Hollywood Report V: Did Hollywood Hand Its Golden Age to Television?

People watch sequels at the cinema and look for creativity in the living room.

Hollywood once missed a great opportunity.

Richard S. Tedlow, the only business school professor Steve Jobs trusted, summed up the failure this way: had Hollywood seen itself as being in the entertainment business rather than the movie business, it would have embraced television.

That is roughly how things stood at the time, around the 1970s: television was seen as a threat to Hollywood, an enemy. At first Hollywood looked down on it. It would not spend money on television, and the little it made was small-scale and empty, fit only to fool the most ignorant viewers. If you remember the "Hollywood of the 1970s" we described in the last article, you will recall that the industry was then infatuated with intellectuals from Europe. It made a few films like The Godfather. Television? Never.

But audiences had already voted with their feet. In 1971 only 15.8 million Americans went to the cinema, compared with 95 million in 1929. It is also widely believed that one important reason the studios began to favor a handful of big-budget productions was to fight television and keep audiences in theaters.

In the end, capital settled the standoff. Wall Street reorganized the media industry the way it had reorganized the defense and tobacco industries. Film studios and television companies merged, and between the 1980s and 1990s more than 84% of American households came to subscribe to pay cable channels.

History has proved Tedlow right. In Disney's 2014 fiscal year, 43.3% of revenue came from its media networks business, which covers broadcast and cable networks, television production, television distribution and domestic satellite television services. 21st Century Fox, parent of the film studio 20th Century Fox, is in a similar position: the strong performance of its television business was an important reason it earned US$1.5 billion in profit, its highest in five years.

For the parent companies that own film studios, it is now the television division that makes more money.

In the last article we described how much harm globalization has done to Hollywood. Sequels, action blockbusters, a fixed roster of stars and premises that audiences anywhere can grasp without effort: Hollywood has not only grown shallow, it has also handed more and more talent to television. The next turn of the vicious circle may be that Hollywood has to make still more blockbusters and sequels to avoid competing head-on with television shows in the domestic market.

So viewers find more creativity on television. Series such as Game of Thrones and House of Cards are in no way inferior to Hollywood blockbusters, in substance or in production.

At the end of last year, some independent filmmakers at the American Film Market (AFM) earnestly discussed the future of television, saying it "can realize artistic ideals just as well, and holds more promise than film." The trend has even drawn in the veteran film producer Ron Yerxa, who received an Oscar nomination for Best Picture only two years ago. Since last year he too has joined the ranks of television producers, and you may see his name on the upcoming The Leftovers.

The television producer Tim Marx used to make films. More than a decade ago he was among the first to move from film to television. "When you're young, you think you have to make a certain kind of movie. Now almost everyone who makes movies has started making TV series," he explained. "Television gives you enough time to tell a story slowly and develop characters. You also have more control over your scripts. It's not like film, where the big studios only want to make more international movies."

Fred Vogelstein, a contributing editor at Wired, made a similar point in Dogfight: "I personally think one reason we are living through such an explosion of creativity, and get to see Mad Men, Breaking Bad, House of Cards, Justified and Sons of Anarchy, is that producers can make a 13-episode long-form story and develop characters over 13 hours. Good writers love this, because they say: 'Wow, I couldn't do this in a two-hour movie.' Good directors love it too."

More young film school graduates are also warming to television. Steven recently graduated from UCLA's graduate film school, and of his 18 classmates, 3 went into television. This is easy to understand. For one thing, the fast-moving television industry offers more coordinating jobs, so newcomers find work more easily.

A more important reason is that this "emerging industry" is unstoppable. Tim Dragga, a TV writer, was studying film at the University of Southern California six years ago, and wrote his graduation thesis on the tangled relationship between television and film. "Even then, academics guessed that television would catch up, because they saw that the way people watch was changing and that technology was reshaping the industry," he said.

Differences in how people watch, and in technology, were once the very arguments the film studios used to resist television. Film, they said, creates an atmosphere, and the big screen offers a special experience that television lacks. At first that scarce experience was big stars: studios forbade their stars from appearing on television. Soon film began to advertise its big productions, its directors with a point of view, and the spectacle made possible by special effects and IMAX.

But these arguments may slowly be losing their force.

Take directors. In the past, most television directors worked only on the shoot. A 20-episode series might have 10 different directors. "To a TV series, the director is just an important guest," Tim Marx explained. After a stint as a kind of "temp" television director, Mark Roseman knew there was no way back to film: "Once you've shot television, nobody will hire you to shoot a movie again."

But this state of affairs, so frustrating to creators, is starting to loosen. Tim Dragga, the writer who studied the tangled relationship between television and film, found after five years working for a television network that television, once a medium run by writers and producers, now carries more film-style series, and "television is also becoming, to some extent, a director-driven medium."

HBO made one of last year's most-watched American series, True Detective, an 8-episode show with a single director, Cary Joji Fukunaga. Besides giving the director's vision freer rein, as in film, this way of making a series resembles filmmaking in other respects: the scripts for the entire season are written in advance, casting and location scouting are done ahead of time, and shooting begins only when everything is ready. It also cuts production costs, because, as in film, scenes can be shot out of order, with everything that happens in one setting filmed in one go.

There is more. The spectacle that film relies on is turning up more often in television series. Fred Vogelstein is right in Dogfight: all technological progress in fact helps them (the production companies) increase profits. The television industry, for example, has been bringing in more of the special effects that deliver a direct jolt to the senses.

The effects company Fuse FX worked on the effects for the Marvel television series Agents of S.H.I.E.L.D. Its partner David Altenau explained that Marvel wanted to try something like this in the 1980s, but effects were so expensive and slow to make that, even five or ten years ago, these comics could not have been turned into television series. "Now we can make the effects close to what you see in film, though because of time limits they're not as complex," Altenau said. "But at least they can put all the Avengers on television."

Another effects artist, Tamar, sees two interesting things happening at once: we want ever smaller screens, yet we still want ever bigger things, such as special effects, which are still made for the biggest screen. The two do not contradict each other: "It's so that it looks its best wherever it's played."

One restlessness the television industry should watch is that a few benchmark series are raising ambitions for the medium. In 2001 HBO spent US$125 million on the 10-episode series Band of Brothers, almost twice the cost of the film Saving Private Ryan, and people found it incredible. Today, when people talk about Game of Thrones and its budget of five to six million dollars an episode, it seems almost normal.

"It's like an industry benchmark, and now everyone wants a budget that high," said the producer Jennifer Warren. Her peer Tim Marx thinks this strategy of making high-budget series resembles the film studios' blockbuster strategy.

Given the state of the film industry today, that may be dangerous. "I think the golden age of the cable companies will last a while longer. It's the only area still doing well. But for how long, I don't know," Jennifer told us at the end of the interview. She feels that cable, where the creativity has gathered, is now crowded too: people arrive with glittering résumés, all thinking about high budgets. "That makes the circle even more crowded," she said.

A New York Times article a few days ago already touched on this. To explain it more clearly, we need to describe the difference between cable and broadcast television in the United States.

People usually use HBO to illustrate the difference between broadcast networks and cable. HBO was formally founded on November 8, 1972. Arguably the most successful cable network in the United States, it has aired original programming since the 1980s and received 37 nominations at the 2013 Emmys.

Broadcast networks earn most of their revenue from advertising, which means their programs must pass content review. Many of the television producers we interviewed in Hollywood think this business model is outdated.

HBO runs on subscriptions. A favorite talking point in this big market is the metric HBO's management cares about most: "total subscriber satisfaction" (TSS). It means that what a cable channel cares about is not how many people watched, but how many of those watching are hooked on the story. Only those people will renew their HBO subscriptions because of it.

Largely for this reason, cable channels have each developed their own style. On Showtime, for example, you can assume a higher tolerance for sex and violence. Its subscribers watch series such as Masters of Sex and Penny Dreadful without a second thought.

This creates plenty of room for varied content, but it also brings survival of the fittest. Many people believe more channels will give all content a better chance of survival, but they overlook one fact: viewers' attention is limited. Apart from hits like Game of Thrones, most individual series will see their audiences shrink. The result is that it is not only broadcast networks that have fewer viewers; every single platform does.

The pay-cable industry has lost nearly 3 million subscribers over the past two years. Analysts say the industry's decline stems from market saturation, fierce competition and the rise of other video platforms, including Netflix and Hulu. Ever-higher bills are also leading customers either to cancel or to cut back on the services they subscribe to. ESPN and TNT, for example, are considered very popular channels, yet their penetration has fallen by more than 4% over the past four years.

Compared with the 1980s and 1990s, at least 30% of American viewers no longer turn on the television. As with the head-on clash between television and film more than half a century ago, this is at bottom a change in the form entertainment takes.

Richard Maltby summed up the previous "revolution in moviegoing" in Hollywood Cinema: "Television was only one symptom of the changing forms of entertainment after the war... Sweeping changes in America's postwar economic and cultural structure turned its blue-collar and white-collar workers into a 'consuming public.' The American middle class fled the cities for the suburbs. By 1960 about a quarter of the population lived in the suburbs. Sixty percent of American families owned the homes they lived in, 75% had a washing machine and a car, and 87% had a television."

Because of where they now lived and what they now owned, these consumers developed entirely new viewing habits. And viewing habits have hardly stopped changing since. Once the DVR made it possible to record television programs at any time, people could binge a whole series whenever they liked. Ratings firms such as Nielsen also began counting viewers three and seven days after broadcast, not just on the day itself. And now, as Fred Vogelstein wrote:

"Then came Netflix, and people say: 'Oh, I can skip a few episodes and catch up later.'"

In the next article we plan to talk about the internet. Film may still sit at the very top of the entertainment pyramid, but consumer habits, the way the industry's workers organize themselves and the sources of capital are all changing. This is Hollywood's new enemy.