Picking up from my last article, Hollywood has created a needlessly expensive bureaucracy that results in sub-optimal risk management. Each layer of bureaucracy behaves in ways so as to insulate itself from the level above it. My sixth postulation springs from this concept.

6) The hiring of the most expensive, but not necessarily creative or appropriate, talent.

In corporate terms, this boils down to an inefficient manufacturing process. We know that fear rules, and with fear, comes indecisiveness. Everyone wants to protect one’s job, so it is easier to say “no” to an original piece of niche content than to say “yes” to a sequel or franchise with a high awareness rating.

In a misguided effort to reduce the unquantifiable and uncontrollable risks associated with movies, the bureaucracy’s solution is to spend more money. They mistakenly:

i) Overpay actors who have been “proven” to be bankable.
ii) Overpay directors who have had big hits.
iii) Overpay writers who have had big hits.

Hollywood pays each entity whatever it demands because only by securing the talents of those who have already had success, can future success be “guaranteed” – or so the studios believe. However, there is, as Prof. de Vany points out, no correlation between this perception and reality. Indeed, box office success should carry the same warning that a mutual fund prospectus does: “Past performance is not indicative of future results”.

Here’s how things often play out as a result of this mindset. Studios will either acquire a movie script from a writer, or have the writer compose a script from a purchased “pitch”. In the case of feature films, once a script actually makes it to the studio level, the original writer is often replaced by a “rewrite specialist”. These people make mid-six-figures for each draft. By the time the script is approved by the Studio Head, a director joins the project and further expensive rewriting takes place.

The studios thus play right into the hands of the Talent Agents who, recognizing the studio’s desperation and fear, extort the highest pay they can for their clients. This in turn protects each member of the studio hierarchy, allowing them to proclaim, “But the movie couldn’t have been a failure! I hired the best (most expensive) talent!”

In the meantime, highly skilled writers who have had more modest success sit quietly in waiting for employment. With a glut of supply and little demand, the costs of employing these writers would be significantly cheaper. There’s also a couple of dozen outstanding television directors who could easily transition to features. But since they aren’t the known A-list talent, they are relegated to “bridesmaid” status.

The same problem exists in television.

Every year, the studios spend hundreds of millions of dollars developing pilots. Several hundred scripts are commissioned. Fifty or sixty are actually produced, with budgets ranging from $3 million to $12 million.

What scripts are commissioned and which are sent to production? Just like feature films, where an inability to predict success leads to a frantic chase to recreate what has already been done, television looks to duplicate last season’s successes. Television, however, fairs even worse.

For example, when Lost premiered in 2004, networks filled their 2005-6 programming slates with science fiction shows (6 in total). They all failed. The same year, Desperate Housewives premiered and it was the season’s big hit.

Not satisfied with trying to chase false trends, studios spend far too much capital on those trends. After receiving an order to produce a pilot, television studios, desperate to maintain sagging viewership, inexplicably turn to high-priced feature film writers and directors to create shows and direct pilots – people who know virtually nothing about television. Yet studios somehow believe audiences will flock to a new show because Spike Lee directed the pilot, and disregard the fact that by overspending on the pilot, they create an expensive baseline that can never be repeated on a weekly basis. Thus, audiences are sold a bill of goods that cannot be reproduced.

When a show does make it to series, decisions regarding which writers to hire for the staff are no longer put in the hands of the showrunners-executive producers. Studios and networks now make these decisions, loading the staffs with high-priced, high-level writer-producers — some talented, some not. This strains the budget, fewer writers are hired, and they quickly burn out as the season drags on. This affects quality, and viewers notice.

The results? The 2006-2007 pilot season saw 44 pilots produced by the five major networks. Tens of thousands of man-hours were devoted to pitch meetings, note sessions, scriptwriting, rewriting, casting, production, market research, focus groups, and big up-front presentations. . .and yet only one of these shows was enough of a hit to have any chance of reaching the syndication market (Heroes). This show regularly captures 14% of the overall television viewing audience in its hour. This compares to 1993, when ER regularly pulled 39% of the audience.

So an inability to predict success creates fear. Fear causes Hollywood to throw money at a problem that cannot be solved by capital. And as the results have plainly demonstrated, all that money hasn’t helped ratings one bit. Network ratings are falling off a cliff — so much so that one showrunner recently remarked that there is no such thing a hit show anymore. There is only a show that survives.

Next time I’ll examine other problems, such as a failure to innovate, on my way to proposing a new model.

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