Houston Howard, Transmedia Author/Speaker: You have to make 140 million dollars plus the 5
million production budget which means it's a 145 million dollar break even on a 5 million movie.
Film Courage: Can you explain why a movie does not make business sense?
Houston: It's such an interesting question and an interesting model when you talk about the movie
industry and the film industry and the reason it's interesting is because Hollywood's always existed
in this bubble because it was always so difficult to be able to create entertainment and technology
wasn't democratized so not a lot of people could make entertainment. Whenever entertainment was
made (especially film) whenever a film was made it was a very special rare thing and a lot of that
defied the rules of economics in the rest of the world. Now it seems that in a commoditized market
and there's so much content that when you look at just the business of filmmaking it doesn't make
a lot of sense to a lot of people. If you go out and talk to a lot of investors and the investors
a lot of times will tell you most times they'll tell you that the economics of the industry
just doesn't make sense for them where you put up a lot of money in especially say like a
independent film venture you put a lot of money in up front you don't see any return for a long time.
There's no sort of incubation model that you see out of Silicon Valley or or even just a startup
business it it's it's a big crazy roll of the dice you put a lot of money in and you just hope
and pray that a bunch of people show up on the same weekend and if they show up on the first
two weekends at least you maybe you get your money back but if you if they don't then you lose it all
and it's just a high risk it's a high risk venture especially in a commoditized market where there's
this hyper competition and so it's it you know if you look at even other aspects I mean you
think other aspects of the way normal business is done typically the cost of the cost of production
will drive the retail cost of a of a product for example and so if if you can make a Toyota for
ten thousand dollars then you can of of hard cost manufacturing you could sell it for I don't know
twenty two thousand dollars and there you have a margin in there to make your money but if it
costs ninety thousand dollars to make a Maserati then then you have to sell it for two hundred
thousand dollars in order to have your margin you can't sell it for twenty thousand dollars or else
you're going to lose money what and then that just makes sense right of course that's the way
that's the way the world works but when in filmmaking I could make a five thousand
dollar paranormal activity and you could make a three hundred million dollar Avengers movie
and someone still goes pays the same twelve dollars at the movie theater for the product
and that makes sense to us in the Hollywood bubble but for the rest of the world that doesn't make
a lot of sense and so so now you're starting to see you're starting to see a lot of conversation
around the variable pricing and maybe blockbuster should be 50 movie tickets and paranormal activity
or indie films should be two dollar tickets and maybe we should scale ticket prices to the cost
of production trying to pull it more in line with the way normal business works and so it's you know
when it just comes down to it especially if you don't have any pre-awareness of the
market the venture to most people is just very very risky when you especially when you add in
the the cost of p a and you know how much you have to saturate the market with with marketing
just to get people there it takes the break even in a really crazy way I think Steven Soderbergh
said a couple of years ago that he predicted the the death of the independent film market within
five to ten years because the cost of p a was going through the roof at this in this tremendous
in this and it's just tremendous rate so he said when he's when you know 15 years ago
you would spend three million dollars to make a independent film and then you would put
an equal amount in to for P & A with the which the the distributor would you put an
equal amount in for for the P & A [Prints & Advertising] and then ultimately you work out your
break even from that right so so usually if you put three million dollars production three million
dollars P & A what happens is you have to recoup 50 you recruit 50 cents on the dollar for the p
a and so you actually have to make six million dollars to to make back the three million dollars
of the P & A because you split it the the distributor splits it with the exhibitors right
so so that's how it would work out but now Stephen Soderbergh says
especially with independent films everything's so competitive and they're so oversaturated and
the market is so commoditized that he says you if you want to be a blip on the radar
you have to spend at least 35 million dollars of domestic P & A 35 million dollars of international
p a just so people know that you're out there because there's so much stuff hitting the market
all the time so so let's take a five million dollar movie for example if you make a movie
for five million dollars and then you spend 35 million domestic P & A 35 million dollars of
international P & A that's 70 million dollars of p a which means you have to make 140 million dollars
to pay back to recoup that right because you have to split every dollar with the exhibitor
and you recoup 50 cents of the dollar so you have to make 140 million dollars
plus the 5 million production budget which means it's a 145 million dollar break even
on a 5 million movie why does that matter this is why it matters independent filmmakers require and
rely on going to investors and saying will you give me your money so that I can make my movie
and so just imagine the conversation of going to an investor and saying I need you to give
me 5 million dollars of your money so I can make my movie and all we need to do is make
145 million dollars at the box office and you get all your money you get all your money back
does that make sense at all it really doesn't it doesn't to most people now some people have a you
know they have an appetite for risk and and and they you know and they want their granddaughter
to be able to star in in a movie and so they don't care to fund it and they do it for other reasons
vanity projects things like that but more and more investors now today it's like that just doesn't
make sense that's why studios love to do a hundred million dollar movies this is where we've seen the
death of the 20 million dollar film I think is is because you think about like a 100 million
dollar movie put a 100 million dollar production budget with a 100 million domestic P & A 100
million dollars of international P & A that's 200 million dollars of p a you recoup that 50
cents on the dollar which means you have to make 400 million dollars back plus the hundred dollar
100 million dollar production budget that's a 500 million dollar break even on 100 million movie
so how many 100 million dollar movies make 500 million dollars as opposed to a 20 million dollar
movie making 250 million dollars right it it now all of a sudden the 100 million dollar movie makes
maybe more economic sense than the 20 million dollar movie because the P & A is thrown out all
out of whack right so so you know as filmmakers we look at films through through the lens of of
the art and the the films of the the through the lens of the story and what we want to achieve and
what we want to say culturally but we failed to put ourselves in the seat of the investor and we
and this is something that i've learned I had to I'm not a naturally inclined business person
you know some people are super entrepreneurial and they get their MBA and things like that but
I'm not a I'm not a natural business person but the more I was I i was talking with investors the
more they would and the more they would tell me no the the I would say why doesn't it make sense to
you yeah and they would explain why this doesn't make sense and the and when I look at it from the
investor's point of view then I'm like wow yeah that is kind of crazy and that's why
we're seeing independent film investment dry up more and more because just the economics of the
business model just doesn't compute with the people that have to fund the whole thing and so
you have to understand that they're coming from it usually by and large investors independent
film investors aren't filmmakers they're business people right they're and they've made their money
in other other sectors right so they're looking at at everything through a completely different frame
than the filmmaker by and large and I think the more filmmakers can get in tune
with the economics surrounding a film and figure out how to reorient the economics of the venture
to match the economics of a of a consumer brand venture or a regular like a silicon valley startup
figure out how do we how do we start to have the film venture look like one of those other things
and I think if we do that then we're going to see maybe an uptick in the in the amount of investment
that now goes in to independent films which would be great for everybody right but it's just going
to take a paradigm shift movies aren't as special as they used to be because there's so many of them
and so we can't just rely on movies being as magical in the eyes of investors before we can't
dazzle them with a movie I don't think as much now we have to we have to make sense to them and and
we have to be empathetic to the seat that they sit in is the film industry the only industry where to
graph out what you talked about and really go down line by line it doesn't make business
sense or are there other industries where that's very similar well I think when when you look at
what you typically look for is the difference between a commoditized business and a
non-commoditized business and these are big ten dollar words but you know the difference is
you know commoditization is where it is is a term where you're in a market where where
you're no longer unique and because there's so much competition there's there's you know hyper
competition and oversaturation that has flooded the market most businesses operate in commoditized
markets but businesses that operate outside of commoditized markets by and large can set their
own rules and they can defy those odds because what they're doing is so special and so unique
they kind of get a pass because they're you know they're creating something that
hardly anybody else is creating until other people start duplicating that and they become
commoditized as well and there was a time when when the smartphone was not commoditized and
so all of a sudden you know apple and steve jobs they they could sort of set the rules of the game
of the economics of the smartphone and it was up to them not the market forces but one now I think
smartphones have become commoditized in such a way that you know that uh that it's a different
market than it was you know 10 15 years ago or 12 years ago however long smartphones have been out
right so so so I think you know when you when you're looking for the businesses that operate
outside of a normal paradigm you're looking for the businesses that that that are just super
unique that that don't have a lot of competition and when you don't have a lot of competition
you're you know I'm from kentucky and they and they call that being in the cat bird seat
it's you're in an advantageous situation and and entertainment used to be that
and filmmaking used to be that because it was always too hard too expensive too difficult to be
able to make a movie we we didn't have access to the camera technology into the the post-production
technology we didn't have access you know we had to shoot on film and film super expensive
we didn't have the digital technology and we definitely didn't have distribution I mean the the
the the biggest shift I think for for filmmakers you know in in you know since the invention of of
the of the the the talkie is the the internet being a distribution uh mechanism and because
now the act the the the ability to create and the ability to to distribute has been democratized to
the filmmaker but always before people didn't have the technology to create and even if you
figured out how to create you didn't know what to do with it because you couldn't distribute and so
that that that that that was that was a that was tough and so the only people that could create
movies were you know five or six companies in the entire world that had the the technology and had
the infrastructure for distribution that could do that so anytime a movie would hit it would
it would be super special and it would it would be an event and it would be because we just
didn't have a lot of them coming out I mean think about think about I remember when I was a kid E.T.
was in the movie theater for over a year I believe all is around a year right just in the theater the
theatrical run now you know star wars was in there I think 44 weeks the original star wars movie you
look at something like even back to the future had like a 35-week run in movie theaters now
you look at Avengers in game which before the re-release avatar was objectively the
the most successful film of all time avengers in-game that was in movie theaters for what three
months and then it was pushed out there's too much stuff being being pushed into the system right
there's too much stuff in the pipeline I mean there's there's there's you talk to show runners
they say 15 years ago there were seven places that you could sell a one-hour drama now there's
75 places you can sell a one-hour drama right everybody's everybody's making stuff because the
technology has become democratized and so so it's it's we the entertainment industry has shifted
from a non-commoditized very special magical like dazzling glittery thing into the same bucket as
smartphones and potato chips and coffee shops and you know everything else that that is commoditized
which is now forcing filmmakers and executives and studios and and everybody that makes this stuff
now we have to re-learn and uh what are the what are the rules of the game what are the economics
of the game how do we how do we shift this to better compete in a commoditized market it's I
think I'm completely convinced that the shift into a commoditized market is I think for for fans it's
the best thing that's ever happened because we got as much content as we could we have more content
than we could ever consume with more movies we could ever watch more tv shows that we could ever
watch more books we could ever read more games we could ever play more songs we could ever listen to
we can't watch everything on youtube we can't like there's more tick tock videos than any one person
could ever consume ever which is great for fans but the commoditized market I think is the single
biggest obstacle facing filmmakers today the the the the obstacle of access and creation has been
solved right because we got cameras we have we have we have you know if you've seen the the the
the new iPhone the iPhone 13 that that they announced like the camera technology and
that is absolutely amazing right even iPhone 12 absolutely amazing what you can do with the camera
technology with that right but even then beyond just the phones I mean you can go get a red camera
a red epic for you know for a few thousand dollars you know and you can rent a lens you know for for
you know several hundred dollars over the weekend and you're able to do that you didn't used to be
able to do that now you can and so so so that has been solved access and creation has been solved I
think for for for filmmakers distribution has been solved for filmmakers we know now how to
get our stuff to audiences we know how to get it in front of people we know
how to build community we go direct to consumer in about 35 different platforms
right in addition to the sort of the other traditional platforms of you know selling to the
studios but even if you want to go direct to consumer we have the ability to do that
the fact that I can I can shoot a video right now and uh hit a few buttons and upload it to youtube
and instantly it's in you know six billion people's pockets is is it is insane and crazy
and awesome and exciting so access has been solved distribution has been solved but now we've traded
those problems in for a new problem which is how do we survive in a commoditized market how do we
out punch three million other things that are all competing against each other somebody said
to me recently they said making a movie today is is like being a needle in a haystack because you
just release it and there's so much other stuff I don't actually think it's being a needle in
a haystack I think releasing a movie in today's market is like being a needle in a needle stack
if you're an if you if you're in a needle in a haystack at least you're unique
but now when you release your horror movie into the market that's awesome that's such
an amazing achievement right but a thousand other people are releasing the horror movie
at the same time and you're no longer unique and now you have all this crazy competition and now
you have to figure out how to out punch your way not you know out punch your way from the from the
the glut of horror movies but also all the other movies and all the other television shows and all
the books and then don't even get me started about the tick tock videos in fortnight and things like
that that pull everybody's competition or it pulls everybody's eyeballs right and which could create
this hyper competition between all platforms right so it's it's it's that it's that obstacle
of a commoditized market that I think needs to be the focus of filmmakers as we go out of 2021 into
2022 and beyond we need to figure out again how to obviously you need to make a good movie and
and you need to tell a great story you need to have rich characters all that all the craft stuff
still applies I'm not talking about that but now we have to shift the paradigm of our minds and
say what kind of model and business model and IP [intellectual property] model can I launch that
is not going to survive 1997 paramount pictures Hollywood because
1997 was great but it was a long time ago that we don't live in that market anymore
today's market is a commoditized market and I need my plan and my model and my
approach to survive that and that's a completely different conversation.
Question For The Viewers: What was going through your mind as
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