HopkinsCinemAddicts

The Writers Strike – One Year Later

This time last year, the 100-day Writers Strike ended, everyone returned to work, and Hollywood moved cautiously forward.  In all, the WGA strike cost somewhere between $2-2.5 billion (just as the nation was headed into recession), and an actors' strike is still in the cards.

So what have we learned in hindsight?

At the very least, I think we learned that "digital content" should rightly be called "content."  Hulu has become an online powerhouse, Netflix has had (modest) success with digital rentals and download-to-own features, and cable companies and TV networks are fighting to the death over rights to distribute cable content online.

That said, no one is actually sure how to value any of this online content, which is the real problem.  Of course, writers (and all talent) deserve their share of revenues generated online.  And of course producers must be able to recoup their costs before distributing profit shares in order for consumers to have the same production quality we've come to expect.  But even a year later, no one knows what the actual accounting figures should be to satisfy both parties' concerns.

In this sense, the resolution of the writers strike was a push – producers gave up only modest increases in the accounting calculation and the WGA gained jurisdiction over digital content deals.  Otherwise, the real fight has been delayed in the face of uncertain future. 

Especially given how significantly the digital market has grown and the DVD market has contracted (in response?) the last few years, to strike a "fair" contract for the next 3+ year term requires a duty of prevision beyond reasonable expectations.  Aggressive bargaining in the face of uncertainty creates a zero-sum game between the participants.  Producers and talent are making a 50-50 bet it won't hurt them, but no matter who zeros out, the consumers – us – will suffer.

Finally, we learned that labor's resolve is not to be underestimated.  Whether the strike was right or wrong or the gains large or small, the three-month strike took unity, strength, and calm under pressure.  No small task, indeed: these are life-goals many of us aspire to.

Overall, the final lines of "Burn After Reading" sum it up nicely:
CIA Superior: What did we learn, Palmer?
Palmer: I don't know, sir.
CIA Superior: I don't [expletive] know either.  I guess we learned not to do it again.
Palmer: Yes, sir.
CIA Superior: I'm [expletive] if I know what we did.
Palmer: Yes, sir, it's, uh, hard to say.

How gun technology protects internet piracy

New movies come out all the time, but you’re just a college kid without the money to go to the cinema five times a week.  On the other hand, you do have plenty of free time and a student discount on that MacBook, so BitTorrent makes a lot of sense.  I get it.  Unfortunately, the movie industry has all the legal reasons to stop you… Or so they think.

As an aside, here’s why movie people get so worked up over piracy.  Like I’ve said before, most movies lose money.  If a movie makes $100mm at the box office, 40% goes directly to the theater.  Of the remaining $60mm, the studio only gets a distribution fee of usually 30%, which would be $18mm.  Even advertising could cost $18mm, so that $100mm box office still creates a loss for the studio.  When it comes to home video, however, studios get 80% of sales, and it even costs less to burn DVDs than to develop miles of negatives.  That is, a movie only gets made in the first place if customers will pay for DVDs.

In other words, these aren’t robber barons twirling their mustaches as they prosecute kids.  These are stressed-out executives trying to stave off bankruptcy, and they depend on you buying DVDs, or at least theater tickets, to do so.  Since copyright law exists to protect guys like them, they just ask that those laws be enforced.

Still I think they’re wrong – there may be plenty of legal reasons to protect file sharing.  Strangely enough, understanding how begins with the Second Amendment.

Last year, the Supreme Court heard District of Columbia v. Heller, its first Second Amendment case in nearly 70 years.  To determine the Constitutionality of DC’s small guns ban, the Court had to decide whether “arms” means the definitive guns that existed when the Bill of Rights was drafted (e.g., muskets and hunting rifles) or the technology of arms, which now includes automatic weapons.  The Court ruled that “arms” is a technology, and the Second Amendment protects the entire technology regardless if criminals use them illegally.

The US Constitution specifically mentions only one other technology: the Press.  The press is technology that disseminates information.  Throughout our history, we have outlawed seditious writings or writings that infringe copyrights, but a technology that in and of itself merely disseminated information was never outlawed until Napster.  By an argument of parity (and this theory has never been tested in court), the Constitution protects any technology that serves the purpose of disseminating information, and only individual users who abuse that technology (e.g., by infringing copyrights) can be prosecuted.*  Since there are millions of users infringing copyrights, stopping everyone would be cost-prohibitive.  If charged with that Sisyphean task, the studios have more or less admitted that they wouldn’t bother.

Of course, copyright law is also as old as the Constitution (Article I, Section 8: “The Congress shall have the power…to promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries”).  But the Copyright Clause is premised on society’s general benefit, and the internet has radically transformed our society, mostly for the better.  Accordingly, many argue exceptions should be made for digital copyright.  

This is the traditional pro-sharing rationale, argued in the pages of Wired and The Wall Street Journal alike.  Nevertheless, it has never prevailed on its own.  But if this principle were supplemental to a First Amendment argument, then the legal balance might well tip away from the studios.

While we wait for the tipping point, just please obey the law for now…

*For more thorough scholarship on this argument see, Edward Lee. 2008. "Guns and Speech Technologies: How the Right to Bear Arms Affects Copyright Regulations of Speech Technologies" Available at: http://works.bepress.com/edward_lee/1

The surprising relevance of "Ace in the Hole"

    Congratulations, I hear you just finished an amazing screenplay that will transform American cinema.  That’s awesome!  Now that the hard part is done, why don’t you relax a while?  In fact, let me recommend a great movie to watch: Billy Wilder’s Ace in the Hole (1951).  Not only is it a surprisingly relevant social critique, it’s also the reason your screenplay will never get made. 

    The hardest part of writing a screenplay is getting someone to read it.  Partly that’s because Hollywood is full of philistines who wait for the coverage. But mostly it’s because of the case Desny v. Wilder. 

Victor Desny was a 1940s producer who uncovered a remarkable true story about some guy stuck in a cave and the literal media circus that developed around his peril.  Desny drafted an outline and tried to pitch it to Billy Wilder at Paramount.  Wilder’s secretary (like all good Hollywood assistants) said her boss was unavailable and took a message, the substance of which was that outline.  Wilder (like all good Hollywood executives) never returned the call, but a few years later Paramount released Ace in the Hole about the true story of some guy stuck in a cave.  Obviously, it was the same story and, inevitably, Desny sued.  Wilder thought he was covered because copyright law doesn’t protect historical events, but he should have consulted a contract lawyer.

    In contract law, “quasi-contracts” can exist even when the parties haven’t made an agreement.  Healthcare providers offer an easy rationale: if someone is unconscious, a doctor can’t ask him or her to sign an agreement or give oral consent to treatment.  Nevertheless, the doctor can both treat the patient in an emergency and demand monetary compensation for doing so thereafter.  That is, the law recognizes a quasi-contract.  Similarly, Desny rendered services to Wilder expecting to be compensated if Wilder used those services to make a movie.  The California courts agreed, and Victor Desny made a lot of money for leaving a message.

    Getting back to you, ever since Desny studios refuse to accept unsolicited submissions.  If you send your screenplay to Paramount without anyone asking for it, they will simply return it with a legal letter saying no one read it.  The idea is that if your screenplay is about an adventurous anthropologist just before World War II, then Paramount won’t have to worry about you suing when they develop Indiana Jones on their own.  That is, to avoid liability, studios will only read screenplays they’ve asked to see, and studio executives only talk to agents, managers, well-known producers, and (maybe) entertainment lawyers.  Consequently, studio executives also now further rely on agents as quality filters, so most are loath to read a screenplay (like yours) they know nothing about, even if you’re willing to sign some kind of waiver.

    I know, I’m just Debby Downer, right?  The good news is there are ways to get your screenplay read.  The first (and best) is to know someone.  Like I said, Hollywood is full of philistines who will never let you forget they got your script read, but it is guaranteed to work.  The second is to get an agent.  Agencies will (occasionally) review unsolicited writing samples of prospective clients, provided you’ve got more screenplays in that imagination of yours.  (Agencies can’t make any money off a one hit wonder.)  The third is you can produce it yourself, and I wish you the best of luck at that. 

Bottom line: making it in Hollywood will not be easy and Ace in the Hole has a surprising lot to do with it. 

Is the film industry immune from the market crash?

    Amidst the worst market crash since 9/11 and despite the gears of structured finance coming to a grinding halt throughout every other sector of the economy there have been two extraordinary film finance deals in the last week.  First, Steven Spielberg raised almost $1.5 Billion to divorce DreamWorks from Paramount and once again run an independent studio.  Then, yesterday, Relativity Media (one of Hollywood’s largest film financiers) received $1 Billion from a NY hedge fund to finance 75% of Universal’s slate through 2015.  So is the film industry immune from the market? 

In truth, probably not. 

For starters, both of these deals began and were substantively completed before the market crash last week. Some new announcements may still be lagging, but it’s hard to imagine new deals beginning with only limited or non-existent credit (i.e., where the cost of capital is so high).  Also, publicly traded companies own most studios (Universal by GE, Warner Bros by Time Warner, Paramount by Viacom), and all those stocks are falling.  The losses of the corporate parents will be felt down the family tree. 

But more importantly, large deals like DreamWorks’s and Relativity’s are probably the only types of film finance deals we’ll see for a while.  Although this seems paradoxical, the reality (if you didn’t know already) is that most movies flat-out lose money.  They don’t even break even, they generate losses.  This fact is why studios formed in the first place in the early 20th century; releasing many movies is similar to diversifying an investment portfolio, hoping that a big win on one movie will pay for the losses of the others.  So if financing movies is inherently risky, the only reasonable way to invest in a now risk-averse market is to invest in a lot of them.  That is, only the big deals can generate returns.

If this analysis is correct – and I’d love to hear some comments about whether or not you think so – then these huge deals will have a terrible effect on independent film.  Fewer investors will want to invest in a one-off movie because of the inherent risk, and so there will be fewer and fewer resources available to independent filmmakers.  In the meantime, studios will have a ton of cash, but will be trying desperately to maximize their returns.  I think we can expect a litany of tent-pole, popcorn movies going into production now to be released in the summers of 2010 or 2011 or so.

To be sure, there are innovative independent film financiers out there.  John Sloss is a well-known example (“Napoleon Dynamite” and “I’m Not There” among many others).  It will be interesting to see how he adapts to this new market.  For the last year, the answer has been in selling intentional distribution rights.  A weak dollar is good for exporters, so if you can sell distribution rights to your movie in England, France, or Japan in exchange for pounds, euros, or yen and then convert those currencies back into dollars, you make more money than simply trying to release the movie yourself.  Of course, if the global economy slips in tandem with Wall St, they’ll have to come up with another idea. 

It will be fun to see what that idea is…