Hollywood’s True Long Tail

In a weird sort of sleight of hand, media analysts reviewing Chris Anderson’s The Long Tail focus on the example of Netflix as both embodiment of the theory and refutation of the impact of long tail revenues. As the Wall Street Journal noted:

The currently popular notion that hits are becoming less important due to the vast reach of cyberspace would strike most Hollywood executives as preposterous. For good or bad, moguls make the opposite assumption. They can be forgiven for doing so; after just three weeks of release, the Pirates of the Caribbean sequel is already Hollywood’s all-time 11th biggest grosser, and No. 63 when adjusted for inflation.

Hits are a fact of life — they generate instant buzz. Today’s hits are also extremely expensive. Assuming a negative cost of $250 million (the budget was $225, but anyone who believes that a major studio production came in on budget lives in a fantasy world) and an equal amount in prints and ads, recouping initial costs requires film rental in the realm of $500 million. Worldwide box office is currently $666 million. Box office is not the same as film rental; the theaters keep a piece of the money.

Hits like Pirates II earn larger percentages of the box office because there’s generally a sliding scale method being used (ye olde 90/10, 80/20, whatever/lesser whatever split) because they make a lot of money really fast. This is good news for the studio. Making money fast is good for the studio, time being money and all that. Pirates II also includes some high-priced talent (Jerry Bruckheimer does not come cheap, and one presumes Johnny Depp is expensive, too) whose deals were made before Hollywood’s current round of fiscal responsibility. Still, I think this film will be a true money-maker for Disney.

Anderson used Netflix because he was focusing on digital distribution streams specifically. DVD rentals are, indeed, an excellent example of the long tail at work, but to truly comprehend the long tail business in Hollywood, you must recall where the bread and butter of the industry is: television.

Conventional wisdom states that most movies (I’ll exclude made-for-television programming here because the economics are different) are lucky if they earn back their production costs at the box office. Earning back prints and ads is a huge bonus. Generally, if everything is working as it should, there’s a sort of break-even point around the DVD release. The real money — the gravy, the whipped cream, the decadent chocolate truffle — comes from television distribution.

A year or so after theatrical release, you start to see big bucks in the form of HBO or Showtime exploitation. International roll-out begins. The major networks (or basic cable channels) show the product. More international distribution. Domestic syndication. More pay television. And the product continues to make money for years to come.

For good reason: with more television opportunities than ever before, there is more need for product to fill the twenty-four slots. Add in the new online distribution channels — downloads, streaming — and you’ll have even more opportunity.

Motion pictures studios recycle their catalogs constantly on television. Maybe not everything sells; there are limits, even in the long tail world. But to get a sense of just how much stuff is sold in the profitable television market, look at a TV Guide listing for a single day. Multiply that by the rest of the week. Add in all the other markets around the United States and the rest of the world.

There’s your long tail business example. Digital distribution will only enhance this…and make it more profitable. Once you eliminate freight and physical tapes from the model, studios will enjoy even bigger desserts.

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