Vertical Integration in Hollywood - Essay Example

February 9, Vertical Integration in Hollywood: A Race for Money First, Making Movies Next The business of moviemaking is what it is- a business first and foremost. Vertical integration is important in increasing revenues in the film industry because it allows film studios to capture as much of the revenue flows as possible. In “To the Rear of the Back End: The Economics of Independent Cinema,” James Schamus, co-founder of Good Machine production company, and the CEO of Focus Features, describes the process of (barely) making money for independent film studios. Alisa Perren explores the same topic of profiteering for independent cinema in “Last Indie Standing: The Special Case of Lions Gate in the New Millennium.” Both Schamus and Perren define vertical integration with respect to independent cinema and in support of the thesis that the primary purpose of vertical integration is not to gain greater artistic control, but to ensure continued growth of revenues, although Schamus adapts a pessimistic tone by showing that vertical integration is an impossible feat for indie films by explaining the processes, money, and people involved in producing, marketing, and distributing independent films, while Perren uses a more positive tone in discussing the vertical integration success of Lions Gate by adapting to changing and numerous content demands and characteristics of niche markets. The economics of film business affects independent cinema, according to both Schamus and Perren, which affect their definitions of vertical integration. Schamus defines vertical integration in the context of independent cinema, which is still embedded in the mainstream film industry, where money-making goals remain supreme. On the one hand, indie films are supposed to be no-budget and focus on artistic, sometimes even social and political goals. On the other hand, Schamus keeps it real by underscoring that indie films are also subjected to the “poetics of late capitalism” (91). He integrates the definition of vertical integration by explaining the details of the capitalist system that drives the film industry. Like Schamus, Perren also explores the meaning of vertical integration for independent studios through their rise in the film industry. She examines how indie film studios survived the twenty-first century, when many other studios have become bankrupt or have been acquired by other larger or equally large competitors by mentioning several examples of studio success and failures. The impact of her examples is to show that not all indie studios benefit from vertical integration, and some were even financially harmed in the long run. These authors are both concerned of how independent films deal with vertical integration, given their limited capital and marketing and distribution networks. To expand the analysis on the economics of filmmaking, the essay asserts that the business of Hollywood is a money-first business where filmmaking is secondary to its goals, even for indie cinema. Schuman highlights the money inflows and outflows that affect the finances of the indie sector. To do this, Schamus narrates the story of a producer who invested $1 million for an indie film to be produced by Good Machine, and he argues why it is wrong for that producer to assume success, even when the film made a gross of $10 million at U.S. domestic box office. The story breaks down the complex networks of organizations, individuals, and groups that altogether eat up the revenues and profits from that $10 million until the remaining “profit” is actually “negative $333,000” (93). Vertical integration is not directly stated but implied, in how hard it is to control profits in an industry that has too many expenses and too little capital and revenues. Perren focuses more on the example of Lions Gate, where she argues that Lions Gate’s vertical integration is based on exploiting economic opportunities. She does this by explaining how the firm’s acquisition and investments, all part of vertical integration, are pushed by economic needs: “Lions Gate’s investment in quality independent product was purely opportunistic; as we shall see, when the marketplace changed, the company altered the types of films it released” (110). The main goal of Lions Gate in its vertical integration activities is to make more and more money, not to produce films for art’s sake or society’s sake. These authors argue that money is the center of vertical integration because it is the center of a profitable filmmaking business. Apart from the importance of money in indie cinema, there are differences in the tone of these writings, where Schamus adapts a pessimistic tone by showing that vertical integration is an impossible feat for indie films by explaining the processes, money, and people involved in producing, marketing, and distributing independent films, while Perren uses a more positive tone in discussing the vertical integration success of Lions Gate by adapting to changing and numerous content demands and characteristics of niche markets. Schamus uses a number of axioms to assert that every part of the value chain of film industry is concerned of producing large profits. For instance, he says that “movie theaters are not in the business of exhibiting movies, but rather, in selling “the far more lucrative business of “selling paper cups full of flavored sugar water at astronomical prices” (2), while cinema does not exist because what people see in film theaters are “simply an advertisement for what” people have “financed” (94). The tone is pessimistic because it is sarcastic. Schamus is basically saying that there are no real indie films because they are influenced by the profit-centered goals of the whole film industry. Schamus further provides details on the people, money, and systems involved in making films, including participating in the Cannes. With expenses reaching $150,000 at realistic terms, although $15,000 may also be enough when extreme cost-cutting measures are used (97), Schamus shows how much it is a struggle for indie film studios to be in a vertically integrated industry. After all, small indie firms are not the ones who are vertically integrating, but large film companies. At the most, Schuman is concerned that vertical integration is making indie people less independent, where as “the studios finance and distribute ‘independent’ films, independent producers find themselves rather dependent employees” (103). Perren disagrees that vertical integration is entirely bad for indie, because she uses a more positive tone in discussing the vertical integration success of Lions Gate. Lions Gate has a successful financial indie cinema model, where it is willing to adapt to changing and numerous content demands and characteristics of niche markets. First, Lions Gate vertically integrated by buying firms with TV and movie libraries and producing more film for TV distribution (114). Perren shows how diversification leads to vertical integration that is largely successful for Lions Gate (116). Second, Perren argues that Lions Gate is not afraid to respond to niche markets. It no longer directly competed with large studios but targeted blacks, Hispanics, and older sectors, in order to make more money (113). Perren highlights that the “the only ‘true independent’ left standing as of the mid-2000s blatantly and shamelessly sacrificed art for commerce” (114). Perrin does not agree with Schamus that vertical integration is bad for indie filmmakers, and instead, it can also be good if the indie minors, or mini-majors like Lions Gate, are heading the integration in a profitable way. These authors are different in tone because they are different in how they see vertical integration’s effects on indie cinema. After discussing these authors’ definitions and points on vertical integration, it is argued that vertical integration in Hollywood allows major studios to capture more of the back-end revenues to maximize the bottom-line, a strategy that can turn indie filmmakers and producers that want international exposure into more like employees than autonomous cinema production agents, although indie studios can mix mainstream and indie cinema to be more profitable. Shamus already explains the power of back-end in providing sustained revenues (i.e. distributing the film abroad and selling license to TV and cable network etc.). Perren provides a clear example with Lions Gate that has “increased its investment in film, television and digital media” (116). Vertical integration is about capturing all those potential sources of revenues after the film has been distributed domestically. Indie makers can benefit from integration a great deal if they have the skills and knowledge in marketing and negotiating for their movie rights and licenses. Allen Scott provides another explanation of the trend of vertical integration with the transformation of studios into “system-houses…now focusing on the production of many fewer and increasingly grandiose films” (960). This trend can turn indie filmmakers and producers that want international exposure into more like employees than autonomous cinema production agents. Considering the risks of vertical integration to the autonomy of indie films, independent cinema must strive for synergies that are less costly than film studio conglomeration (Holt 3). These synergies can include finding local workers and resources in every country who are willing to work for little profit or none, depending on their interest in the film and non-financial rewards they can get. In addition, indie films must prepare for and even capitalize on liberalization of media industries and related industries, such as in telecommunications (Holt 21). Digital films and their distribution can offer new and direct ways of selling to consumers to drastically cut costs, although profit models must still be made so that indie cinema can continue its business. Vertical integration has its pros and cons for the independent cinema with pros of access to integrated networks and potentially owning vertically integrated companies too, while the cons are being absorbed in the vertical integration process and losing independence. Perren and Schamus bring the issue of vertical integration to new light by exploring its meaning for and effects to independent cinema. They inspire ideas on how indie cinema can also maximize vertical integration for its purposes or protect itself from its potential threats. These texts finally underscore the importance of understanding the complex connection of economic, social, political, and artistic forces in shaping the profit model of vertical integration because indie cinema does not have to be money-losing industry, but profitable enough to live long and to produce quality films. Works Cited Holt, Jennifer. Empires of Entertainment: Media Industries and the Politics of Deregulation, 1980-1996. New Brunswick: Rutgers, 2011. Print. Perren, Alisa. “Last Indie Standing: The Special Case of Lions Gate in the New Millennium.” American Independent Cinema: Indie, Indiewood and Beyond. Eds. Geoff King, Claire Molloy, and Yannis Tzioumakis. New York: Routledge, 2012. Print. Schamus, James. “To the Rear of the Back End: The Economics of Independent Cinema.” Contemporary Hollywood Cinema. Eds. Steve Neale, and Murray Smith. New York: Routledge, 2008. 91-105. Print. Scott, Allen. “A New Map of Hollywood: The Production and Distribution of American Motion Pictures.” Regional Studies 36.9 (2002): 957-975. Print. Read More