Thursday, February 19, 2009

Sony Pictures wants talent on "net" deals; no more "gross" deals?

Sony Pictures chairman Michael Lynton said in a Bloomberg TV interview today that he wants to ensure that his "partners" (actors, directors, producers) "share in the risk". His context is that DVD sales are no longer growing robustly, and he wants talent to reduce their upfront fees, and instead have a bigger share of results after the studio "breaks even".

What he's suggesting here is a move away from "gross" deals (in which the talent gets a percentage of the gross, often from the first dollar collected) toward "net" deals (in which the talent receives nothing until a carefully defined "breakeven" is reached).

Of course, the reason for the prevalence of the gross deals among star talent today is that the history of Hollywood accounting meant that there never was a "net". A movie that took in half a billion dollars in theaters could still show a negative "net" after all fees, interest, and costs were deducted. Rather than continue to wrestle with the studios' definition of "net", powerful talent was able to demand a piece of the "gross".

Now the studios want the talent to become "partners" and "share the risk" and (obviously) trust that the accounting of "breakeven" will be fair and square.

This is also an issue for the movie unions. At present, their payments for "residual" use of movies (in theaters and DVDs) are based on revenues, not profits. If the studios were to push to change this, we could see some significant labor disruptions.

Perhaps coming soon to a blog near you: a primer on "gross" and "net" and "residuals".

Wednesday, February 11, 2009

Variety is wrong. Online distribution does NOT pull ahead of film

Variety had it flat-out wrong in their article headlined "Online distribution pulls ahead of film". The writer (and editor?) conflated apples with oranges, confusing basic math and common-sense principals.

The headline and lede are at best misleading, suggesting that digital revenues for filmed entertainment now exceed revenues from theaters and DVD. That is clearly not the case.

The article is based on a report entitled "Global Media & Entertainment Market Forecast, 2004-2012", produced by Strategy Analytics. While the report is not available online, a brief summary is. And that's all we'll need to address the Variety story.

The summary states that in 2007, online & mobile revenues were 9.2% of the global media & entertainment revenues. And there is nothing in the summary to suggest that for any particular sector (like filmed entertainment) online & mobile exceeded traditional revenue.

Some key points:
  • Variety states that for 2008, there was $90 billion in revenue from online & mobile sources for media & entertainment, and $83.1 billion in revenue for global filmed entertainment.
  • However, it is clear from the summary that "media & entertainment" includes revenue for music, games, and other media in addition to movies. Of perhaps greater interest, note also that the summary makes clear that advertising is included within the definition of "media".
  • So that $90 billion in online/mobile includes revenue for music, games, and advertising. So it cannot be compared to the $83.1 billion for filmed entertainment -- apples vs oranges.
  • The abstract predicts that by 2012, online/mobile revenue will represent 17.3% of total media & entertainment revenue; that means that "traditional" distribution will still be 82.7% of revenues.
Clearly, the Variety article should have had a very different headline and lede. At that point, one might question the need for Variety's story in the first place.

If I am able to obtain a copy of Strategy Analytics' report (at reasonable cost), I will report further.