Hollywood Will Be Dead By 2025
When I say Hollywood, I don't mean movies and the art of filmmaking, I mean Hollywood as a place and as a culture. Movies will continue to be made after Hollywood goes bankrupt, but the standards might be a bit different. Instead of big budget remakes and adaptations, filmmaking might become more auteur. There are signs that big Hollywood studios are heading into a black abyss and that the industry will be supplanted by the internet, independent artists and other places. Every year, the death of Hollywood gets so close we can smell the rot. It's so close now that we can safely put a date on it.
With the exception of Disney, the big budget Hollywood industry will probably be on life support by 2020 and near death by 2025, if not sooner. Revolutions in technology and delivery have changed the entire landscape to the point where Hollywood moguls can no longer keep up. The traditional formula for success no longer works. That's becoming more evident with the number of box office flops that have been putting major studios in the red for over a decade. Big blockbusters are under-performing and Hollywood doesn't know how to fix it. Even if they did, the mere act of fixing it would lead to bankruptcy.
This is why the screen will be flashing “Game Over” for Hollywood within the next decade.
One thing that most people don't know about Hollywood is that all of the major studios acquire massive amounts of debt with each movie. Since the 1980s, the industry has operated in similar ways as the US government. Despite making profits on odd occasions when a blockbuster actually performs—or when a small, artistic picture exceeds expectations—studios are always borrowing more money and putting themselves deeper into debt.
Some could argue that Hollywood's growing preference for blockbuster films and adaptations is a direct result of studios needing to earn more to service their massive debts.
Hollywood has leaned more toward adapting novels, comics and video games since the 1990s, largely due to the proven success of such comics, novels and games. Even this formula fails more often than it succeeds. Studios and producers have learned the hard way that success in the comic and video game industries doesn't always translate to success at the box office. The same goes for novels and best-sellers. More often than not, Hollywood studios have spent more than they've earned from adapting popular novels.
Eventually, too many failures lead to bankruptcy. With almost every major studio in the red, the implosion is creeping closer. The trend started with Orion in the 1990s and then MGM back in 2010, followed by production companies like The Weinstein Company (almost bankrupt) and Relativity Media (bankrupt). Unlike studios, production companies come and go and rise and fold faster than dandelions. This is another sign that Hollywood's business model is becoming increasingly unsustainable.
Sometimes failing production companies survive, sometimes they don't. As Hollywood continues to implode, fewer producers will be as lucky as Harvey Weinstein, who was able to get out of a $450M debt following a restructuring deal in 2010 that including losing over 200 of his titles. It's doubtful that Weinstein would be able to survive if he repeated the same mistakes—which he probably will.
To give you a snapshot of the common struggle in Hollywood, we can look at Viacom, which owns Paramount. Paramount is one of the most successful film studios in Hollywood, which makes its current struggles a good example of what's happening in the whole industry.
The LA Times, 2016:
The Los Angeles film studio posted an adjusted $136-million operating loss for the January-March quarter. The movie "10 Cloverfield Lane" performed fine, and worldwide theatrical revenue increased 6% compared to the year earlier period, helped by ticket sales for the Oscar-nominated film "The Big Short," and Will Ferrell's "Daddy's Home," which were released toward the end of last year.
Still, that wasn't enough to mop up the mess. Studio revenue declined 1% to $655 million compared to a year earlier.
"Paramount's results were disappointing this quarter," Viacom Chairman and Chief Executive Philippe Dauman said Thursday during an earnings call with Wall Street analysts. The company expects Paramount to post a loss for the full fiscal 2016 year.
Viacom is looking to sell a chunk of Paramount Pictures, in large part to raise money to pay down corporate debt. The company has winnowed the list to a handful of suitors, and Dauman said the company was "on track" to have a deal hammered out by the end of June.
Almost every major studio in Hollywood is currently struggling with debt, maybe with the exception of Disney. Studios are so swamped in debt, even their successes aren't enough. An increasing number of predicted blockbusters are flopping and the traditional formulas aren't working. With each passing year, profits shrink and debts grow. Combined with the shrinking number of theatre-goers and the rise of piracy, the recipe is one for disaster. To pay off their debts and to become sustainable again, most studios would need years worth of successful blockbusters—or films will need to cost less and earn more, which seems as unlikely as several successive years worth of high grossing blockbusters.
Fewer People Care
The newer generations aren't feeling the nostalgia of cinema. Millennials don't have the same love for the theatre experience as Generation X. The generation after Millennials will care even less about sitting in a stuffy theatre to listen to people cough and crunch popcorn. Combined with the mounting debts, this will be what kills Hollywood culture. According to Cinemablend, only 10% of the US population goes to theatres.
Traditionally, expensive blockbusters have made their money by selling contracts to theatres who sell seats for $8-10. With the transition to digital distribution, films and expensive blockbusters have less potential to earn as much as they have in the past. That's just a fact. The sad part is that we can't change the trajectory. Within the next decade, theatres will be on the verge of extinction.
As of 2015, theatre attendance was at its lowest in two decades, as per The Guardian and Hollywood Reporter:
The number of people going to the cinema in North America has fallen to its lowest level in two decades, according to figures published by The Hollywood Reporter.
Around 1.26 billion filmgoers bought tickets to see a movie in 2014, the lowest number since 1995, when the figure was 1.21 billion. The disappointing return offers further evidence that the US, which makes up by far the largest portion of the North American box office, is likely to lose its position as the world’s largest film market to China before the end of the decade.
The average cost of a movie ticket was slightly up, from $8.13 in 2013 to $8.15 this year. But it is still estimated that overall revenue fell by 5% since 2013, to around $10.36bn – the biggest annual drop in nine years.
Before the internet came along, one viewer earned a Hollywood studio at least $7-8. Today, one non-theatre viewer earns a Hollywood studio an average of $3. This is mostly due to the vast distribution means of the digital marketplace and the growth of piracy. When theatres go extinct, all viewers will be non-theatre viewers. Because the profit margins have declined so much already, studios and the theatres have had to increase their prices. Contracts and licensing between the theatres and studios has gotten more expensive, ticket prices have risen and concession prices have skyrocketed. This seems contradictory to most free-market theories about supply and demand, but the theatre business operates a bit differently.
Theatres only exist because movies exist. Physical, brick and mortar cinemas rely on the marketing of movie studios and on the interest and hype created by advertising campaigns they have no control over. Theatres are similar to newspaper stands on the street corners of big cities. It's not the vendor who attracts the buyer, it's the headline on the newspaper. The newspaper stand only gets customers because it's nearby and convenient. Theatres work in the same way. People don't usually choose a theatre based on the theatre itself—they choose based on the theatre's location. With the exception of IMAX and 3D features, most theatres all offer the same identical products. Since the 1980s, most small and independent theatres have gone under and the market has been monopolized by a handful of giant conglomerates.
At the end of the day, movies will survive without theatres. But, Hollywood studios won't survive without theatres—not in their current form.
It's because they're saddled with multi-billion dollar debts that most Hollywood studios will collapse with the extinction of theatres. Theatres are still the biggest source of revenue for a majority of big Hollywood studios. When the $8 viewer no longer exists, the indebted studios will be sucked into an abyss. This is because leasing and licensing contracts between studios and theatres are still more lucrative than contracts with Netflix and various other digital streaming services.
Fewer Millennials care about celebrities either. The next generation might care even less. This is having a big impact on the traditional Hollywood formula, which relies heavily on using expensive celebrities to sell movies. One way films could become less expensive is by hiring less expensive actors. The only problem with that is that everyone has already stopped caring about theatres.
Since more people care less about theatres, it has been expensive actors and special effects that have been selling the most movie tickets. Hollywood is now stuck in a quagmire. Even their biggest celebrities are earning less at the box office, but movies without them are earning nothing at all and putting them deeper in the red. If Hollywood stopped using expensive actors and special effects tomorrow, their movies would cost far less but also earn them nothing when compared to their current debt burdens.
Hollywood is now in a position where it has to spend more money just to break even.
Anyone Can Do It In Niche Markets
Not only can anyone stream a movie online for next to nothing, more people are now able to make their own movies. The era of big profits might be over for the film industry as it transitions into an art form similar to painting.
Online and digital filmmakers are growing in vast numbers. Most smartphones are equipped with 4k HD cameras and higher quality, professional cameras can be purchased at half the price they were ten years ago. The process of combining visual sequences and audio is easier and more accessible than ever before—and it's only going to become more accessible for everyone.
Back when Quentin Tarantino wanted to become a filmmaker, film was expensive and editing and splicing were a pain in the ass. In 2017, filmmaking is a totally different experience.
This growing reality is undoubtedly pissing Quentin Tarantino off. It's probably pissing off every old generation filmmaker who spent months worth of labour trying to achieve the same things we can achieve now in just a few hours. By 2025, the average person won't need film school or friends in LA to make a movie, they'll just need creativity, drive and a few computer skills. We're already seeing an explosion of high quality, low budget videos on YouTube.
As big studios fold and their money and wealth vanish, demand for big brand licenses might drop as fewer companies are able to bid millions for usage rights. This means that smaller companies looking to make the next Batman or Ninja Turtles adaptation could do so for much less than what studios have been paying. This could open up a whole new world for artistic renditions of our favourite comic book characters or novels. With less big studio money to go around, there might even be less exclusive licensing, meaning there could be tons of new Batman adaptations at one time.
As more people make more movies for less, Hollywood will start to crumble. As more creative geniuses are given access to everything they need to mesmerize us, Hollywood will fade further into irrelevance. The place itself will empty out and Beverly Hills and the Pacific Palisades will see more foreclosures. The new millionaires will be the innovators and creators who started making smart, in-depth movies for a fraction of the cost Hollywood does now. This will be one of the factors that escorts Hollywood to its inevitable demise.
The trend of shooting films outside of Hollywood has been growing since the late 1980s. Filmmaking has become so expensive that studios look to reduce their costs whenever they can while still being able to afford expensive actors, effects and marketing campaigns. One of the ways they do it is by filming in cheaper places. The biggest threat to Hollywood as a place of glitz, glamour and wealth is this.
When it comes to television, Hollywood has taken an even bigger blow. Most television studios are beginning to open studios elsewhere or film on location at places outside of Hollywood. In fact, physical studios themselves are becoming less common, except for sound design and other later additions. The actual act of filming a film or show in a studio is becoming less common. Aside from shows like House Of Cards, most Netflix productions are shot on sight and locally. Very few Netflix originals are shot anywhere near Hollywood. Scenes that still require a studio are more often shot at affordable sound stages outside of California and in places that offer special tax credits. The AMC show The Walking Dead and Netflix's Ozark are filmed on location in Georgia, with very few scenes shot at sound stages in Hollywood. The FX series Fargo is filmed mostly in Alberta.
Most of the biggest television shows of this decade cost less, appeal to smaller markets and earn enough to sustain themselves and their creators. That brings us to the next point, but also connects to the previous one about niche markets.
The Golden Age Of Television
Television has come a long way since the 1990s. In the 21st Century, big studios like NBC and CBS and others that lease studio space from the big Hollywood moguls are losing to newer upstarts and innovative companies like HBO, Netlfix and AMC. Subscription based providers are outselling the big network studios in a big way and this trend will help seal Hollywood's fate.
AMC has come a long way from airing classic movies. Since it evolved into an original content creator, it has produced some of the most successful, low cost, high quality television shows we've ever seen. AMC has given us instant classics like Breaking Bad, Mad Men and The Walking Dead—all at a fraction of the cost that major networks would have. They've made profits not by appealing to 30 million people, but by appealing to smaller, niche markets.
Not a single actor in The Walking Dead is a superstar, yet the show pulls in an average of 13 million viewers—the highest of any AMC program. AMC has mastered the art of appealing to niche markets using the least amount of money. Before Breaking Bad, no one knew who Brian Cranston was and, strangely enough, the show never pulled in more than 3 million viewers until its final season.
Niche markets have proven to be money-makers. They require less resources, but are able to maximize profits when done right. While NBC, ABC, CBS and Fox continue to spend hundreds of millions on production and marketing, companies like AMC, Showtime, HBO and Netflix are creating hyped up phenomenons that consistently outshine everything else. To top it off, they're winning Emmys.
The new formula is outperforming the old formula. Making money in television is no longer about appealing to 30 million people.
Due to the difference in cost margins, the standards for success at AMC and HBO are different than the standards for success at NBC and ABC. At NBC, a sitcom or serial drama is cancelled when it fails to consistently reach a minimum of 6 million viewers. At AMC, Showtime and HBO, success can come with as low as 500,000 viewers per episode. Such was the case with Showtime's Californication, which averaged around 500-600,000 viewers per episode and lasted seven seasons.
As a comparison, let's take ABC's How To Get Away With Murder and AMC's Better Call Saul. In it's first two seasons, the ABC crime drama averaged 10 million viewers per episode but has started to steadily decline to around 4 million in its third season. This means ABC will probably cancel How To Get Away With Murder after this season—or after a fifth season if they feel like being nice to their audience. On the other hand, Better Call Saul has barely ever done better than 500,000 viewers per episode and has been renewed for a fourth season starting in 2018. Chances are, AMC's quirky lawyer show will have more seasons than ABC's overrated, boring crime drama.
A part of Hollywood's demise will have to do with the collapse and failure of network television. Since the rise of the internet and other subscription based networks, larger indebted studios with massive operating costs—like NBC and CBS—have been in steady decline. In the 1990s, sitcoms like Seinfeld and Friends raked in anywhere from 20-30 million viewers, today those numbers are only half that. This is a big problem for the television studios who face the same problems as the biggest film studios. To survive, they need at least 6 million viewers per episode to keep their advertising slots profitable. That's proven in the number of shows that get cancelled when they drop below 6 million viewers.
The Expiry Date
If you look at the math and the trends, it points to Hollywood not surviving in its current state much longer than 2025. The town itself will start to lose its lustre as more studios liquidate and the industry transforms into something different. Hollywood as a place and a culture might not be anything more than a part of American history by 2050—just like Commodore 64, slavery and clowns.
It's hard for people to imagine a world where Hollywood no longer exists. A lot of us grew up with great movies, award shows and celebrities preening on red carpets. As ratings and box office numbers prove, we're moving away from award shows, celebrities and theatres. Every decade that passes produces more apathy toward everything that is Hollywood. When it finally happens and Hollywood fades away, we'll get used to it.
By 2050, your children and grandchildren will be going to Hollywood to visit museums that showcase a part of America's history. That could be all that remains of America's golden age of cinema after the studios vanish, West Hollywood loses 65% of its property value and LA becomes just another American city we forget to visit. If LA's current finances are any indication, the city might follow Detroit after its one big industry vanishes.
Only time will tell if Hollywood, as a place and culture, will be able to save itself.