. Releasing The Gentleman, which I recently enjoyed on Netflix, and which is an 8 episode action comedy banger from Guy Ritchie, helps, for sure, but to be honest in the Amusement Park era is not a game changer. What we really want is frequency and depth of engagement.
What can get that that does not end after eight hours?
That isn’t a distant memory two weeks later?
What can we get that gets people to check back four times per day?
Why is the service going to be compellingly different at 9AM, Noon, 5PM and 9PM? We want people to be engaged like they are with TikTok or Twitter.
To do this, it would be helpful to have sports (which people are getting) or games. We see Netflix adding games. It would be helpful to have shows for different dayparts and shows that come on every day or at least every week for 52 weeks per year. Look forward to Good Morning Netflix! The (Amazon) Price is Right! Or soaps. And is there some way we can work in user generated content? When you interact with the service could you be interacting with an AI friend in a 3d environment of your choosing? Can we deliver an AI 30 second pilot amongst the ads and get feedback from millions of customers? How can we get customers to have a little exclamation notification on their SVOD app five times a day? They need to get poked. They need to get a message. They need to get friended. They need to buy digital outfits for the 3d digital environment in the app. The comment they made on Selling Sunset needs to get liked and get a comment on it! They need to re-comment to earn clout on the app. Their AI friend avatar needs to have some advice for them about their workout and this weekend’s sale at Sak’s.
The content portfolio will feel more like … television as a whole as we have known it, not like a specialized Sunday night premium treat … and this thing as a whole will feel more like television meets … Facebook meets … Nintendo.
For SVOD services — what got you here won’t get you there.
That’s what’s groovy, baby. That’s the next, next thing.
Does that feel cool? Does it feel fun? Does it feel dystopic like some sort of Hunger Games-y app? Does it feel like a come down from the days of films and series when we could be both high-minded and on the vanguard, diving into a new era of tv and film technology? Well, people will make it as positive as possible. Once you’re in the app, you could be standing in front of the Metrograph on a drizzly NY evening and an old friend you haven’t seen for years might walk up with some advice on movies to see that evening. If that’s what you’re into.
It will all be optimized for you.
One thing this path does is it places more of a premium on scale because to deliver all of this — just to deliver all of the capabilities — requires product managers and software development engineers on multiple continents. If you’re in the second or third rank of SVOD services, you can’t deliver it. You may have to be carried by one of the bigger services that hosts a sticky, interactive environment with a network of customers in an Amazon Channels sort of way.
100 years ago Mabel Normand was the biggest star in film. She got Charlie Chaplin his start, she was the first person to get a pie in the face on film, she was the first person to make a feature length comedy with Millie’s Punctured Romance and she started her own film production company. She was a huge, huge star in 1920 at 28. By 1930, the business totally different, and Mabel was dead. You gotta keep moving, folks. Things change.
Roy Price was an executive at Amazon.com for 13 years, where he founded Amazon Video and Studios. He developed 16 patented technologies. His shows have won 14 Best Series Emmys and Globes. He was formerly at McKinsey & Co. and The Walt Disney Co. He graduated from Harvard College in 1989.
Hi Roy , with revenues now reduced to theatrical and streaming (BluRay is a minor contributor and broadcast TV a diminishing resource) it will be harder in future to recoup the cost of many movies, hence the move towards lower budgets . Tech can help make movies look good for less so there will be more films made in LED studios or online via Unreal . If Netflix decides to license films rather than fund them , only producers with funding behind them will be able to deliver new films .
Roy my career is in investment and retirement planning. Retirement is still a long way off for me but in Australia 800 people will be retiring a day! over the next ten years to join the already 5.8 million there, that’s on a population of 25 M that’s huge, this aging avalanche is world wide event and there the ones with the money. I’d be thinking more about what they want rather than TikTok, hi tech inspired APPs As the old saying goes the more thing change the more they stay the same .