How Hollywood Studios Hedge Their Bets


Making films is a tricky and expensive business. They are also being financed by an dizzying array of equity, direct finance, profit sharing and deferral business models.

To a large extent, the Hollywood movie machine has always been risk averse. No box hit means no business. Film studios relied on one or two tentpole movies to financially carry their film flops.

How do film studios manage risk?

We also know that movie studios like to test their films to death to select audiences, and have been known to butcher films, even re-shoot scenes to assuage to the tastes of test audiences. As long as the box office holds up, film studios are happy.

Hollywood prides itself on making greenlighting decisions as objectively and data-driven as possible. Consequently, they often use market research companies to evaluate the box office potential of a screenplay before any talent considerations.

Are these market research companies providing information, creative executives already intuitively know?

Personally I think creative executives need external reinforcement to justify their decisions. They are under increasing pressure to extract as much revenue as possible from their film investments.

To a large extent, Hollywood executives have been analyzing the prospective box office of films via internal tracking systems, based on the performance of similar films with comparable talent. For instance, they know audiences favor happy (or morally uplifting) endings or respond to the familiarity of a movie star.

Market research companies aim to reduce the guesswork by analyzing the viability of a film script based on various creative parameters. They produce a report film buyers, programmers, studio executives and other decision makers can use to adjust their movie production slate.

What does market research test?

The market research parameters typically tested include  GENRE, PLAYABILITY, MARKETABILITY and a QUANTITATIVE VALIDATION to a selected audience of 1500 targeted movie goers.

What is the PLAYABILITY of a script? An algorithm that assesses plots and sub-plots in relation to the genre and address “problem” areas such as ambiguity and contradiction. They claim “too many romance or horror elements, for example, in a science fiction film could cause genre confusion and alienate the target audience”.  How do they define too much romance? Two kisses instead of one?

Market research also conducts a strength (asset) and weakness (liability) analysis of a film script in the MARKETABILITY phase; sounds like a company balance sheet. This explores themes and how a core audience responds to them based on past experience.

What about breakout movie hits?

No system is perfect. Market reports cannot accurately predict breakout movie successes.

Market research cannot possibly account for all the permutations and variations of human behavior. Since buying a movie ticket is often an emotional purchase, audiences can change their minds based on a host of other circumstances such as mood, company, how their day is going  and the time of day.

It’s just like solely relying on e-Harmony to find your life partner based on 27 dimensions of compatibility. Why not just marry someone because they have determined them to be your perfect match, and dispense with the romance? Although more people are finding their soul mates online, the absence of perfect track record for eHarmony weddings suggests other forces are at play. It’s called humanity. Audience don’t always behave in a predictable way.

Market research is not a tonic that cures all the ailments of the film industry. It is a tool not the master. The audience is the master.

Over-reliance on market research will kill the single biggest factor in box office success; good stories told in a fresh, unique way. Imagine using a computer algorithm to determine the ‘laughability’ factor of a joke? Is there fuzzy logic involved?

What about non-linear storytelling? Statistical probability is at best, an educated guess, not gospel. An automated sausage film factory cannot work. Will screenwriters soon be displaced by writing robots operating on popular dialogue?

Market research cannot easily account for counter-programming, the number of screens showing a film or the P&A budget and strategy. The company claims it can account for lower budget independent films which have already recouped a larger proportion of their budgets through tax incentives and pre-sales, and therefore pose a lower risk, versus debt financed studio pictures relying on a heavy P&A price tag, typically around a third of the production budget.

Does this mean fewer bad films will be made? Will we continue seeing more formulaic and less diverse movies? Certainly in the studio system. However, we leave it up to the independent filmmakers to pick up the slack. A-list talent is eager to explore new voices and push creative boundaries on our screens.

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