The Last Typhoon

So I’m sitting in a film producer’s office in Los Angeles, overlooking Sunset Strip, on one of the final days of June. The sky outside is cloudless and bright, but the atmosphere inside the office is anything but sunny.

As we follow what is almost always the proscribed form in one of these “let’s take a meeting and see if anything comes of it” sessions, the man and I are exchanging our latest tales of entertainment-business madness: Mine concerns a studio that has purchased an autobiography and is now auditioning screenwriters to do the adaptation, yet none of the executives involved seems to have an idea-a clue, a viewpoint-as to what kind of movie they want to make, or what the story should be. At best, the executives mouth the usual empty buzzwords-“cutting edge,” “tent-pole,” “star vehicle.” At the worst, they add, “It’s up to you. We’re not wedded to anything in the book. Throw it all out if you want to. We’re looking for a fresh rethink that will blow us all away.”

So why, I ask rhetorically, did they buy the damn thing? Good question. Especially since, having read the autobiography, I can tell there’s no movie in the book. But this probably won’t stop the studio from spending a million dollars on screenwriters before they discover this for themselves. So maybe the answer is a Clinton-esque “they bought it because they could.” Or maybe they bought it to prevent someone else from buying it. Or maybe-just maybe-they’ve succumbed to the mind-set that eats away at so many people in Hollywood: confusing activity with accomplishment.

Sitting across from me, behind a glass-topped desk dotted by silver-framed pictures of his family with movie stars, the fiftysomething-year-old producer smiles. Crossing his legs, he scratches a bare, suntanned ankle sticking out from a black Prada loafer. He voices a theory that during the 90’s the brightest and most creative young people went into the Internet business, and the studios are now suffering for it. I nod, not quite sure I agree-but he’s already launched into his own current tale of movie-business woe:

It seems he’s trying to make a sequel to a successful buddy action picture he produced several years ago. The studio has committed $80 million-a handsome sum, by most standards-yet he can’t make the numbers work. Why not? The co-stars are guaranteed $40 million-$20 million apiece-before a single frame is shot, and before $5 million goes to the director, and an additional $5 or $6 million is spent on a first-tier villain. So with a budget of $80 million, he’s left with less than $30 million to actually make the film.

“There’s something about this business that doesn’t work anymore,” he says, with a mixture of amusement and pure fear.

Later, on the way home, his words stay with me. It’s a sentiment I’m hearing a lot out here these days: There’s something about the business model that doesn’t quite work anymore. Something about the failure of traditional television shows and so many high-budget films that are tanking. Something about the entire economic structure of the industry-and all the people it supports in high-ticket lifestyles-that feels precarious.

As I write this, during what is traditionally the biggest weekend at the movie box office-the July 4 holiday-the Writers Guild is working without a new contract, the television audience continues to shrink, and-Michael Moore and Spider-Man aside-MGM is about to disappear in a stock buyout, while Disney has just announced cutbacks in film production.

As spectators, we look at the Nielsen ratings and the box-office grosses every Monday in The New York Times and marvel, as if it’s a sport. The business itself has become a form of entertainment. Yet most people don’t understand how to read those numbers. (Hint: It’s called box-office “gross” because it’s what the movie grosses. But how much a film returns to the studio is called “net,” and it’s usually 40 to 50 percent of the gross. So don’t be fooled by the “success” of a film that costs $200 million to make and market and grosses $200 million in the theaters: The film is $100 million in the red. And don’t be taken in by the overseas grosses. An even smaller percentage is returned. Imagine what it’s like to get the money out of a theater in Taiwan-with all the middle-men involved-and you’ll understand what I’m talking about.)

In the smartest book ever written about Hollywood- The Last Tycoon –

F. Scott Fitzgerald wrote that “Not half a dozen men have ever been able to keep the whole equation of pictures in their heads.” I make no claim on this. But I do sense that somewhere out here, just beyond the horizon, there’s a perfect storm brewing-a combination of technology and sociology-that’s going to utterly change the entertainment business. Maybe not in five years. Or 10. But it’s coming, nevertheless. Here are three of the basic elements:

1) The End of Mass-Audience Television. Let’s start with some numbers here. According to the latest Nielsen ratings, the top-rated network news program- NBC Nightly News -had an audience of 8.9 million people two weeks ago, or roughly 3 percent of the American population. Cable TV’s top-rated The O’Reilly Factor reached two million viewers, or less than 1 percent. The highest-rated entertainment show- CSI: Crime Scene Investigation -had 15.3 million viewers, or a little more than 5 percent of the population. And since March, John Kerry has spent over $60 million on television advertising-yet a recent poll by The New York Times and CBS found that almost 40 percent of Americans still can’t rate the candidate.

Is the problem here the message, the messenger or television advertising itself?

In a recent Fortune magazine article about the problems major advertisers are having in reaching mass audiences, the ad man Donny Deutsch complained about the rising power of media buyers and the falling influence of creative types. As a former advertising copywriter (for accounts like BMW and Sony), I can sympathize with Mr. Deutsch. But at the same time, I think he misses the larger problem: You can create all the brilliant TV commercials you want, but they won’t matter if there’s no audience to see them-or to react to them and buy the products whose sales ultimately underwrite the cost of TV shows, via advertising. Let’s put it another way: How much longer will advertisers continue to accept yearly rate hikes for ever-diminishing audiences?

So where has the audience gone? Certainly, to some extent, it’s splintered into 500 different channels. But at the same time, if you chart the rise of broadband Internet connections, instant-messaging and online gaming-along with DVD sales and PS2 platform-type games-you’re left with the same answer people had when they wondered where the audience for radio shows went in the early 1950’s: There are only so many hours in the day. And they’ve moved on to another medium, and technology.

This past year, I was hired by one the giants of the computer-gaming industry to create the story and screenplay for an electronic game. Although I don’t play computer games, I agreed to do it because I have young kids, and I was curious about this new form of media. The experience was eye-opening for a number of reasons. First, the sheer size of the gaming business: For the past several years, game sales have outstripped the U.S. domestic-film box office. Games take in more money than movies. Next, there was the number of hours people spend playing a successful game: not five, or 10, but-by design-dozens to hundreds. And, finally, there was my misconception about game players: not just 16-year-old boys, but 18- to 40-year-old males-the prime advertising target.

More to the point, however, is the fact that entire generations-from my 4-year-old twins (playing interactive learning games), to 40-year-old men (shooting up thugs in True Crime: Streets of L.A. )-are learning a different story-telling grammar and a new visual syntax. And when asked, they’ll be the first to offer that it’s more challenging, involving and entertaining than a television sitcom with a couch in a living room, which fails to beckon even if viewers can blank out the commercials with TiVo.

Obviously, this is only one small facet of the shrinking TV audience. And it certainly doesn’t mean the end of shows like CSI or The Sopranos . But the rise of reality television reflects a different economic reality. And again, I go back to the 1950’s and the introduction of TV: The movies responded with wide-screen epics; faced with diminishing production dollars, radio found talk and niche audiences. And for then, as now, there’s one common denominator: Things changed.

2) Will DVD’s Kill the Multiplex? Over Memorial Day weekend, I took my family to see a matinee of Shrek 2 at an upscale, cafe-latte-serving Cineplex in Hollywood. The cost for two adults and two children? $48.50. Before parking and popcorn.

I’m not complaining here about the price of the tickets. (Well, actually, I am, but it’s not as if the kids are going to go without shoes, so I’ll let it slide.) Nevertheless, as I stood in the lobby, admonishing my children-“Enjoy the picture; it’s the last one you’re going to see until you’re 22”-I was stuck by two realizations:

First, I now understand why the nannies and housekeepers in Los Angeles are so grateful for borrowing the awards screeners-DVD’s and tapes-every Christmas. (You do the math for a family of six to go to the movies, while I assure Jack Valenti and Dan Glickman, the incoming head of the MPAA, that no one in my house played Santa with screeners this past year.)

The second realization concerned the weekly box-office grosses: In the past, the general rule of thumb was that a film would earn a quarter of its total take during the first weekend. But the key number to watch was always the drop on the second weekend. If the fall-off was less than 25 percent, the picture stood a good chance of exceeding the opening weekend estimate; a greater than 25 percent drop-off indicated that the film was in trouble, with bad word of mouth and no repeat business.

In the past few years, however, there’s been a curious phenomenon: Movies are opening to giant first-weekend business, then dropping off precipitously-between 40 and 70 percent. Why? Part of the answer might be the quality-the leaden sameness-of so many big films. But I can’t help but believe that the home-video revolution plays a role here: If a film doesn’t reach a critical mass that first weekend-if it doesn’t become a “must-see” event-you blink, and it’s available at Blockbuster. There’s no imperative any more to rush out and see it.

On the one hand, there’s nothing new in this: Home movie rentals are now in their third decade. But on the other hand, there’s an entirely new and disparate factor at work here:

On a recent Sunday afternoon, I stood at a Costco in Burbank, Calif., and was amazed at the number of $2,000 flat-panel giant TV screens and home video theaters flying out the door. And it’s not just happening at Costco: In mid-June, the retailer Best Buy reported a 17 percent sales increase, due largely to high-end TV sales. In other words, home theaters and giant TV’s have now become a middle-class purchase. And for the first time, with the picture quality and improved sound on DVD’s, it’s not only possible to duplicate, but in some cases actually to improve on, the way you see movies in the theater. You’ve already sunk the two grand into the set; for $4.99, you can invite 10 friends over to experience surround sound, with better popcorn, and without having to sit through 15 minutes of Coca-Cola commercials.

Again, I’m not suggesting that movie chains are about to go out of business tomorrow. And I certainly don’t think the sociology involved with going to the movies is about to change anytime soon: It’ll always be a function of dating and the need to “just get out of the house.” But as future generations grow up with home theaters, there’s bound to be a shift, in both the kinds of movies being produced and their budgets. Maybe the business will become more like legitimate theater, with Off Broadway art productions and Cats -like extravaganzas; maybe not. But either way, there’s bound to be an impact on the movie industry-the beginnings of which we may be seeing right now, with Disney cutting back on film production.

In the meantime, consider this: In the late 19th century, virtually every village in America had a pavilion on the town square where the community gathered on summer nights to share in the joy of live music. In lots of small towns, those pavilions still exist. But what happened to the communal experience? The phonograph.

3) the 500-channel universe implodes. If there’s a third element to this perfect storm, it lies buried at the bottom of your cable-TV bill, on the line totaling your monthly charges.

As The New York Times reported on May 31, there’s a battle brewing in America over spiraling cable-TV bills, with a demand for à la carte pricing, where consumers get to pick, and pay, only for the cable channels they actually watch.

The Times couched this story in political terms, leading with L. Brent Bozell, head of the conservative Parents Television Council, railing against violence and indecency on cable shows like FX’s Nip/Tuck and the MTV network.

But in reality, this is an economic issue: As The Times pointed out, since 1996, cable prices have risen by 56 percent, while the consumer price index is up by only 21 percent. The average cable subscriber watches only eight channels, yet is forced to pay-or subsidize-dozens, if not hundreds, more under the current “bundling” or “tiered” billing system. And advocates of à la carte pricing have found a powerful ally in Senator John McCain, who is threatening to bring legislation forcing cable operators to change their pricing structure via his position as chairman of the Senate Commerce Committee.

In an open letter to Congress last May, a dozen female cable executives claimed that à la carte pricing would affect “diversity” on cable TV and “cause the demise of many existing cable-program services,” which couldn’t survive the “pay-for-what-you-actually-watch” economic model.

But as advocates of à la carte have countered, isn’t that exactly the point? It’s one thing to subsidize a small portion of commercial-free PBS-and the Muppets-via your tax dollars; it’s something entirely different when you’re talking about subsidizing Oxygen, or the NASCAR racing channel, or even Fox News.

According to an article in USA Today , Time Warner chief executive Richard Parsons has said he “will to go to the mat on the issue.” Given that his opponent is going to be John McCain, I’d pay hard cash to see this match broadcast on pay per view.

One way or another-this decade, or the next-à la carte pricing is coming. And what’s going are a lot of jobs, channels and revenue streams that Hollywood counts on.

For almost a hundred years, Hollywood has lived on the precipice; it’s almost beyond irony to note that the industry is centered in Los Angeles, a city underpinned by fault lines, where the only sure things are sunshine, and earthquakes.

But whether the correct metaphor is the perfect storm, or some seismic event, the warnings are all there. And if you cock your head and listen just right, you hear the rumblings of change in the distance. The Last Typhoon