Hollywood Report IV: Why Has Globalization Hurt Hollywood?

You can blame Wall Street, of course. But when Hollywood's big companies make ever dumber products for a global market, they are following something close to corporate instinct: to make money, they have to make things everyone can understand.

In Hollywood, whether people are riding high or down on their luck, they like to talk about a "golden age." At the very least they fall back on the cautious line: this is not the best of times, but it is certainly not the worst.

When we raised the subject with Chinese companies that do business with Hollywood, they would not hear a word against it either. "I don't know where your conclusion comes from, but we all know the box office is better than ever," said Zhang Xiao, who runs entertainment marketing at TCL, when I asked him on the phone whether he worried that Hollywood's good run might not last.

He has a point. It is not only the box office: the revenue of the Hollywood film industry really has kept rising. A PwC report published in June found that the Hollywood film industry took in US$85.4 billion worldwide in 2014 and expects that figure to reach US$104.6 billion by 2019. Only 43% of it comes from the box office. Judging by where the money comes from, Hollywood is now the center of global entertainment, not just of film.

If you want proof that the industry is thriving, the chart of Disney's share price over the past five years says it best. In 2014, theme parks and merchandise brought in 39% of the company's total revenue.

Disney's share price has kept climbing over the past five years

Since buying Marvel and Pixar, Disney has had little reason to fear a box office flop. The two companies turn out world-famous superhero blockbusters and sequels, which every major studio rushes to copy. These films are designed to suit the tastes of audiences around the world, and Hollywood's box office has long since stopped depending on the American home market. Since the start of this century, the US domestic box office has accounted for only about 40% of the total.

Rivals keep arriving from every direction, but Hollywood owns the largest film library and the most IP built up over nearly a century, which guarantees a steady supply of sequels. This is without doubt the part of its holdings that creates the most commercial value. Even if Amazon and Netflix give chase, it will take them years to build anything comparable.

Everything falls into place. Make a sequel blockbuster built on what audiences already know, keep developing its merchandise, and screen it on the IMAX screen at the TCL Chinese Theatre, with more than 900 seats. Just picture it. That smug feeling makes it all too easy to believe in a golden age.

But for Hollywood, praise from Wall Street is not necessarily good news. To post good results, every film has to succeed. Almost every big company makes sure it has not made a wrong move before committing a large sum. And since even the most talented producers miss, sequels and visual spectacles look like the safest bet.

In a conversation with George Lucas some time ago, Steven Spielberg made a startling prediction: if the Hollywood studios keep relying on blockbusters, what if one summer they all flop at the box office? Would that be the end of Hollywood's good days?

It could well happen. In Hollywood, box office forecasts are missing more and more often. Will Smith's 2013 film After Earth drew poor reviews and disappointing ticket sales, even though it cost a great deal to make and Will Smith had long been considered one of Hollywood's biggest draws. "If a few more films like that come along, the big studios will quickly run into financial trouble," said Epstein, who a few years ago wrote The Big Picture, a book on the business logic behind the Hollywood film industry.

The 2014 box office figures show how far sequels have taken over Hollywood. Last year's top film worldwide was Paramount's Transformers 4, which earned 77.7% of its box office overseas. Close behind were two more sequels, The Hobbit and Guardians of the Galaxy. This year is no different. Besides Jurassic World, Fast & Furious 7 and The Avengers, Minions, the prequel to Despicable Me, has passed US$1 billion on the strength of a global marketing network, and that is before its Chinese release, scheduled for September. Fast & Furious 7, released early this year, earned 76.8% of its box office overseas, and China accounted for more than a quarter of that. Do the math, and China alone has already outgrossed the US domestic market.

And then there is damned globalization. "Damned" is our word, of course. Americans feel at most resigned: screens around the world full of Captain America and Spider-Man are no bad thing for them. Film is itself part of cultural expansion, and cultural penetration in turn feeds it. We do not intend to discuss global cultural convergence here. Put simply, America's dominance after World War II gave Hollywood the influence it has today, and that may be the thing most worth noting.

Fortunately there is another side. Some of the Hollywood people we interviewed have realized that internationalization is sweeping them along. It is like the conservation of energy: if you gain everything, what do you lose?

Besides films being shot one installment after another like TV series, what is just as tedious is that the faces on screens around the world are always the same few. "American audiences don't care much about big stars anymore, but that still works quite well in overseas markets," Epstein said. Critics now say outright that Hollywood can only make films that audiences worldwide can understand, instead of telling stories in a creative way.

"What kind of film can cross the language barrier and be accepted in different countries? Simple films. Action-adventure, comic-book heroes and fantasy. More complex films don't have as much appeal for the international market, so they aren't as easy to distribute." Mark Harris holds this view. He is a documentary director in his early 80s who has won three Oscars.

The worship of sequels and superhero blockbusters has already hurt the livelihoods of screenwriters and other creators. Tom Abrams used to be a screenwriter hired by the studios; now he is considered unsuited to writing flashy set pieces for teenagers. So he teaches at a university, and also goes to Eastern Europe to work on local film productions.

Because creative talent and capital can no longer be matched up, more and more creators are leaving film for television, once considered the less creative medium. TV producer Tim Marx remembered the old days: "Twenty years ago, I could keep making movies, for US$10 million, US$15 million, US$20 million. Making those films was fun. They weren't designed for the international market, just for the American home market." Now, because it is free of the pressure to produce a "global hit," television has become a refuge for creativity.

Respected filmmakers are already rushing to distance themselves from Hollywood films, which, aesthetically speaking, are not very respectable. Jan Schutte became dean of the American Film Institute (AFI) last year. The school is only two subway stops from the giant "HOLLYWOOD" sign, and it trains its students so professionally that some filmmakers told me it is practically a "little Hollywood." But when I passed that description on to Jan, he was offended. He quickly pushed a booklet of student graduation films into my hands and said: "You have to look at these. Then you'll see our films aren't Hollywood at all."

It would be unfair, of course, to say that a golden age never existed.

People now call the 1970s "New Hollywood" and regard the decade as another "golden age" of Hollywood creativity: the power to decide what Hollywood made had passed from the big companies to a creative younger generation. The auteur theory from European cinema influenced a group of young people, Martin Scorsese among them, who went on to make Taxi Driver and Apocalypse Now.

"Yes, sometimes I wish I could go back to the '70s," Ron Yerxa joked. A veteran independent producer, he likes to develop "small stories" such as Nebraska.

But look a little closer and it becomes clear that this was not the whole picture of 1970s Hollywood. Richard Maltby makes the point in his book Hollywood Cinema: it was only an "illusion," and the tax incentives that had encouraged auteur films during the "Hollywood Renaissance" were abolished as early as 1976.

From an evolutionary point of view, we can roughly put it this way: the 1970s were a period in which Hollywood tuned its own machinery, after which it settled on the model that suited it best, the blockbusters you see today. The sequel craze of today simply pushes that machinery to a greater extreme.

In 1972, a report in Variety noted that in 1971, 14 films took 52% of box office revenue, and that at least a third of the 185 films released that year lost money. The industry came to accept the huge change under way in the film market: it concentrated profits in a very small number of films while raising production and marketing budgets. In Europe, then the largest international market, these blockbusters brought the studios ever-growing profits.

Jennifer Warren, 70, lived through it. At the time she was a fairly well-known actress. "I made a few films (in the 1970s). Later people called that the 'golden age' of film, but I never felt it was," she told me in her private garden on the west side of Los Angeles. "Good taste was somewhere else; Hollywood only thought about making money. Once they saw they could make blockbusters (and money), why spend money on low-budget films?"

Next came the conglomerates. In the 1980s, many Hollywood studios were bought by outside corporations with no previous experience in entertainment or media, and these new owners leaned more and more toward films that would make them big money.

What is a film that makes big money?

In business terms, you maximize profit by eliminating every human factor you cannot control and running an assembly line. Epstein explained an interesting mechanism to us. Because films open worldwide at the same time, studios must plan around not only Western religious holidays but also weekends in Asian countries. Once every unfavorable date is filtered out, roughly 18 to 20 weekends remain for the six major studios to choose from, an average of just over three per studio. Theaters pay the six studios in advance, because the marketing plans are drawn up beforehand. Since everyone is pushing up the cost of blockbusters, the six have reached a tacit understanding: if anyone breaks the rules of the game, the whole of Hollywood stops working. So everyone avoids releasing blockbusters against each other on the same weekend.

"If you ever get the chance to sit in on a meeting at Disney, you'll feel like you're attending an open class at Harvard Business School: how they do marketing, how they do research, how long it takes their money to come back. When the six studios start shooting a film, they already know when, where and how it will be released," Epstein said.

Impressive? Very. This is exactly the machinery the Chinese have been working so hard to build. It is efficient, it works, and it rarely goes wrong. Films and their audiences have both been put on the assembly line.

Watch one or two of these films and you will see why superhero and action movies are the ideal raw material for an assembly line. An employee of 20th Century Fox who asked not to be named explained that Fox's superhero films used to be more adult, with stories more concerned with human society, but now everyone has realized that "Marvel's bright colors and cartoonish characters sell better."

Hollywood now has what it wanted. In 2000, box office revenue from the US domestic and overseas markets was roughly equal; in this century, the American market has accounted for only 40%. Talk of a "golden age" has therefore become a thankless task: the industry's top six studios are seen as producing successful products, not successful films. Films whose prospects even they cannot see clearly are more likely to be handed to independent companies with which they have complicated relationships. An industry that only makes successful products may run into the problem Epstein described: one summer, everything could collapse at once, and their glory would end in no time.

Perhaps only then will you truly feel Wall Street's quiet presence. We used to imagine that Wall Street influenced Hollywood through investment, but its bigger influence is that it controls the endless production of successful, money-making films.

Film critic Ella Taylor, who has more than 20 years of experience, put the complaint this way: "The studios now only make films for 12-year-old boys."

So now you understand why film critics are losing their jobs. Why would films for 12-year-old boys need critics? You blame the decline of newspapers, you blame phones for scattering everyone's attention, but in fact most films on the screen are no longer worth reviewing.

Michael Wolf once said something interesting: "The entertainment business is a gamble, and where there is gambling there are always winners, so successful films become the force that keeps the entertainment industry growing."

In the past, successful films carried greater aesthetic weight. Spielberg recalled working in 1971 as an assistant to director Monte Hellman on Two-Lane Blacktop. The film was no great commercial success but was highly rated by critics, and he said it "created Americans' attachment to Route 66 and became a classic that cultivated loyal fans of road movies."

But that kind of audience education will never happen again. If Hollywood had time to spare for it, it would probably rather spend it working out what the Chinese like to watch. For now, it still has a little of that confidence.

Globalization turned Hollywood into a huge industry, but it also weakened the creativity it should have had. Hollywood's enemy, television, is about to take the stage. In the next installment: why did television end up becoming Hollywood's enemy?