The Plastic Age of Hollywood - Broken Plastic

There is no American film business, there is only the tattered remains of a DVD industry

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What we call the modern “movie industry” is really the collapsed structure of the home-video business trying to survive after its core revenue disappeared.

From 1910 to 1990 there was a genuine American film industry. The primary revenue driver was theatrical distribution. Domestic market, then foreign market and eventually TV rights. It was all quite a gamble, of ten movies produced; two would be hits, five would break even and rest would lose money.

There was a craft to it. You had to learn the movie business as a trade. It was all about personal relationships, tightly controlled budgets and knowing a good story when you saw one.

The first home video technology to appear in the Sears Wishbook was in 1972. It took another eighteen years for home video to become the primary market. But by 1990 the economics were self-obvious.

The Hunt for Red October had been priced at $90 a tape and had sold tens of thousands of copies. Batman, which had been priced at what was then an absurdly low $25, moved 10 million copies. The math was inescapable.

Hollywood accepted reality and started hiring fresh out of MBA school marketers, consumer product specialists and distribution executives whose job it was to package, market, and sell plastic disks that cost two dollars to print but that raked in twenty bucks. These guys started getting hired in the late 80s and early 90s.

This was the start of the shift in executive talent from craftsmanship to credentialism. And in fairness, in that time and place, they were needed.

By 2000 a major theatrical hit the breakdown was like this.

Box office — $150M

DVD sales — $300M+

Pay TV — $50M

Cable/airline — $20M

Total: — $520

If a film could move tickets in the theaters then the theatrical distribution was used to cover the production costs and marketing. The profit was entirely from home video. This allowed for some high budget, high risk projects like Harry Potter, Lord of the Rings, and Pirates of the Caribbean. Granted there were also high budget flops like The Adventures of Pluto Nash and Stealth, but the money printing machine was running at such a high speed that even theatrical disasters could be absorbed.

There were a ton of mid budget movies created during this period and all segmented to appeal to different tastes. Actioners, thrillers, comedies, dramas, plus some weird stuff like sci-fi, fantasy, and anime. Each of the Big Six studios ground out 30 movies a year and by the 2000s a big chunk of productions weren’t even bothering with theatrical distribution. Straight-to-Video slop was profitable enough if the budget was low enough. And the great part was that it didn’t have to be good! If you were in the checkout line and there was a flavor of the month title next to you while you were waiting your turn, you would, like as not, throw the tape (and later disk) in the cart if the cover looked interesting enough.

The first canary in the coal mine to fall off its perch was on TV. Building on the enormous DVD success of Band of Brothers. Warner decided to go with a couple of high budget, prestige series that would do well in the DVD aftermarket once HBO stopped broadcasting them. Rome and Deadwood did not get anywhere close to profitability and were both shitcanned early because while they both sold well on DVD… They did not sell well enough.

How could they? Why would you pay $100 for a box set when you already had the whole series sitting in your TIVO? You didn’t even have to leave the couch to put a disk in the player. Zero cost and zero friction.

It was the first hint of the disaster about to arrive.

By 2008, the roof had caved in. A combination of DVRs, Netflix DVDs and Netflix streaming had eviscerated the DVD market.

In a crisis you revert to your most basic skill-stack.

This is the big thing. This is why Hollywood is screwed today.

The collection of men who were now making the big decisions were the same collection of MBA school marketers, consumer product specialists and distribution executives whose job it had been to market and sell plastic disks that cost two dollars to print but that raked in twenty bucks.

They had no idea how to make films as a craft. It was an alien world to them. So they applied the skills they already had to filmmaking. And at first the results were an unbelievable money volcano seismic eruption.

The solution Hollywood stumbled into was what came to be known as the tentpole model.

If the old system had been about volume, thirty movies a year, each targeting a slightly different slice of the audience, the new system was about concentration. Instead of producing dozens of modestly budgeted films, the studios would produce a small number of gigantic ones designed to dominate the entire market when they arrived.

If the film worked, it would work everywhere.

A hit in this new system didn’t just make money at the box office. It generated merchandise, video games, theme park rides, licensing deals, and endless sequels. The movie itself became only the spearpoint of a much larger commercial machine.

In this environment intellectual property became more valuable than filmmaking skill. A good script could fail. A recognizable brand almost never did.

This was the environment that produced the modern franchise era. Spider-Man, Harry Potter, Transformers, Star Wars, Pirates of the Caribbean. And of course Disney’s crown jewel: the Marvel Cinematic Universe.

For a time the strategy worked beautifully.

The studios had replaced the lost DVD revenue with something even better: global blockbuster franchises. A single hit film could earn a billion dollars worldwide, and that was before toy sales, streaming rights, and television syndication were even considered.

But the success of this model had a hidden cost. The mid-budget movie quietly went extinct. The courtroom drama. The adult thriller. The star-driven comedy. The oddball science fiction experiment.

All of these had relied on the home video market to make their money back. Without DVD sales there was simply no way to finance them anymore.

So they vanished.

Hollywood didn’t notice at first because the blockbusters were so profitable. The industry was making fewer films, but the ones it did make were enormous. A single successful franchise could support an entire studio.

But the underlying problem remained.

The executives now running the industry were still the same MBA-trained marketers and distribution specialists who had risen to power during the DVD boom. Their expertise was not storytelling, it was packaging and selling products.

So when the next disruption arrived they responded the only way they knew how.

They tried to rebuild the DVD business. Only this time the disks were digital.

Streaming looked, at first glance, like the perfect replacement for the lost home video market. Instead of selling a twenty-dollar plastic disk, the studios would sell a ten-dollar monthly subscription. Instead of one purchase they would get twelve payments a year.

The math seemed irresistible.

After all, Netflix was making $20 billion a year, “and they don’t even make their own movies, we do!”

Except that really wasn’t the truth anymore. Hollywood was making a few tentpoles, sure but – and this was the part the entire entertainment industry missed but the Dark Herald did not – tentpoles don’t move streaming subscriptions. People weren’t going to subscribe for two or three tentpoles, they wanted a decent variety which Netflix was now an expert at providing.

But there was no stopping the studios by 2019, the fuse on the downhill rocket-sled had been lit.

So Hollywood rushed into streaming with the same enthusiasm it had once devoted to DVDs.

They rushed into chasing the $20 Billion Dollar Dragon.

Billions were poured into new services. Libraries were stripped from traditional television and locked behind subscription paywalls. Theaters were bypassed entirely.

But here’s the big thing. DVDs had been a retail product. Every customer purchase generated a fresh burst of revenue. If ten million people bought a disk, the studio received ten million payments. Streaming didn’t work that way.

Once the customer had subscribed, the amount they watched no longer mattered. A single monthly payment could fund hundreds of hours of viewing. The economic relationship between audience and studio had fundamentally changed and the model was completely deflationary.

The result was utterly predictable.

The studios began producing enormous quantities of content-slop in the hope that more shows would attract more subscribers. But subscribers were finite. Once someone had subscribed to two services, they were unlikely to add a third.

Costs skyrocketed.

Revenue flattened.

And the industry discovered, far too late, that the golden age of DVDs had been a historical anomaly, a brief moment when millions of consumers were willing to pay premium retail prices for movies they would watch only once or twice.

That moment was never coming back.

Hollywood hadn’t realized it, but the industry that had existed for nearly a century had already died thirty years before. The pipeline that had produced executives that could tell a good story from a bad one had been empty for thirty years. The MBAs, marketers, consumer product specialists and distribution executives had never been hired for their ability to tell good stories from garbage, but now they had to learn and just couldn’t.

Sure, they knew how to negotiate shelf space with Walmart and Best Buy. They certainly knew how to design a cover that would catch someone’s eye while they were standing in the checkout line.

They could time a release so that the DVD arrived in stores just before Christmas or the summer shopping season. They knew how to structure wholesale pricing so that retailers would order millions of copies up front and how to bundle titles together in discount bins and multi-film packs to squeeze the last few dollars out of aging inventory.

These executive were experts in consumer packaging, retail placement, and distribution channels. And during the DVD boom those were exactly the skills Hollywood needed.

Because during the DVD era the movie itself was almost incidental.

A film didn’t have to be great to make money. It didn’t even have to be good. It simply had to look interesting on the cover. If the box art suggested action, romance, or had a recognizable star, a guaranteed certain number of people would throw it the cart on impulse.

This was why the DVD era produced such an enormous volume of films. The system rewarded quantity and visibility more than quality. If a movie cost twenty million dollars to produce but sold five million DVD copies at twenty dollars each, the numbers worked out just fine.

And the executives who were promoted inside this system were promoted for being very good at that game.

But. That. Was. The. Only. Game. They. Knew.

They knew how to segment audiences, not how to nurture stories. They knew how to optimize release windows, not how to recognize a brilliant screenplay. They knew how to manage distribution pipelines, not how to guide a film through development.

For thirty years this didn’t matter.

The retail machine was so powerful that it could absorb enormous amounts of mediocrity. A bad movie could still sell DVDs.

But when the DVD market collapsed, the only executives left in charge were people whose entire professional skill set had been built around selling a product that no longer existed.

Suddenly the industry needed people who could recognize great stories again. But the pipeline that had once produced those people had been empty for decades. The old studio system had trained producers, development executives, and creative heads who had grown up inside the craft of filmmaking. They learned by working with writers, directors, and editors. They spent years reading scripts and sitting in story meetings. They developed an instinct for narrative structure, pacing, and character.

Those people had largely retired or been pushed out by the time the DVD crash arrived.

In their place stood an entire generation of executives whose instincts had been shaped by retail analytics, marketing campaigns, and distribution spreadsheets. The creative side of things had always been somebody else’s problem but now it was theirs and they only thing they could do was rely on analytics to give them an answer that it absolutely could not.

Don’t cry for Hollywood, it was already dead.

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