ZDONK

We wrote a post over a month ago about the Cantor Exchange, the Hollywood futures market created by Cantor Fitzgerald. They did a press release today and will be launching April 20th.

In my blog post, I talked about how the environment seemed like it’d be a hot bed for insider trading — marketing and distribution executives with access to tracking could go long/short on their film, or even re-allocate marketing dollars based on their trading positions and their rough knowledge of how the film will open.

They address this issue, but I don’t think the mechanisms in place will necessarily prevent the activity  (from Hollywood Reporter):

“distribution execs with access to early boxoffice data will be barred from making trades on the exchange after a film has opened.”

So distribution execs can’t invest AFTER a films release, but since movies post to the exchange 6 months before their release, and distribution execs have access to insider information well before a film’s opening, I don’t see how this completely solves the problem.

Anyway, kudos to Andy Wing and the guys over there for introducing such an innovative platform for us movie fans.

At some point in time in the last two weeks, every studio executive jealously watched the box office per screen average of the seemingly indie movie Paranormal Activity. To date, it’s made almost $10 million, and only recently has Paramount upped the number of screens to 200 (they plan to go wider this weekend to 800).

In today’s box office, and especially this summer with hits like Transformers, Star Trek and Harry Potter all making over $250 million domestic, $10 million doesn’t sound like a crazy number. But what if I told you that the film costs…wait for it…$11,000.

Paranormal Activity has already raked in 909 times what it cost to make the movie in the first couple weeks of it’s limited release. Absurd, I know. Check out this Variety article for more details.

Ok, so it’s made $10 million thus far at the box office, but how much did Paramount spend to market and distribute it when the average studio film has a marketing budget anywhere from $25 to $150 million? So far, Paramount has only trickled about $2 million in marketing dollars into Paranormal Activity. Damn.

Sure the movie must be awesome, and content will always be king, but Paramount’s strategy should not be overlooked, as it could be an indication of how to successfully market to your audience, at a price.

So how did they do it? How did they run an effective marketing campaign, and cut costs in doing so?

The answer: Fans. To start, Paramount released the movie in select college towns, and screened midnight showings only. If you heard from a buddy at NYU about this awesome horror movie, you could rally your peers to essentially petition for the movie to come to your town. WOM (word of mouth) is a powerful thing if you can harness it.

Paramount facilitated the demand through the film’s website, paranormalmovie.com, which does a great job with copy and language to make it feel as if this movie belongs to you, the fan: “The First-Ever Film Release Decided By You”.

The success of this movie has a lot of studio executives asking themselves, how do I speak to my fans, and empower them to market the movie for us? It’s clear that reaching the core movie going demographic through traditional media is loosing it’s grip on audiences, so it’s time the industry man up and look toward innovative and fresh models to build an army of brand evangelists, without force feeding them the message that you want them to hear.

If you haven’t read the survey released by Stradella Road about the internet, and how it influences film audiences, definitely take a look. I’ve attached the link to Variety’s analysis, as well as a link to David Poland’s “Hot Blog”, where it’s broken down well:

Variety Article

The Hot Blog

Love this quote: “So perhaps it is time for studios to start being less paranoid about bad reviews and more aggressive of finding heroes for their films, in real life and in criticism circles.”

I read on Bloody-Disgusting.com that Oren Peli finally managed to get a theatrical release for his low budget horror movie Paranormal Activity. The movie originally premiered two years ago at Screamfest in Los Angeles, and has since screened at film festivals across the country, scaring the crap out of audiences. The film’s buzz didn’t go unnoticed either — Paramount picked it up and slated it for a September 25th limited theatrical release, just weeks away.

I can see why Paramount is backing the film directed, produced, written and edited by Oren Peli — it looks absolutely terrifying. But what’s surprising is how quickly they plan on releasing it.

Usually there is a highly strategized, well funded marketing initiative that starts months before a film’s release, not a couple weeks. However, with a movie property that’s so identifiably genre, it seems Paramount is relying on the hard core fans to spread WOM and raise awareness, essentially mobilizing the fanatics to do their marketing for them. Paramount even created a Twitter page that lists when and where Paranormal Activity is playing (because it’s limited release).

By targeting such a niche demographic, and choosing a limited release, Paramount won’t have to dump $50m + into a campaign, but, instead, they’ll gauge how well it’s doing amongst its core audience and infuse marketing dollars accordingly.

If Paramount has a hit, it will be because of the fans and WOM, not because they bet the house and went for a $25m opening weekend.

Kudos to Paramount, and to Oren Peli whose film is already being called one of the “scariest ever”. Check out the trailer below — it’s like Blair Witch and Ghost Hunters had a baby…

At this point it’s pretty evident that the Studios are focusing primarily on culturally known properties — sequels, old films, TV shows, video games — basically anything that already has a built in audience. It kind of sucks, cause original ideas are becoming less and less frequent, but I understand the plight of the studio being strangled by their money losing conglomerate parent companies. After all, marketing any film will cost the studio up to three times the production budget, so they better be certain they have a hit on their hands.

Also affecting the studio’s decision making to focus on brand name properties are licensing fees. A variety article that covered the Licensing Intl. Expo in Las Vegas noted that just last year the studios saw a $191 billion dollar intake from licensing fees.

Karen McTier, exec VP of domestic licensing and worldwide marketing for Warner Bros had this to say about the current state of affairs in Hollywood: ”What is new is what is old…what retailers want is proven successes. In this environment they can’t take any chances.”

Studios cannot afford to make original ideas in this economy if it means that the $191 billion in licensing fees will take a hit.

The past decade has been huge for remakes of classic films, or in this case, rebooting franchises. It is definitely a very tough task to accomplish, mainly because it is virtually impossible to please everyone. You have the original classic lovers, the younger audience who could not care less about an “old” version, and a lot of people in the middle who maybe never even heard of it. 

It is not easy to accomplish what Chris Nolan did with the Batman franchise, and I give also a lot of credit to Warner Brothers for taking the risk. I also give well deserved credit to Paramount for believing in J.J. Abrams to reboot Star Trek and accomplish what no other Star Trek film had been able to do: become a massive hit beyond the fan base. 

We can easily say that this will be the biggest Star Trek movie ever in terms of box office. The movie had a very strong opening this weekend with a total of $76.5 million, and the cause for its success has to be credited to both Abrams and a wonderful marketing campaign. They were able to reach everyone, from the hardcore fans to regular people who had never watched a Star Trek film before. All of them responded in a positive way. 

In comparison, the last Star Trek film released in 2002, Nemesis, made only $43 million in its total box office run. The most successful Star Trek film of all was “The Voyage Home”, released in 1986 and making a total of $109 million, which of course the latest installment is expected to surpass by the end of this week.

Another interesting box office fact is that other successful franchise-reboots such as Batman Begins, Superman Returns or The Incredible Hulk had openings in the $45-$55 million range, making Star Trek’s start even more impressive.

Abrams proved once again his worth within this new generation of directors and producers that try to reboot or re-imagine stories and update them in a creative and sophisticated way. He didn’t need huge stars headlining his film. He didn’t go beyond his means to reinvent special effects or create headlines with some innovative technique. He focused on the story, and like on Lost, he put effort in developing these characters. 

It is clear that J.J. Abrams took Star Trek “where no other Star Trek had gone before”. A new generation of fans will now join the ageless generation that was already in line early on Thursday, and if they continue to be smart about it the next installment can be even bigger than this one.

One of the blogs I subscribe to, Movie Marketing Madness, is an informative site about, you guessed it, movie marketing campaigns (for the most part). The most recent post was about how to counteract a movie’s negative word of mouth. While the tips for going on the defensive against negative WOM were very useful and comprehensive, what sparked my interest was the idea of WOM marketing itself and how the power of the Internet and social media increases the importance of word-of-mouth marketing.

We talked about the effectiveness of WOM marketing in an old post about President Obama’s Social Media campaign. The Obama campaign released the chart below (in their social media toolkit), which analyzes what information source a random person would find most reliable. The answer was consistently “a person like yourself“.

Jack Morton Worldwide, a marketing agency, also released White Paper on WOM Marketing and stated that “word of mouth has twice the influence of advertising, press coverage and direct mail/email”.

So how much of a studio’s P&A (prints and advertising) budget goes towards creating an engaging experience for the influencers who will market their brand (film) effectively throughout their communities and social networks? A studio’s use of social media to market various properties is a newer strategy, but I’m guessing that this portion of each marketing campaign will receive more and more attention. Marketing Execs will run campaigns that engage audiences in increasingly creative ways as the space becomes more defined and audiences become more social media savvy.

We will be posting an interview with one of said Marketing Execs (John Hegeman, CMO of New Regency) later in the week, so stay tuned.

I recently read this interesting article where business school Professor Sanjay Sood compares movie launches to brand building. While the fact that studios release films with the intention of building brand should be no surprise, the massive amount of dollars spent on building that brand instantly can be startling when put into perspective. This article points out that Warner Bros’ poured around $80m into marketing “Watchmen” over just a few months when most companies would take a year or more to tackle a project of that scope.

Every time I read about the massive amount of money spent on marketing by a studio (or, building brand) I realize why there are so many second/third/fourth installments of films being released as opposed to original concepts…it’s just not worth the risk to attempt to build a new brand when you own the IP to a brand that already exists.

When ZDONK launches we will provide producers with the tools to engage an audience and build brand at a grass-roots level far in advance of a film’s release. That way, when the producer is trying to find a studio/buyer, they will have their brand established. We hope that this leads to more effective marketing campaigns and, also, more original concepts in the theatres.

I was not surprised this morning when I found yet another story about Hollywood’s inability to “find wealth on the web”. This particular report focused on the contract disputes between SAG and the major studios on the allocation of residuals generated from digital distribution. SAG wants a larger cut, the studios say the cut doesn’t exist yet (which, for the most part, is true).

Everyone needs to take a step back. While digital distribution may eventually provide a reliable revenue stream, it does not yet. This doesn’t mean that the premium content being distributed on sites like Hulu, YouTube and Crackle is for naught (whether it was produced originally for the web or not).

The situation is two-fold. For content finding an additional distribution channel, the situation is clearly more complicated. As DVD and other ancillary sales decrease, studios are looking for some form of revenue to fill the gap and, in doing so, they are creating the perception that this is a mature revenue stream (see WGA and SAG strikes). It is so simple, and so embedded in the habits of the “technologically empowered”, to consume this content for free that it is difficult to say when this distribution channel will mature and become a reliable source of revenue. Until then, everyone should chill.

The other situation (and to me more interesting) involves premium content that is produced originally for the web. There are so many sites that received funding over the last two years to do exactly this and I get the feeling, because of the fragility of an advertising-centric revenue model, that these sites will begin to disappear during this ___ (fill in the blank with whatever economic term you see fit). This makes sense. However, studios and producers of various sizes could begin to use this medium more effectively and embrace “transmedia” to market and build brand for their many properties in development. The content that generates a buzz and a community on the web will be easier to pitch when trying to raise financing to turn the content into a TV series or even a film (a mature, revenue-generating distribution channel).

Instead of trying to generate revenue from a distribution channel still in its infancy, studios and producers should benefit from this economic shakedown by beginning to utilize this medium more effectively.

With the Wall Street spigot drying up, leverage becoming increasingly less viable and media conglomerates lessening the flow of cash to their film operations, Hollywood and the independent film industry will certainly face obstacles when trying to produce and market their product in the coming years. The effects of this are yet to be determined.

Could the balance of power shift away from the studios and transfer to smaller production companies. What could this mean for new media versus traditional forms of distribution? How drastically will studios and film financing firms have to cut their film slates?

These were the main questions we sought to answer when we recently sat down with Don Starr, the CEO of Grosvenor Park (Defiance, P.S. I Love You, Righteous Kill) to discuss the implications of the financial crises on the film industry…

ZDONK: Do you think studios are going to scale back on the amount of movies they’ll be releasing?

DS: Yes. Studios are huge corporations and are hugely dependent on advertising revenue. Just look at the stock performance of Viacom (Paramount). They released Iron Man, Kung Fu Panda and Indiana Jones and still lost $75m this last quarter. They had the three huge hits of the summer and still lost money because they have huge overheads and run this huge physical plant that costs nearly $50m in overhead.

ZDONK: Do you think the major Studios will begin to axe films that are in the late stages of development?

DS: Yes. We used to be able to finance our movies and take them to studios to cover P&A and they’d put up the marketing costs with no difficulty. Now they are thinking twice about putting up the P&A. An example is Paramount who pushed two pre-December 31st releases because those expenses would have gone towards the P&A money. No one wants to distribute in the 4th quarter because no one wants to show a loss today — any expenditure in the 4th quarter has to be accounted for as a loss and the income comes in in the next fiscal year.

ZDONK: Will leverage ratios continue to decrease? How much debt can you use now to finance a film relative to last year?

DS: Five years ago you could have financed 90% of your movie on debt (foreign sales, soft money). Today, if you finance 60% of it with debt you are doing very well. Foreign sales are down, and there is not as much money available per picture as there was 5 years ago. A number of B-title pictures that were financeable 5 years ago are not financeable anymore, unless you put up 100% equity. There is no market for B movies right now.

ZDONK: Will these factors lead to a significant shift in digital distribution?

DS: Yes. Mark Cuban’s theory is that every form of release will happen at the same date. The model will change. It used to be domestic distribution, then DVD, then ancillary sales, including digital. Eventually, it’s all going to be one date, and less reliant on domestic distribution. The cycle will be more reliant on the Youtube’s of the digital world. It’s a less expensive way to distribute a movie.

ZDONK: Do you see a potential transfer of power taking place in the industry?

DS: I think the studios are definitely losing power. Universal’s model is basically based upon getting cheap capital out of General Electric. GE used to charge them very little for their money, but they can’t afford to do that anymore. I think there will be a consolidation of studios. There will be a couple less and it will happen in the next 24 months. If the economy continues to spiral downwards, this could happen sooner.

What does this mean for financing firms such as Grosvenor Park? Don says that if they just continue to maintain their discipline, and put a halt on financing movies in the very near term, they will be ok.

We also talked about the inherent opportunity for smaller studios, free of the weight these mega corporations carry, to be nimble and react to the quality products that are sure to change hands as studios try and find buyers. A great example of this that Don gave was Summit Entertainment’s pickup of the “Twilight” book series from Paramount in turnaround.

DS: Summit, this upstart company, which up until a year ago was this foreign sales company, raised some money and became a domestic distributor. Now they have a huge hit. Paramount was asleep because they didn’t have the new world of Patrick Wachsberger’s who are nimble on their feet.

So, with the current system breaking down, there will be plenty of opportunities for young production companies to take advantage of an emerging new system.

…Interesting stuff.