Ryan on Jake Eberts

Ryan Nelson

I'm curious about incentives for filmmaking. In his extremely interesting presentation, Jake Eberts described a film industry business model which appears fixated on short-term profitability. Production rights in the 99th year of a film’s copyright term don’t appear to factor into decisions about whether producing a particular film will be a promising and profitable enterprise. This makes sense because we ought to discount future profits based on an expectation of diminishing returns. When we take into account all the uncertainly about what will happen in the film industry over the course of a century, it seems unwise for a filmmaker to bank on profits in the later portion of their copyright term. I would propose, therefore, that the later portions of the 100 year US corporate copyright term do not serve as a significant incentive at the time a producer elects to create a movie – the future is discounted too much to factor into their economic equations. That said, I think there is a significant difference between the economic models of Good Films versus Bad Films which complicates what would otherwise be my simplistic conclusion about film incentives – to reduce the copyright term-length because it doesn’t adequately incentivize the useful arts.
Gandhi, with a budget of $22 Million took 89 Days to become profitable, which means it had approximately 36411 remaining days of exclusivity in which all revenue is profit. I'm being a little unfair because a large portion of that original revenue is captured by the distributor; for a film to become profitable from the producer's prospective it takes longer. The-Numbers.com (from where I pulled all my data) loosely approximates that 50% of the box office price returns to the studio, while the other half stays with the distributor, going to pay for marketing or for the kid to sweep up popcorn after the show.
Gandhi generated approximately $52 million at the box office, $22 Million in Rentals, and an unknown number in sales. In the 150 days it was in theatres, its producers would have broke even and made an additional $4 million (about $26m on $22m), a return on investment after its 6 month cinema life of only 8.5% (a treasury bond at the time was yielding over 10% !). As rentals and sales of the film are factored in over the years, the film would become pleasantly profitable from the producer’s perspective; but it would take time.
Transformers presents a different picture. It cost approximately $151 million to make, grossed $700 million worldwide in half a year in theatres, and has made about $290 million in DVD sales in the past two years. Once it surrenders half(ish) the box office total to distribution and marketing costs, the studio has made about $350 million profit, a 130% return. Transformers did very well with DVD sales and rentals in the two years since its production; but we can expect that, owing to its mediocrity, its long-term marketability will rapidly drop. Gandhi, on the other hand, remains as pertinent and important today as it has ever been, and will make sales every time it is released in a newfangled format over the next 70 years.
If you allow me to apply my shameless bias and let Gandhi repent Good Film while Transformers represents Bad Film, there are some troubling implications for copyright reductionists. Good Films require time to become profitable enough for their producers to justify the original risk. One of the largest reasons for this is, as Jake pointed observed, that it is hard to communicate sophisticated ideas in a thirty-second trailer. You have to wait until word-of-mouth gets around before good films start to receive a serious viewership. If the term of copyright is to be reduced, it will likely harm good films more than bad.
Reducing the length of copyright still seems to me a very good idea, but I don't want to do so in a way that undermines the financial incentives which produce Art-for-the-Ages, forcing any artists hoping to make a professional living to focus on Buck-a-Pop art.
The value of the copyright incentive decreases as it is discounted for the future. For someone considering producing a film, the first year of exclusive rights is very valuable, while the 99th is completely insignificant. If the monster blockbuster film was the only business model to consider, I would be quite content to drastically reduce the length of their monopoly – fourteen years seems a little long, five years might be a little short. But if we expect the business of making good films to prosper via copyright, they will probably need more time.
My preferred approach is to begin to abandon the idea that films should depend exclusively on copyright for their revenue. Developing a cinematic award system which provides significant financial rewards to the makers of good films might be one interesting way to start achieving this. I’m sure there will be many others.