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Sunday, April 12, 2009
Winds of Change: an Outside Perspective
“Pride goeth before destruction, and a haughty spirit before a fall.”
King James Bible
Back in the mid 80’s, when the Detroit auto industry was still reeling from the multiple disasters of the 70’s – the Arab oil embargoes, an endless war of attrition with the UAW, and a decade lost to building some truly crappy automobiles -- an old college friend pointed out the similarities he saw between Detroit and Hollywood. At the time, he had an inside view of the Industry as young executive working under the then-rising star of Jonathan Dolgen, during the David Putnam era at Columbia Pictures.*
“What’s happening to Detroit could happen here,” he told me over drinks one night. “The same factors are at work in Hollywood. It might take a while, but big changes are coming down the road.”
Not being a corporate insider, I didn’t see things that way. Having come up through the ranks of low budget features, I was doing just fine working on television commercials here in LA and on location all over the country, and saw no particular reason why the gravy train should come to an end. Then again, I didn’t have an MBA from UCLA, as he did – instead, my graduate degree came in the form of an intensive hands-on field study in 4/0 cable, carbon arc lamps and HMI’s, courtesy of the Joe Frasier School of Higher Education’s Hollywood campus.
Some twenty years later, it’s beginning to look like he was right after all. Not that such prescience did him much good, mind you: a year after that evening of drinks and talk, he got hosed out of Columbia along with the rest of his executives cadre in the corporate purge after David Putnam was fired. Disgusted by the fickle nature of Hollywood -- where his reward for putting in 60 hour weeks driving a desk turned out to be a pink slip and the sound of a door slamming behind him -- he left LA to work in the golf industry. Last I heard, he'd honed his game down to a very respectable handicap, and had no regrets at turning his back on Tinsel Town.
At the time, I was doing reasonably well, making better than $50K/year working less than three days a week. If the work was hard and intense, it was also one very sweet deal, which I foolishly assumed I somehow deserved after slaving away in the low budget, non-union world. What I didn’t understand then was the power of serendipity, or that there really is no substitute for being in the right place at the right time. It’s better to be lucky than good, as the saying goes, and finding myself riding such a nice wave, I figured I’d keep on riding indefinitely towards the warm sunny beach of the future.
I figured wrong. It was fun while it lasted, but with the stark clarity of twenty-twenty hindsight, I saw that I’d been the beneficiary of some very favorable circumstances during a period of relative stability and prosperity in Hollywood – the calm that so often precedes a shit-storm of change. Eventually, those blustery winds of change blew the doors and windows right off their hinges, and I had to scramble hard and fast to find another path forward.
That’s one reason you see a pair of ragged gloves at the top of this blog rather than a light meter: change can be a bruising experience.
Those rude winds are rattling the windows again, this time bringing a digital revolution hell-bent on destroying the basic business models upon which our Industry has long depended. The old ways are crumbling all around us, and although some (like newspapers) are imploding faster than others, no part of the media industry is immune. Our newly-ratified IA contract offers a preview of coming attractions, with tightened rules that will shove many dues-paying union workers over the edge into the abyss of no health coverage. And that’s just the beginning -- in the coming years, I expect things will get much worse for all of us who do the heavy lifting in Hollywood. Union scale -- the floor level of wages and benefits we all take for granted -- will continue to be undermined as more and more low-wage “sidebar” deals are cut to keep productions working under union auspices. To understand where the producers really want to go, take a look at the “New Media” provisions of our new contract, which offer little beyond hours towards the health plan. There's no set wage scale beyond state and federal minimums, complete job interchangeability (so much for those "safety" programs we all had to take), no turnaround, no meal penalties, no nothing. Nearly all the gains in Industry worker protection won during past years are suddenly gone under the New Media deal. For those who do the hard physical work essential to taking any script from the printed page to the large or small screen, the future isn't looking good. It feels as though a tipping point has been passed, and we're now on our way back to the laissez faire, let-em-eat-cake working conditions of the Gilded Age.
The older generation of workers close to retirement will probably make it on through Hollywood's alimentary canal before things get really bad, and the young 20-somethings just starting out will have plenty of time to adapt, but those with established careers and twenty or thirty years to go had better brace themselves for some very rough sledding. The watering hole of work is likely to continue shrinking in the years ahead, as the competition and pressure increases from all sides. For most of us, life in Hollywood will only get harder from here on in.
This isn't to suggest that there's no future in the Industry -- movies and television will be with us forever, requiring the production of vast quantities of programming right up until the day we finally pollute and/or bomb ourselves back to a new Stone Age -- but big changes in the process are coming fast. Where those TV shows and movies will be made (and under what conditions) remains to be seen, but you can bet that production will continue to follow the money. Most television and film produced in the US once came out of Hollywood, but more and more work now goes to Canada and the many other states currently offering fat tax subsidies to attract film productions. Whether you see this as a good or bad thing depends on where you happen to live and work -- there's no right or wrong here, just winners and losers -- but like it or not, that's the way things are. I don't see much hope that this outward tide of jobs will be stemmed anytime soon, which means the downward pressure on wages and working conditions will only increase.
Still, as the old order crumbles, another will arise – a Phoenix taking wing from the ashes – with a new generation of young people positioned to make the most of the evolving Industry. It is they who will be in the right place at the right time to catch this new wave into the future, and at some point, they’ll look back at the way we work now and shake their heads, just as we did at those grainy black and white photos of the Industry before sound came along. But to reach those good times in the future digital Hollywood, the Industry will have to run a brutal gauntlet of economic sledgehammers, and being on the receiving end of all that mayhem isn’t going to be pleasant. The rate of attrition will be high, and a lot of us won’t be around when it's over to see how things turned out. Personally, I hope to be reading all about it back on my home planet while collecting social security, rather than scrounging through dumpsters amid the vast tent cities along the concrete banks of the LA River. But I'm not quite as nimble as I used to be, and a decade can be an eternity during such revolutionary times. There's no guarantee I'll manage to keep tap-dancing around those whirling blades of change long enough to make a graceful exit on my own terms.
So what, you might wonder, brings on such grimly apocalyptic brooding? I’ve been reading the tea leaves for a while now -- we all have, to one degree or another – but the catalyst for today's musings was the following article that recently appeared in the Washington Post. I’m sure you’ll find something to quibble with in the details (personally, I don’t see too many of us working below-the-line as having enjoyed “outsized compensation”), but overall, the argument has that tolling-of-the-bell ring of a decidedly inconvenient truth.
Read it for yourselves – and if you think he’s got it all wrong, tell me why.
*For more on Columbia Pictures, click here.
In Hollywood, Reshaping a Business Model That Emerged With the Talkies
By Steven Pearlstein
Friday, March 27, 2009
You can't think about Southern California without thinking about the entertainment industry. It's not just the $30 billion it pumps into the region, or the nearly quarter-million jobs it creates. It's also that it's an apt metaphor for the economy here.
Like many industries here, it started with the weather, which for the movie studios meant all those reliably warm and sunny days to film movies and then television outdoors. And like many of the region's other major industries, it retains a good deal of its entrepreneurial culture, years after the studios created by Jack Warner and Louis Mayer were bought up by giant corporations headquartered on the East Coast or abroad.
But what entertainment also shares with other sectors is a history of almost unbroken success. Things have been so good for so long, and the companies have been so successful in fending off competitive threats, that it has grown incredibly fat and happy. From superstar actors, their agents and business managers to gaffers and on-set caterers, the money people make is vastly out of proportion to what similarly skilled people make in most other industries. And, even allowing for the process of trial and error inherent in any creative process, its ways of doing business remain stubbornly inefficient.
Now, however, there is a sense that it may all be coming to an end, that the threat this time is real and that the old business models can't survive. With the rise of legal and illegal downloading, the Internet has already decimated the music business, and it is just beginning to overturn the economic foundations of the movies, television and electronic gaming as well. Financing is drying up, once-sacred expenses are being cut, whole layers of management eliminated and work shifted elsewhere.
Electronic Arts, the largest producer of electronic games, employs 400 software engineers, animators, producers and other technicians at its way cool campus south of the city in Playa del Rey, where hits like "Medal of Honor," "Lord of the Rings" and "Command and Conquer" were developed. In response to several years of stagnant sales and the shift from selling packaged software toward online distribution, EA has been cutting costs and changing the way it works. It recently announced it would eliminate 11 percent of its workforce, develop fewer new games and outsource parts of the development process overseas.
According to Nick Earl, a senior vice president, the retrenchment in the gaming industry comes after years in which growth in costs and employment outpaced growth in revenue. With growing collaboration between gaming and the movie and animation studios, Earl is confident Southern California will continue to be an important center for the industry.
Things are looking considerably more precarious for the television business, where there's been a dizzying drop in network and station advertising revenue, driven as much by the DVR as the souring economy. Syndication revenue has shriveled, and networks have been forced to move away from prime-time drama and comedy series in favor of reality series and talk shows that employ many fewer actors, directors, screenwriters and technicians. The industry's hopes are now focused on networks like HBO, AMC and Showtime, whose subscribers are still willing to pay for quality programming. But many of those networks' biggest hits have been produced elsewhere.
Conventional wisdom has it that the movie business does just fine when the economy tanks, as Americans take emotional refuge at the neighborhood theater.
"My memory of the Depression is that the pool man came only once a week," recalls Frank Mankiewicz, the Washington politico and public relations executive and son of Herman Mankiewicz, who co-wrote the screenplay for "Citizen Kane." Indeed, movie attendance this year is up after two years of decline.
The mood in Hollywood, however, is decidedly anxious. DVD sales, which for years have driven industry profits, have recently fallen by almost half as consumers turn to cable or the Internet to get movies they want, when they want them, for less than what it costs to buy the movie in a store. And piracy is cutting deeply into sales in fast-growing markets overseas.
At the same time, the Wall Street investment houses and hedge funds that have lavished cheap financing on the industry for the past decade are now in retreat. Some have closed their L.A. offices and are reportedly peddling their ownership interests in upcoming movies at discounts of 30 to 70 percent. Viacom gave up in its effort to raise $450 million from outside investors for its slate of movies, and credit ratings have been reduced on debt used to finance past pictures. Even famed director Steven Spielberg is reportedly having trouble raising the $700 million that his DreamWorks Studios needs for its next round of movies.
No surprise, then, that the number of movies produced is expected to decline again this year, or that many of those will be made outside of Southern California as producers respond to incentives from dozens of states and localities offering tax rebates equal to as much as 40 percent of production costs. To lure back what it considers "runaway" production, a strapped state legislature was forced this year to enact a modest tax break of its own.
Meanwhile, studios are under intense pressure to cut costs from corporate parents that over the years have been foiled in their efforts to rein in the industry's extravagant ways and earn a decent rate of return on their oversized investments. Movie openings have been canceled, weekend jets grounded and marketing budgets slashed, and even top stars are being told they won't be paid in full until the studios recoup production costs. Nearly every studio has announced layoffs, and a number are closing down subsidiaries and selling off facilities.
"There's no question the system needs to be shaken up," said Peter Bart, the editor of Variety, once himself a studio executive, who said the industry is going through "a reality check."
The day of my visit at Warner Brothers was a bittersweet one for the famed Burbank facility, the last day of shooting for the decade-running TV series "ER." Although more television programming is produced at Warner Brothers than any other studio, it is still way off what it once was, and it's been nearly two years since the last full-length motion picture was shot there. Given those volumes, says Gary Credle, who recently stepped down as the chief operating officer of the facility, it's getting increasingly difficult to justify the cost of maintaining a full-service studio on 110 prime acres in the heart of Southern California.
"Certainly if this didn't exist, we couldn't afford to build it today," said Credle as we walked through the studio's back lots and manicured gardens. "The models for this business are being challenged every day in every imaginable way, and nobody knows where it ends up. . . . What you see here is going away, and it's not obvious what is going to replace it."
The world will always need entertainment, and Southern California is the odds-on favorite to produce it. It has the history, the people, the infrastructure and the creative energy. But as Detroit automakers and New York's financiers have learned, these natural advantages can disappear when an arrogant and insular industry comes to view its dominance as inevitable and its outsized compensation as an entitlement.