The goal of this series of articles is not to criticize the Hollywood manufacturing process and financial models per se, but to identify the flaws inherent in the system. After analyzing these flaws, the goal is to create a new financial and creative model — one that can achieve maximum ROI in a world where alternative financing, production, and distribution will become increasingly important.

Here’s my train of thought on Hollywood’s current problems, and why they exist.

1) Movies operate in a statistical environment of extreme uncertainty
2) Uncertaintly creates fear
3) Fear creates a desire to control
4) Destire to control has resulted in a mult-layered, needlessly expensive studio bureaucracy, resulting in sub optimal risk management.
5) The goal of each individual level of the bureaucracy is to insulate itself from criticism from the layer above it.
6) This results in the hiring of the most expensive, but not necessarily most talented or suitable, creative team
to manufacture product that audiences are losing interest in and are not designed to achieve maximum ROI.

So, I guess I better explain myself.

1) Movies operate in a statistical environment of extreme uncertainty

It is impossible to predict the financial success of any piece of content. As Prof. Arthur de Vany’s meticulous research shows, in his book Hollywood Economics, it is indeed possible to predict the box office of any motion picture. However, that prediction will carry a standard deviation of infinity — and thus be of no value.

There are so many uncontrollable variables that determine what makes a hit or a flop that Prof. de Vany also concluded that stars are not even “bankable”. While some stars may provide a box office floor, they do not guarantee box office success. Production cost and advertising cannot buy an audience. Yes, certain things can hedge risk, such as the use of branded properties (Harry Potter, Transformers), particularly ones that have already seen successful box office. Still, the bottom line is you cannot predict success.

2) Uncertaintly creates fear

Pretty obvious, no?

3) Fear creates a desire to control


4) Destire to control has resulted in a mult-layered, needlessly expensive studio bureaucracy, resulting in sub optimal risk management.

Both feature films and television suffer from an unnecesary multi-level bureaucracy that homogenizes product and stifles what audiences want most: good stories. The standard hierarchy appears thusly:

Corporate Owner

Network Head

Network Executive

Network Development Staff

Studio Head

Studio Executive

Studio Development Staff


Producer’s Development Staff


Too many people, with jobs at risk, must make a decision for content to cross to the next step. Thus, decisions are postponed until each level believes it has done everything possible to protect itself against their superior’s criticism or (worse) a flop. As responsibility for the content becomes greater and greater further up the chain, personnel focuses on how best to insulate oneself from risk, while simultaneously making whatever sacrifice is necessary to get the movie or TV show made. They follow these counterproductive courses of action instead of focusing on what must one do to make the best movie or TV show possible.

Exacerbating this issue (and with apologies to friends in the industry) is that most development staff historically possesses neither writing nor storytelling experience. What they have, and what they are mandated to exercise, is an ability to anticipate what their superiors desire. The Hollywood hierarchy is thus reactionary, and not driven to just tell a good story. The result of this bureaucracy is the production of content that viewers are unquestionably losing interest in. Now it is reasonable to argue that this hierarchy worked just fine at one point in time. However, those were the days before infinite choice. With limited choices, viewers watched what they were given. That does not prove that this structure had any inherent value, although this structure may very well have assisted in creating quality product.

However, the fact that so many movies and TV shows fail demonstrates that expensive capital is being thrown at a process that provides no predictive value for success. Further slowing down production is suboptimal productivity, and the redundant exercise of labor across the studio hierarchal spectrum. The writer works with the Producer’s development staff, carrying out producer mandates. Oftentimes, however, the producer will reject decisions that have been outside of his/her presence, which sends the writer and D-staff back to the drawing board. Rather than address the important aspects of the script — namely, the story — it becomes a game of “what must we do to please the producer”?

This game continues on up the chain, where the storytelling (which is what truly draws audiences) becomes subservient to the whims of management that focus on the intangible and unproven “commercial” elements of the potential movie. Scripts are endlessly and expensively rewritten as each member of the bureaucracy registers their input. All this work is further slowed down because every person in the hierarchal chain is juggling dozens of projects, driving to meetings all over town, while also reading and thinking over the material they are developing. The system is overburdened with too much material chasing too few “bankable” talent and executives, with too little time to truly devote to each project. The bottlenecks become nearly impossible to breach. This is not to say that those employed by traditional media companies aren’t working hard. They are. I’ve seen it first hand. The issue is how their time is being deployed, and whether it is being utilized in the best way possible. I’ve been on countless “meet and greets” in my time, which consists of me sitting down with an executive and talking. Just talking. It’s kind of a “let me make sure you aren’t psycho” blind date.

However, like most blind dates, it begins filled with promise but almost never leads to any kind of climax worth the time invested. Anyway, this system perpetuates itself despite its track record having been proven to be abysmal. The economic result? Every major film production company has 30-40 scripts “in development”. Of these, 10% at best will likely become feature films, and each will take years before they reach the screen. In the meantime, millions of dollars are literally wasted developing films that never get made. This results in a push towards low-volume, high-cost, hit-driven product that requires enormous revenue to show a profit, and is much more likely to show a loss. The same is true for TV. This “portfolio theory”, where a handful of big hits justify the making of dozens of flops, is the only thing keeping Hollywood in business. But as revenue from these hits begins to dwindle and the costs of making content increase, the model has begun to break down.

Next time: Breaking down the specific manufacturing problems in Hollywood

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