“How Does the Film Industry Actually Make Money?”

NYT article yesterday that provides a bit less than it offers with the headline “How Does the Film Industry Actually Make Money?”

I’ve been trying to come to terms with two seemingly irreconcilable facts. First, “Men in Black 3” has made more than $550 million worldwide. Second, while a representative from the parent company of Columbia Pictures told me that the movie is now “in the win column,” it seemed until recently as if Columbia might actually lose money on it. How could that be? It’s not so complicated. Its production costs were close to $250 million; worldwide marketing most likely added at least that much; and a big chunk of the ticket sales go to theaters and distributors.

There must be an easier way to make money. For the cost of “Men in Black 3,” for instance, the studio could have become one of the world’s largest venture-capital funds, thereby owning a piece of hundreds of promising start-ups. Instead, it purchased the rights to a piece of intellectual property, paid a fortune for a big star and has no definitive idea why its movie didn’t make a huge profit. Why is anyone in the film industry?

You can read the rest of it here. For my money [pun intended], here is the money quote that answers the question the article poses:

“If I’m sitting on $2 billion, will I invest in a Hollywood studio?” asks Anita Elberse, a Harvard Business School professor who studies the entertainment industry. “Many other industries have a higher return on investment.” Billionaires like Anil Ambani, who is a partner in Steven Spielberg’s DreamWorks Studios, presumably invest because the glamour helps them with their other businesses.

“Glamour.” That sounds right. I’ve only been around the movie business for 25 years, but that’s enough time to see dozens and dozens of super-rich individuals and companies from all over the world who have dumped billions and billions of dollars to own and operate, at least for a while. Here are some examples:

20th Century Fox — Marvin Davis [1978–1984], Rupert Murdoch [1985-present]

Columbia Pictures — Coca-Cola [1982–1989], Sony [1989-present]

Disney — ABC [1996-present]

Paramount — Gulf + Western [1966–1989], Viacom [1989-present]

Warner Bros. — Time Warner [1989-present], AOL Time Warner from 2001–2003

But none of them match what has transpired with Universal:

MCA (1962–1997), Seagram’s (1997–2000), Vivendi (original, 2000–2011), NBC Universal / NBCUniversal (original, 2004-present), General Electric (original, 49%, 2008-present), Comcast (current owner, 51% NBCU majority holder, 2011-present).

Now mind you, this is just the Big Six. There are and have been hundreds of mini-majors, production companies, equity funds, private millionaires and billionaires who have wound their way through Hollywood over the last quarter century.

The article is right: There are a lot more — and more secure — ways to make money than the movie business.

But movies are sexy. And widgets are not.

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