14

The Death of Hollywood

Exaggeration or Reality?

Janet Wasko

Once again, the Hollywood film industry is being challenged by a wide array of sources – everything from new technologies to other film industries to copyright infringers. Some of these challenges are not new, although one might think so by reading discussions in the popular press, entertainment blogs, or film industry trade papers, where, once again, the end of Hollywood, and even the end of film, has been predicted. Some examples:

• “Hollywood as a business model is … facing deep and fundamental challenges” (Florida 2009).
• “The business model that formed the motion picture business … is changing profoundly before our eyes” (Disney CEO, Bob Iger, cited in Sandoval 2009).
• “As almost (or, truly, virtually) every aspect of making and viewing movies is replaced by digital technologies, even the notion of ‘watching a film’ is fast becoming an anachronism” (publicity material for Rodowick 2007).
• “… in case you’ve missed this decade altogether, it’s no secret that the entire Hollywood movie industry is dying” (Edelman 2007).
• “… cinema as we know it is falling apart” (Francis Ford Coppola cited in Sandoval 2009).

Certainly, there can be little doubt that the media in general are undergoing significant changes, primarily because of digital technologies but for other reasons as well. Indeed, this period has been called “the largest, most fundamental transformation in the history of the media since the advent of typeface, the moving image, and terrestrial broadcast transmission” (Levin 2009, 258). While it may be too soon to agree with this sweeping statement, there is no shortage of commentary about this transformation and no overall agreement about the consequences. As Cunningham and colleagues have noted:

the problem is that most debate … about industry structure and change is based on an exaggerated opposition between enthusiastic optimism versus determined skepticism over the potential of new technologies. There are assertions of “fundamental crisis” in the strategies of the media and communications industries versus counter assertions of “plus ça change, plus la même chose” – that the present is a minor blip in the march of hegemonic capital. (Cunningham et al. 2009)

It is not surprising that the US film industry is experiencing change nor that there are differing opinions regarding this process. But what is actually changing? This chapter explores some of the challenges and changes confronting the film industry that have been cited in recent discussions of Hollywood’s death. The chapter also considers some of the features that are not changing, or in other words: what continues to characterize Hollywood? The discussion draws on a political economic analysis of film, which seeks to understand Hollywood specifically as an industry that produces and distributes commodities within a capitalist system, as well as the political, social, and cultural implications of that process (see Wasko 2003, Pendakur 1990). The chapter also relies on various accounts from industry insiders and the trade press in an attempt to get a sense of the reactions to various changes actually taking place in the industry.

What’s Changing About Hollywood?

This section will consider some of the major claims that have been made in the declarations of Hollywood’s death, as well as other ongoing changes that the industry is experiencing.

Changes in film financing

Financing is fundamental for the production of any kind of film, but increasingly for Hollywood films that cost, on the average, well over $100 million (not including marketing costs). Banks and other financial institutions, as well as outside investors, have been involved with the industry in various ways since the early years of the twentieth century. However, the type of loans and the amount of financial institutions’ involvement in Hollywood companies have consistently changed over the years (see Wasko 1982).

In the not too distant past (during the last decade), investment funds for major motion pictures seemed plentiful and cheap. An example was Legendary Pictures, a production company that was funded by important Wall Street private equity and hedge fund investors, including ABRY Partners, AIG Direct Investments, Bank of America Capital Investors, Columbia Capital, Falcon Investment Advisors, and M/C Venture Partners. Legendary arranged a five-year, 25-picture agreement to coproduce and cofinance with Warner Bros. in 2005, and released several successful blockbusters, including Batman Begins, Superman Returns, and The Dark Knight.

However, with the recent economic meltdown, most of these types of funds have disappeared (Clarke 2009). Florida (2009) reports that “Some [Wall Street investment houses and hedge funds] have closed their L.A. offices and are reportedly peddling their ownership interests in upcoming movies at discounts of 30 to 70 percent.” Meanwhile, major Hollywood companies have had difficulty raising funds for films and thus the number of films produced is declining. So here we have the first challenge to the most important film companies – finding new funding sources (hopefully, “other people’s money”) for the very pricey films that Hollywood tends to produce.

Changes in film production

Other recent challenges have been associated with the transition from film to digital production. Many Hollywood players welcome the new digital technology; as actor/producer Ethan Hawke once exclaimed: “Digital video is the single greatest thing to happen to film since Marlon Brando,” arguing that digital means more power for writers and actors (Bing and Oppelaar 2000). However, production crews, laboratories, and other production personnel have struggled with the digital transition. While these adjustments are significant, the industry has dealt with this kind of change in the past, and for the most part, the Hollywood production community accepts digital filmmaking.

But not only have production technologies changed, digital filmmaking equipment is available to those outside the major Hollywood studios. Thus one of the challenges to Hollywood’s control over the cinematic world is the development of these new production technologies that enable truly independent film production.¹ As Edelman (2007) notes: “Films that once required a film lab, a team of special effects gurus, and a roomful of dedicated Silicon Graphics workstations are becoming the province of some dude with a $500 camcorder and a Mac.”

Of course, it’s not the first time that technology has been available for independent filmmaking. For instance, in the 1980s, director Francis Ford Coppola commented in an interview in the documentary film Heart of Darkness:

To me the great hope is that now these little 8 mm video recorders and stuff have come out, some people who normally wouldn’t make movies are going to be making them … Suddenly one day some little fat girl in Ohio is going to be the new Mozart … and make a beautiful film with her father’s little camera-corder, and for once this whole professionalism about movies will be destroyed forever and it will become an art form.

The current claims of Hollywood’s death also proclaim the democratization of filmmaking. For instance: “inexpensive digital cameras, cheap (or free) editing software, and newly-accessible avenues of distribution (like digital cinemas and the Internet) are democratizing the art of cinema” (Kirsner 2008, 198). And filmmakers, such as George Lucas, are arguing that inexpensive production equipment will lead to more freedom from the Hollywood studios in terms of what kind of films can be produced (Kirsner 2008, 199). There is no doubt that digital filmmaking technology is available at relatively low costs (compared to professional filmmaking equipment of the past). However, it remains to be seen whether independent filmmakers can actually challenge the Hollywood hierarchy, which has remained in place despite previous technological developments.

Changes in film marketing/promotion

Promotion and marketing have become key components for Hollywood films, with expenditures equaling or going considerably beyond production costs. Variety reports that during the first two quarters of 2009, around $1.7 billion was spent on promotion of theatrical releases (McClintock 2009a). And new media technologies are increasingly used in studios’ promotion campaigns.

For many years now, studios have integrated websites into most films’ promotional campaigns. These sites include a wide variety of features, including games, photos, trailers, and tie-ins with other products. More recently, new forms of promotion have developed with the popularity of social networks, such as Facebook and MySpace, as well as emails, blogs, podcasts, Twitter, widgets, and so forth. It’s claimed that social media promotion incorporates a strategy that directly involves the audience and aims to create “viral word of mouth” for a film. While Hollywood has attempted to build fan support in the past in various ways, including fan magazines, contests, and personal appearances, the tools being used these days are different. Several recent examples include low budget films that became box office successes using “innovative, viral marketing campaigns” (Paranormal Activity, District 9, and The Hangover) – prompting some to claim that new marketing techniques have taken over. As one observer says: “Good-bye, massive Burger King promotions – hello MySpace guerrilla marketing” (Edelman 2007).

It’s not clear, however, that the traditional forms of marketing are disappearing so quickly. By late 2009, various forms of digital marketing represented only 8–12 percent of a film’s promotional budget. While traditional marketing strategies, such as newspaper, broadcast, and outdoor advertising, and theatrical trailers, declined somewhat, they still represented the dominant forms of promotion. As one studio marketer commented: “The landscape is shifting … While everyone is clearly focusing on the Internet, we’re just not at a place yet where we can do less television. That’s why it’s such a confusing, interesting and scary time” (McClintock 2009a).

Some Hollywood marketers even wonder whether the new forms of promotion are actually that effective. Twitter, for instance, may be “just pitching it out into the void,” as one studio executive observed (McDonald 2009). In addition, these social media tools can actually work against a film. A few examples of well-promoted, big films that collapsed during their opening weekends have been blamed on Twitter and other social networking sites “that can blast instant raves – or pans – to hundreds of people just minutes after the credits roll” (McClintock 2009a).

An obvious example of these sentiments is represented by the marketing campaign for Avatar. As Hampp (2010) notes, “With all the talk of the ‘Twitter effect’ and social media making or breaking Hollywood releases, Fox took a decidedly big-picture approach to go to market with the most expensive film ever made,” using many traditional forms of promotion (television advertising, tie-ins, etc.). Thus it seems clear that digital promotion definitely has not taken over from traditional Hollywood marketing strategies – at least, not yet.

Changes in film distribution

We move next to the distribution sector, traditionally the most powerful component of the film industry, and the site of some of most significant challenges to the status quo. Hollywood films are typically distributed to a number of outlets or platforms, including theaters, home video, cable and broadcast television, as well as a number of smaller markets (hotels, airplanes, military bases, etc.). While these “old” distribution outlets are still attracting customers, much attention is being directed at a few new outlets, as well as some future platforms.

Online distribution

Much of the hoopla over Hollywood’s demise is connected to the Internet and its potential for distributing films outside of Hollywood’s control. The major companies have been reluctant to offer their films online for a variety of reasons, including the lack of adequate technology (video compression and hardware), the problems associated with piracy, and a workable business model (see Cunningham et al. 2009).

As the technology has improved, the ongoing challenge has been to figure out a workable business model that also prevents the rampant piracy that the music industry experienced in the 1990s; in other words, how to make money from distributing movies online without losing control of the product. While several sites have come and gone over the last decade, a snapshot of current online distribution services reveals primarily three different models: advertising-supported (e.g., YouTube, Hulu, Crackle, Veoh); rentals and/or sell-through (e.g., Amazon, Apple iTunes, Blockbuster); and subscription (e.g., Netflix). Note that some of these sites have changed models, or, in some instances, are combining them (see Table 14.1). Interestingly, a few of the most important online distribution sites are owned by non-Hollywood players: iTunes (Apple), YouTube (Google), and Amazon. While the major studios sell their films to these sites, pricing and timing continue to be thorny issues.

Table 14.1 Types of online film distribution

Sources include Movie Downland Review. TopTenReviews. Online at http://movie-downloadreview.toptenreviews.com/

The studios have developed their own services (Hulu, Crackle, and Veoh), which obviously offer more control, yet represent another form of vertical integration and sometimes, concentration, for the industry. For instance, Hulu was founded in March 2007 by NBC Universal, News Corp., and Providence Equity Partners. The Disney Company joined the partnership in April 2009. Hulu offers films online (although currently it offers mostly television programming) and provides an example of integration, as well as another example of collaboration rather than competition.

Other new distribution outlets

In addition to the Internet, other new technologies offer distribution outlets that are especially useful in reaching the technologically savvy youth markets. A recent study found that “kids spend most of their leisure time watching or interacting with entertainment, with 34 hours each week spent playing videogames, listening to music or watching movies” (Graser 2009a).

It’s not surprising, then, that films have found their way onto videogame consoles, with Sony and Xbox offering digital downloads of films and television programs through deals with the major Hollywood companies. Meanwhile, films are available in various ways on mobile phones. For instance, mobile customers can access film clips on the mobile version of YouTube and movie rentals from the iTunes store. Verizon Wireless offers V Cast, which features sports, news, and comedy clips. Undoubtedly, more access to movies on mobile phones will be forthcoming.

Future distribution developments

In 2008, a consortium of studios, retailers, and electronics manufacturers formed the Digital Entertainment Content Ecosystem (DECE), which is working on a system called Buy Once, Play Everywhere. The service involves a digital storage system using “cloud computing” to store films in a “digital locker” on a remote server, which can be accessed from any device (TV, computer, phone). The consortium agreed on a format in January 2010, with the first devices and services using the format to be available in early 2011.

This type of technology offers several advantages to the Hollywood studios. One standard file format would offer significant savings for distributors, as just one file will be needed. (Currently, multiple files are required for various formats.) In addition, pricing would be in the hands of the studios, not the retailers.

Not all of the players are involved with the DECE’s system, however. Apple hasn’t joined the DECE project, which, many argue, is crucial in light of iTunes, iPods, iPhones, and iPads (see below). In addition, Disney is working on its own system called KeyChest, which is expected by the end of 2010.

Meanwhile, Apple’s acclaimed iPad offers yet another potential distribution outlet for Hollywood films. Variety’s reaction to the announcement of the device in January 2010 may be indicative of the industry’s attitude: “At a time when a growing number of people are accessing entertainment on the go, the iPad provides studios and networks with yet another attractive platform on which they can digitally distribute movies, TV shows, music, games and other content – and put more coin in their coffers” (Graser 2010). Disney’s Bob Iger echoed these sentiments, stating that the iPad “could be a game changer in terms of enabling us to essentially create new forms of content” (quoted in Wilkerson 2010). Clearly, the film industry looks forward to yet another means of collecting revenue from their products.

Changes in independent film distribution

The challenge of the Internet and other new distribution outlets for Hollywood is not only to find a business model that works, but the “threat” of independently produced, inexpensive, Internet-distributed films that will compete with and, some would argue, ultimately undermine the entire Hollywood system. As new techniques of generating revenue from Internet distribution develop, filmmakers may realize “they don’t need Hollywood anymore. And then … and then the movies will be a whole new ballgame” (Johanson 2008).

A wide range of individuals and companies offer opportunities for independent filmmakers to circulate their films. Some sites offer resources for promoting and distributing independent work, while others represent sites where independent films can be accessed.

New models of distribution are emerging for independent producers, incorporating new media outlets and new ways of maintaining distribution control. For example, independent film consultant Peter Broderick encourages “hybrid distribution,” which combines direct sales by filmmakers with distribution by third parties (e.g., DVD distributors, TV channels, VOD companies, educational distributors) (Broderick 2009).

While many of these outlets have been available for some time, the “revolution” for independents is often assumed to be with the Internet, where near unlimited capacity allows some sites to offer millions of film/video clips. In early 2010, YouTube launched a rental service featuring independent films, inaugurated with five films from the Sundance Film Festival. The move prompted one film instructor to conclude:

new avenues for distributing and consuming full-length independent films will now give anyone with the talent and drive to make movies, a viable and well-trafficked platform for getting their work in front of huge audiences and more importantly – sold. … Indeed, the day when nearly everyone has made an independent film, in the same way that most people today have both an e-mail address and a Facebook page (and perhaps a blog and a Twitter account), may not be far off. (Martin 2010)

YouTube is only one new site where independent films may find audiences, but it may become one of the most important. It claims one of the largest audiences on the Web, boasting more than 70 million unique visitors each month in the US alone (see Vonderau and Snickars 2010). YouTube is owned by Google, the mammoth Internet search engine company that has expanded rapidly into a variety of digital/online businesses, and earns revenue by selling advertising, as well as dealing with many of the major Hollywood companies. One of the problems for independent filmmakers might be the vastness of YouTube. The company has amassed a collection of more than 100 million video clips, so a film can possibly become lost on the site.

Another example of online distribution for independents is Vimeo, an advertising-supported site that calls itself “a respectful community of creative people who are passionate about sharing the videos they make.” The site claims to have amassed 14.7 million videos and 28 million members since its inception in November 2004. It is also owned by a larger company – IAC, a publicly traded corporation that owns more than 50 other sites/brands, including Ask.com, Match.com, and Citysearch.

One way to summarize the changing world of film distribution and the advantages for independent filmmakers is captured by Broderick in his summary of the Old World and New World Distribution (see Table 14.2). Broderick and others are clearly enthusiastic about the shifting landscape that provides more outlets for displaying independent films, and more control for independent filmmakers (see Dargis 2010, Irvine 2009). Yet, with continuing issues of finding financing and effective distribution, it remains to be seen whether increasing numbers of independents can survive, much less challenge the Hollywood system.

Changes in film exhibition

And what about movie theaters? Will they become extinct in the new world of distribution? For years, many people have bemoaned the decline of the movie-going experience, especially in light of the availability of movies in other venues that increasingly compete with the traditional movie theater (see Clark 2009). Although Hollywood films are still most often released first in theaters, the exhibition business faces numerous challenges. But again, this isn’t the first time. As one observer points out: “we’re talking about an industry that not only survived, but ended up thriving amid the arrival of television in the 1950s, videotapes in the 1980s, and DVDs in the ‘90s. The reason? An ability to continually remake themselves and find new ways to generate revenue, by introducing everything from the multiplex and more elaborate concessions to lengthy pre-show advertising” (Irvine 2009).

Table 14.2 Old world and new world film distribution

Sources: http://www.peterbroderick.com

Recent changes in theatrical exhibition that will be discussed below involve technological innovations (some of which have been around for awhile), as well as new features added to the traditional theater setting.

Digital cinemas, 3D, IMAX

As one industry report concluded: “Every phase of the way that movies are made and shown is undergoing a total transformation from analog to digital. We believe that there are no islands in the digital world” (Digital Cinema Report 2010). Digital cinema involves films distributed on hard drives, optical disks, or by satellite and projected on digital projectors. The advantages include lower distribution costs, alternative content for exhibitors, and more protection of content. However, the cost of converting theaters (as much as $150,000 per screen), as well as the higher obsolescence of digital systems compared to film projectors, have been stumbling blocks for theater owners. Other problems relate to storing digital material.

For years, US exhibitors and distributors debated who would pay for the switch to digital projectors. That dispute was resolved when a consortium of exhibitors and studios agreed on a plan for conversion of nearly 20,000 theater screens with financial assistance from JPMorgan Chase & Co. The process slowed down considerably when credit markets froze, making it difficult to finance the conversions (Verrier 2009). Meanwhile, in other countries, a variety of financing options (including public subsidies) have funded the digital conversion of cinemas (Hanson and McDonald 2009). By 2008, there were around 8,600 digital screens worldwide, with 65 percent of all digital screens in the US (a total of over 5,400) (MPAA 2009b). Digital cinemas seem inevitable and will probably dominate theatrical exhibition eventually, especially when major distributors only produce digital versions of their films, as is likely some time in the future.

Another new development in theatrical exhibition is not new at all. 3D is a system of presenting film images so that they appear to the viewer to be three-dimensional. The earliest 3D films were available in the 1920s, followed by several “waves” of 3D film distribution. In the 1950s, 3D was offered by some theaters to compete with television; however, the process has been considered mostly as a novelty. More recently, 3D has gone digital, with various systems available and the number of 3D screens and 3D films increasing.

While there have been a number of companies offering 3D technology (Dolby Laboratories, Master Image, and XpanD), a relatively small firm called RealD has become the leading provider of digital 3D and claims to have “revolutionized the cinema industry.” The company currently dominates the market, with 90 percent of the US 3D screens and 4,800 screens installed in 48 countries with 300 exhibitors. At the end of March 2009, only about 2,000 of 40,000 screens in North America were 3D ready (Verrier 2009).

The tremendous success of Avatar brought increased attention to 3D, with more than 70 percent of the film’s box office revenue from 3D versions (Cieply and Barnes 2010). However, Avatar’s success has also led to a “3D bottleneck” – there aren’t enough 3D screens to accommodate the increasing number of 3D films. For instance, Avatar was to be replaced in many theaters in early March 2010 by Disney’s new Alice in Wonderland. However, theaters were reluctant to let go of the Avatar goldmine for the unknown Disney remake. By the end of 2010, there may be around 5,100 3D screens in the US and 60 films set for 3D release over the next three years (Cieply and Barnes 2010).

Another advanced system is IMAX, which uses frames 10 times the size of 35 mm film, thus enhancing the quality of the image. IMAX theaters use oversized screens as well as special projectors. The IMAX Corporation was founded in 1967 in Canada and has enjoyed some limited success with a few films since then. As of September 2009, there were more than 400 IMAX theaters operating in 44 countries. IMAX introduced a digital system in July 2008, with more than 120 digital projection systems in operation early in 2010. The majority of IMAX theaters are equipped with IMAX 3D technology, while the company claims that nearly a billion people have enjoyed the “IMAX experience.”

Filmmakers are relying on these technological innovations to attract audiences away from their computers and home systems. “That’s why more theaters are focusing on movies with monster special effects that don’t show well on a computer screen or in-home theater … and why major filmmakers such as Jeffrey Katzenberg and James Cameron are banking on 3D and IMAX technology as the future of cinema” (Irvine 2009).

Enhanced theatrical environment

Theater owners are also employing other strategies to lure audiences to their establishments, such as more comfortable seating, even lounge chairs and bean bags, as well as seeking additional revenue through midnight movie premieres and opening-night parties. Thanks to digital systems, some theaters are able to broadcast live events, operas, and symphony performances, as well as hosting in-theater video game competitions on their screens. Some theater owners in the US are adding restaurants and bars, similar to cinemas in other countries. Meanwhile, in Europe, cinemas are taking it a step farther by remaking themselves as entertainment destinations – with bowling alleys, karaoke bars, comedy clubs, and children’s play areas.

New home exhibition technology

But while theater owners attempt to lure audiences back to their cinemas, cable companies offer cheaper video-on-demand or pay-per-view options and the electronics industry continues to develop new television technologies to keep audiences at home. Home television systems featuring high definition, flat panel technology and improved sound systems present higher-quality movie viewing experiences that obviously compete with movie theaters. Furthermore, 3D is expected by many to revolutionize the television medium, as well as the cinema. During 2010, electronics manufacturers began offering 3D TVs and 3D-ready Blu-ray players, while 3D programming was introduced on a wide range of channels and services.

The threat of piracy

Another major issue that continues to haunt Hollywood is piracy, a problem that not only hasn’t gone away, but is becoming even more urgent. For some observers, it is at the heart of the “end of Hollywood” scenario. As one independent production company head exclaimed, “We have to stop it today. We can’t wait until tomorrow, or it’s the end of the film business” (Hiltzik 2010). Others have suggested that Hollywood has an “unreasonable obsession with piracy,” which is linked to the industry’s fear of new technologies (Edelman 2007).

The costs of movie piracy to the film industry are difficult, if not impossible, to measure accurately, although the Motion Picture Association of America (MPAA) continues to announce specific amounts. In 2005, the organization claimed that the direct loss to its member companies was $6 billion and the total loss to the global industry was $18 billon, or about 5 percent of all revenue. Around the same time, a Washington think tank placed the cost in lost or forgone US jobs and tax revenue at nearly $27 billion (Hiltzik 2010). Moreover, in a 2009 study of piracy’s links to organized crime, the RAND Corp. warned that all estimates “should be taken with caution,” yet concluded that, whatever the real figure, it was increasing dramatically (see Yar 2005).

Hollywood has been fighting piracy for several decades, utilizing a variety of strategies to prevent copyright infringement. These efforts are co-ordinated by the MPAA, which recently overhauled its operations, changing the name of the “antipiracy” unit to “content protection.” The organization has been working with government agencies, such as U.S. Immigration and Customs Enforcement (ICE) and the National Intellectual Property Rights Coordination Center (IPR Center). In addition to agents at the IPR Center and around the country, ICE uses 61 Attaché Offices located in 44 countries to combat counterfeiting and piracy. The IPR Center partners include the Federal Bureau of Investigation and U.S. Customs and Border Protection (U.S. ICE 2010).

While there are a number of different types of copyright piracy, the two most obvious examples involve DVDs and digital downloading or file sharing. While imports of pirated discs have plagued creative industries for years, the traditional sale of knock-off DVDs has become more sophisticated, imitating packaging, marketing, and even the product codes from “legal” discs. According to the 2009 RAND Corp. study, many of the same groups that illegally trade in pirated copies of films are also involved in everything from human smuggling and document fraud to contract killing and the drug trade, all crime areas under ICE’s jurisdiction. The RAND study also found that busting DVD counterfeiting rings remains a low priority for police in most countries, which only adds to piracy’s appeal. In addition, the penalties for movie piracy are relatively minor, the product is easy to sell, and the profit margin is often better than for heroin or cocaine (Hiltzik 2010).

Numerous Internet sites also stream movies and TV shows without permission from copyright holders. In addition, indexing sites serve as search engines for “torrents” files – links to TV, film, and music files on other users’ computers. Peer-to-peer (p2p) software connects users to one another and shares files (Sandoval 2009). While large-scale p2p services such as BitTorrent may be a promising distribution option for independent companies, they are seen as potential competitors and a real threat to major distributors.

The MPAA and the film industry have tried various techniques to combat these activities, including hiring security firms, such as MediaDefender and MediaSentry, which promised to discourage file sharers by blocking or slowing the sharing process. Some of these tactics have proven problematic. For instance, Comcast, which owns cable channels as well as a cable service and (soon) NBC Universal, was caught blocking subscribers’ access to BitTorrent and other file-sharing services in 2007. Recently, it settled a lawsuit for that action at an expense of $16 million (Hiltzik 2010).

Legal proceedings have also been employed with some success. In February 2006, the MPAA launched legal proceedings against isoHunt, TorrentBox, TorrentSpy, ed2k-it, and several other BitTorrent indexing or tracker sites, alleging that these sites facilitate copyright infringement. As a result, for instance, TorrentSpy was fined $111 million in damages in 2008 and Gary Fung of Isohunt was found guilty of copyright infringement in December 2009.

In another case, the owners of Pirate Bay were found guilty of breaking copyright law and sentenced to one year in jail and fines of $4.5 million in April 2009. One of the defendants explained: “We still don’t think we have done anything illegal under Swedish law. We don’t share any files; we just link to material. We don’t say what people should or should not download. …. It’s open platform, an open technology, for people to find and share content. There’s no difference between us and Google” (Waters, 2009). Following the verdict, the site was sold to a Swedish software firm, Global Gaming Factory, for 60 million kronor.

However, legal actions don’t always work. The major Hollywood companies lost a landmark piracy case against a small Internet service provider in Australia. The studios claimed that ISP iiNet infringed their copyright by failing to stop users engaging in illegal file sharing. But the Federal Court of Australia disagreed, finding for iiNet, arguing that the ISP was not responsible for the actions of its users, and “did not have relevant power to prevent infringements occurring.”

This issue is especially significant in global markets, where pirated DVDs abound and copyright infringement is common. The major US distributors have been utilizing near simultaneous foreign release dates recently to prevent some forms of piracy. However, the industry also relies on governmental negotiations. Intellectual property relations between the US and most foreign countries are governed by an array of multilateral treaties and conventions as well as bilateral agreements, including the Universal Copyright Convention (UCC) and the Berne Convention. The MPAA and the global Motion Picture Association encourages foreign governments to abide by, and fully implement, important agreements, such as the Trade Related Aspects of Intellectual Property Rights (TRIPS) agreement and the World Intellectual Property Organization (WIPO) treaties.

Despite all of these activities, different types of piracy are growing, especially with the ongoing development of new forms of media technology. Ultimately, they may be impossible to stop.

Changes in global markets

Those who claim that Hollywood is dead or dying often point to developments in global film production and distribution as important contributing factors. While the global market for film is said to have expanded over the last few decades – and Hollywood has certainly benefited from that expansion – other developments are claimed to be challenging Hollywood’s global domination.

Resistance to US dominance

Historically, there have been various ways in which countries have attempted to resist Hollywood’s dominance. To the dismay of the MPAA and the major Hollywood studios, these efforts continue. Forms of resistance include tariffs, licensing, screen and television quotas, local ownership requirements, and frozen earnings.

US domination is also challenged though support of indigenous film production. Subsidies for domestic film industries sometimes are funded through taxation of foreign film revenues or taxes added to theater tickets. Licensing fees, tax rebates, loans, and grants are other ways in which nations fund film subsidies.

Hollywood’s anti-competitive tendencies also have been challenged in some markets, specifically by the European Union and Korea. The more dominant the major transnational entertainment corporations become, the more attention they bring to their market power. And it is possible that more countries will actually enforce antitrust laws in the future.

These various forms of resistance have been aimed at US film in markets around the world for many, many years. Even though some have been successful over the years, Hollywood’s overall domination has continued. It remains to be seen whether or not this kind of resistance, combined with other developments, can more seriously challenge Hollywood in the future.

Foreign production

Ironically, some of the forms of resistance mentioned above have actually benefited Hollywood (or at least, some parts of the US film industry). Film incentives in many countries around the world are prompting Hollywood producers to look outside the US for reasons other than locations. Film production outside the US contributes to building indigenous film infrastructures and enhances the local talent pool (although Hollywood has successfully raided such pools for many years).

As film incentives and cheaper labor costs in foreign countries (as well as many states in the US other than California), claims of “runaway production” have been growing among Hollywood film workers. The issue of runaway production is of paramount importance to Hollywood film workers, whereas producers may be less concerned, as they are the ones who are taking advantage of incentives in other locations (see Miller et al. 2001, McDonald 2010). Many have argued that incentives are now driving decisions on where films are shot. For instance, a study by the Center for Entertainment Industry Data and Research (CEIDR) reported in 2006: “The analysis reveals that, while there are certainly general economic factors at play, such as relative labor and exchange rates, the data over the past several years strongly suggests that proliferation of production subsidies around the globe has been one of the most significant factors affecting the choice of production venues for a significant volume of production” (CEIDR 2006).

New formations and competition

Other new forms of competition also threaten to undermine Hollywood’s global strength, as an increasing number of films are being produced by other countries and many of the “death of Hollywood” proponents strongly emphasize this point. For instance: “Foreign language films, too, are chipping away at the assumed finality of the Hollywood hegemony as more and more moviegoers around the world discover the beauty of the dream-making available on their own shores” (Clarke 2009).

Even though American movies continue to dominate most European markets, European films have had some domestic and international success in recent years. European Union funding of coproductions and distribution, plus box-office-driven policies for awarding subsidies, have given European filmmakers more opportunities to compete with Hollywood’s products. Growing competition in the television industry, channel proliferation, digital television, and continuing deregulation of broadcasting markets also have tended to increase coproduction activity (see, for instance, Kim 2003).

Meanwhile, in other parts of the world, film industries that have been relatively provincial in the past are beginning to pay attention to global film marketing. For instance, in addition to the prolific Bollywood – the Hindi-language film industry based in Mumbai – India has several other film industries. The Tamil, Telegu, Malayalam, Kannada, and Bengali language industries are significant, even though Bollywood, as the largest, receives much more attention from the rest of the world.

Although the Indian market is limited by the number of cinemas in the country (12 cinemas per million people in India compared to 116 per million in the US), Indian films are distributed in other venues, as well as, increasingly, around the world. India’s government is encouraging the industry through improving access to bank finance and reforming taxation laws to encourage exports.

In addition to Bollywood, other national film industries (such as China or Korea) may also threaten to put chinks in Hollywood’s global armor (see Ryoo 2008). As geographer Allen J. Scott, pointed out a few years ago: “If the history of other formerly triumphant industrial juggernauts – from Manchester to Detroit – is any guide, however, the continued leadership of Hollywood is by no means automatically assured. In spite of Hollywood’s acquired competitive advantages, it cannot be ultimately free from economic threats emanating from elsewhere” (Scott 2002).

What’s Not Changing: Hollywood and Continuity

Again, this is not the first time that Hollywood or film itself has been threatened or declared dead. As one commentator recently noted: “there is something strangely cyclical about reports of cinema’s demise” (Clarke 2009). Despite the many changes and ongoing challenges, there is still a good deal of continuity about the Hollywood film industry. Only a few of these characteristics will be briefly discussed here. (For more extensive discussion see Wasko 2003, McDonald and Wasko 2009.)

Hollywood and profit

Motion pictures developed in the US primarily as an industry and have continued to operate in this mode for over a century. Above all, the primary driving force and guiding principle for the industry is profit, and capital is used in different ways to achieve that goal. The industry is cyclical – constantly changing to maximize profits, to survive. Inevitably, individuals and companies come and go as companies move from one project to another, to other businesses, to new or more profitable technologies. Nothing is “sacred” – not even film. As Thomas Guback pointed out many years ago, “the ultimate product of the motion picture business is profit; motion pictures are but a means to that end” (quoted in Wasko 2003, 3). A Hollywood executive explained it this way: “Studios exist to make money. If they don’t make a lot of money producing movies, there’s no reason for them to exist, because they don’t offer anything else. They offer entertainment, but you don’t need studios to make entertainment. You don’t need studios to make movies. The reason they exist is to make money” (Taylor 1999, 59).

People in the industry typically take it for granted that film is a business and sometimes find it surprising that there might be any discussion of this characteristic. In this sense, they may be similar to film scholars and others who pay little attention to the commercial nature of Hollywood. Yet the profit motive and the commodity nature of the Hollywood model have implications for the kind of films that are produced (and not produced), who makes them, how they are distributed, and where/when they are viewed. While many who study film, and some within the industry, consider film an art form, it still seems important to point out that Hollywood films cannot be understood outside of the context in which they are actually produced and distributed, that is, within an industrial, capitalist structure.

Film as commodity

The industry continues to produce films as commodities that are distributed in many outlets or markets (theaters, television, home video, online, etc.), in addition to inspiring additional commodities (video games, music, merchandise, etc.). For instance, merchandise can be particularly lucrative, as the retail sales of products featuring entertainment characters came to about $9.88 billion in 2008.

Since the 1980s, changes in governmental and corporate policies have fostered the organization of media conglomerates around expanding markets for intellectual properties. This form of marketization encouraged conglomerates to integrate and co-ordinate their operations across multiple media industries so that a single property – or franchise – could feed multiple markets using strategies of corporate synergy (see Meehan 2005, Wasko 2003).

The production and distribution of additional commodities contributes additional revenues for the copyright holder (which is often overlooked in assessing the revenues associated with a franchise), as well as helping to publicize the film (especially in the case of tie-ins). The continuous production of additional merchandise based on the film concept and characters also prolongs the life of the franchise. In addition, these activities often connect to other parts of the media conglomerates that typically own successful film franchises, thus creating various forms of corporate synergy. Thus, while blockbuster films aim to reap profits from box-office circulation, as well as release (and rerelease) in home video and television formats, what makes a film franchise especially attractive to Hollywood companies these days are these supplementary products and activities.

Table 14.3 2009 US film revenues

Sources: Magiera, 2010

As film critic Leonard Maltin notes, “There’s no such thing as a surefire hit in Hollywood. But a franchise is as close to surefire as it gets” (quoted in Hoffman and Rose 2005). As for quality: “The studios and the movie chains start falling back on ‘sure bets’ – sequels, popular franchises, formulaic comedies with bankable stars. Quality (which was never all that high to begin with) dips precipitously” (Edelman 2007).

Big pictures/big box office

Despite the predictions of Hollywood’s death, the industry continues to attract sizable revenues. In 2009, the US film industry reported the largest box office gross in history, in addition to an increase in attendance. By one company’s calculations, Americans spent $28.4 billion on all movie transactions in 2009, including theatrical, DVD rentals and purchases, video-on-demand rentals, and online rentals and purchases (Magiera 2010). The specific amounts for these markets are listed in Table 14.3. It should be noted that these figures do not include other markets where feature films are also sold (television, cable, airplanes, hotels, etc.), nor does it account for revenues from merchandising and tie-ins for many films.

It is likely that Hollywood will continue to produce big blockbuster films, in addition to taking advantage of cheaper films that “go big.” A recent study found that films with budgets of more than $100 million generated higher returns (an average of $247 million in net profits per release), than mid-range pictures. The study looked at films from 2004–8. The conclusion? “Mid-range” films with around $50 million budgets are riskier. However, the study did not include marketing expenses and thus ignores the fact that “big” films may be marketed more aggressively than mid-range or smaller films (Graser 2009b). Interestingly, a record of 30 films grossed more than $100 million in 2009. (See Cucco 2009, for more discussions of blockbusters.)

So big films like Avatar will likely continue, but the studios also will continue to be on the lookout for “miracle” films, such as Paranormal Activity, which was produced for $154,000, picked up by Paramount, and has so far grossed over $178 million worldwide. As one Hollywood columnist observes:

Whether or not “Avatar” and “Paranormal” ever appear on a double bill, the two films dramatize the polarization of the Hollywood agenda. Studios are trying to nurture either very pricey franchise films or very inexpensive projects, often to the neglect of the “tweeners” that have racked up surprising numbers this past year. … [for instance], a $460 million blockbuster like “The Hangover,” a movie without star-casting or special effects or even an entirely coherent plot. It’s a vivid reminder to the conglomerates that Hollywood has always defied efforts to come up with a business plan. Hits happen at any budget. (Bart 2009)

The attention that Avatar has received is significant, as many Hollywood players have praised its release as “a revolutionary moment in the history of cinema,” and a “game-changer.” DreamWorks Animation head Jeffery Katzenberg exclaimed: “I think the day after Jim Cameron’s movie comes out, it’s a new world” (quoted in Acland 2010).

Charles Acland neatly ties this attention into the issue of technological change in his examination of Avatar as a “technological tentpole”:

So, while extraordinarily conventional in story and characterization, Avatar is celebrated and promoted to stand out as a flagship work beckoning the next wave of industrial and consumer technologies and entertainments. … Avatar is a technological tentpole under which we find not only other movies and appended commodities, but media formats and processes that slide into our lives as supposedly essential. … In this way, an individual audio-visual commodity like Avatar, while working to entrench the dominance of key corporate participants, effectively continues a primary mode of investment in changing media materials and processes. The seizing of milestone moments is one way in which the very notion of technological change is made a comprehensible and vital part of our attention. At one level, even with all the local instances of innovation – and yes, to be sure, parts of the entertainment business are shifting dramatically – the language of “game changing” is another way to talk about business as usual. (Acland 2010)

Corporate Hollywood

One of the ongoing issues related specifically to Hollywood is the continuing oligopoly that dominates the US film business. It is indisputable that the Hollywood major studios maintain a stranglehold over film distribution and thus ultimately determine what feature films actually reach cinemas and other media outlets. Furthermore, these companies are able to dictate how box office receipts are distributed, using their oligopolistic power to enforce production and distribution policies that many feel are not competitive or even ethical. As a former film executive concluded at the end of the 1990s: “the pervasive market power of the major studio/distributors in the US has been gained and is maintained by engaging in numerous questionable, unethical, unfair, unconscionable, anti-competitive, predatory and/or illegal business practices” (Cones 1997, 1).

Many argue that since the major film companies have become part of large entertainment conglomerates, they have become profit-driven and commercially oriented. For instance, these thoughts on contemporary Hollywood were by Scott Foundas in a recent issue of DGA Quarterly: “So what happened? There are various official histories, all true to an extent: the studios were taken over by corporations that cared more about commerce than art; the audience’s taste shifted, away from reality and toward blockbuster escapism; the budgets got too big, emblemized by the waterloo of Michael Cimino’s Heaven’s Gate” (Foundas 2010).While this is certainly the case, it should be noted that Hollywood companies have always been driven by profit and mostly interested in the bottom line rather than artistic creation. The companies’ ownership by diversified conglomerates often means that there is increased interest in building blockbusters and franchises that continue to attract revenues, often in conjunction with other business owned by the parent corporation.

It’s interesting that despite an economic downturn and dire predictions of the end of Hollywood, the major Hollywood companies seem to be doing fairly well. In 2009, Warner Bros. led the major studios with $4 billion in worldwide ticket sales, a first for any studio. That included $2.13 billion in domestic receipts, and $1.87 billion overseas. Fox reached at least $4.04 billion in global ticket sales, with an estimated $1.74 billion in domestic receipts and a record-breaking (for any studio) $2.45 billion overseas (McClintock 2009b). (Again, these are only box office receipts.) And the “good news” will likely continue, at least for some of the major studios, as indicated in Variety, in early February 2010: “News Corp. topper Rupert Murdoch was jubilant Tuesday amid signs a brutal economic slump that’s hammered the media business for the better part of two years may be coming to an end. ‘Avatar’s’ $2 billion in worldwide B.O. to date and the nine Oscar noms the pic collected Tuesday didn’t hurt the mood among News Corp.’s top brass, either” (Goldsmith 2010).

Hollywood and the world

Finally, the international box office also seems to be growing, and US films still dominate most film markets around the world. For instance, the Australian box office reached a record high in 2009 ($A1.09 billion, or $1 billion), with US films accounting for 83 percent of the total. The Italian box office grew 5 percent to $868 million in 2009 with admissions stable at 99 million and 3D pictures, which have a higher ticket price, accounting for the slightly higher intake. The Hollywood market share rose to 63 percent last year from 60 percent in 2008 and 55 percent in 2007.

This is not a new phenomenon and has been perpetuated for a number of reasons – not just the popularity of Hollywood films (see Silver and McDonnell 2009). Hollywood employs a wide range of strategies to protect its products and business interests in global markets. These efforts include a strong trade association and ongoing efforts to enlist the state in supporting the industry. The MPAA does not only become involved in piracy, but actively lobbies for favorable policies that clear the path and open markets for the US entertainment industry’s products. To give just one example: in December 2009, the World Trade Organization confirmed a decision that China was to provide greater access to its market for US films and DVDs. The decision prompted the head of the MPAA, Dan Glickman, to observe: “At this time of economy difficulty, gaining access to the Chinese market is of the utmost importance to the working men and women of this country” (MPAA 2009a).

However, MPAA members are not only distributing “American” films, but producing films for specific markets, in those markets. Often taking advantage of lucrative incentives and subsidies, foreign production continues to provide Hollywood with additional products to further dominate global film markets.

The Future?

Although Hollywood is experiencing significant change, it is still premature to celebrate or bemoan its death. As we have pointed out, some Hollywood observers see these changes as positive and are optimistic about Hollywood’s future. For instance:

The entertainment biz has a long history of technophobia. And yet new technologies inevitably bring opportunities and create new markets. Music publishers tried to sue player-piano makers out of existence, fearing that no one would ever buy sheet music again. Fifty years later, in 1984, Motion Picture Association of America President Jack Valenti uttered what’s undoubtedly the most infamous comment in the history of technophobia: “The VCR is to the American film industry what the Boston strangler is to a woman alone.” Today, video rentals account for more than 40% of studio revenues. The same will be true of digital filmmaking and distribution, digital asset-management systems and yes, even P2P software. It will take time. But in the future, as in the past, technology will ultimately deliver a happy Hollywood ending. (Black 2002)

Meanwhile, others are less sure that Hollywood will survive, at least in its current configuration, and are far more critical of Hollywood’s attitude. For instance:

The world will always need entertainment, and Southern California is the odds-on favorite to produce it. It has the history, the people, the infrastructure and the creative energy. But as Detroit automakers and New York’s financiers have learned, these natural advantages can disappear when an arrogant and insular industry comes to view its dominance as inevitable and its outsized compensation as an entitlement. (Florida 2009)

It is folly to predict the future without an adequate grasp of the past. Even then, it is a dicey business. While this short chapter has not allowed the opportunity to fully explore the history of Hollywood’s various encounters with changing economic, technological, and social developments, the discussion has hopefully made clear that the current challenges are numerous and complex. And while Hollywood today may be “confusing, interesting and scary,” it is inevitable that if there is a happy ending, as predicted above, it certainly would not be celebrated by everyone.

Note

1 The reference to “independent film” is not related to those companies that work closely with or are owned by the Hollywood major studios (for instance, New Line, Fox Searchlight). Genuine independent production can be defined as one in which “the filmmaker has full creative and distribution control, investors have no involvement with the film outside of providing financing, and the filmmaker undergoes substantial risk to produce and distribute the film” (Erickson 2010).

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