The fundamental problem with making film and television is that, in the words of screenwriter William Goldman, “Nobody knows anything.” He meant that predicting box office success is a crapshoot, neither science nor art. The most well-regarded work often fails, while surprise hits crop up out of nowhere. Thus, the acclaimed Citizen Kane (1941) flopped at the box office yet micro-budget flick Paranormal Activity (2007) returned nearly 200 times its investment. Even knowing what has worked in the past is no guarantee. As an executive at the Australian Broadcasting Corporation put it, “If we set out to make half a billion dollars by creating a new Bluey then we’d fail. For all [the show’s] success, it’s lightning in a bottle.”
Goldman’s aphorism—the “nobody knows property”—is a problem because of the high stakes involved in the film industry. The expense of financing, distributing, and promoting a movie or TV series can be immense. While it was true, to quote a former chairman of Walt Disney Studios, that “very few entities in this world can afford to spend $200 million on a movie,” a bad enough flop could still sink a studio. Historically, that created an incentive structure that led to the consolidation of the studios into a handful of major companies. The studio system mitigated the dangers inherent to producing uncertain products with high sunk costs through economies of scale and by pooling risk. Only about 10 percent of movie releases ever made a significant profit, as economist Harold Vogel once noted, but that was sufficient to finance the 70 percent that failed outright and the 20 percent that broke even; it was a viable strategy for an organization with enough capital to survive the lean spells.
It also propelled vertical integration in which the studios acquired movie theaters, giving them significant control over film distribution (especially until antitrust action in 1948). In addition, the big six studios operated as a semi-monopsony regarding creative talent. Aspiring actors, filmmakers, and showrunners had vanishingly few other options for selling their labor; thus, restrictive contracts and broken promises of box office backend were routine.
Gradually, over the back half of the 20th century, the centralized Hollywood model slowly broke down under increased competitive pressures. That included the rise of the indie film festival circuit, which gave non-studio filmmakers a market to showcase and sell their films and to attract top acting talent. Likewise, government deregulation in the late 1970s enabled the proliferation of cable channels in the 1980s, which offered an alternative distribution mechanism for films and TV shows; the theater box office now had to compete with the likes of the Home Box Office (HBO).
These new venues for creators and new channels for distribution to consumers sparked a Golden Age of Television. HBO, for example, was an innovation engine even in its early years. It experimented with shows that would have been considered either too niche or too obscene for primetime broadcasting, such as Tales from the Crypt and the pioneering news satire show Not Necessarily the News. By the turn of the century, television—once considered a second-run proposition for aging movie stars—increasingly competed with film studios for talent and financing.
“Prestige” TV shows such as The Sopranos and Mad Men—a single season of which could cost as much as a movie to produce—also fueled rising consumer demand for boxed VHS or DVD sets, a highly lucrative revenue stream for an industry no longer solely reliant on box office receipts. Every new movie or TV show became an opportunity to quadruple dip on revenue: a theatrical release, VHS/DVD sales, broadcast syndication, and eventually, streaming rights. While “US population grew by 41 percent,” as economist Joel Waldfogel notes, “movie revenue grew by almost 400 percent” by the turn of the 21st century.
Still, these changes to the movie industry were fairly incremental, albeit a useful reminder that expanded market competition promotes innovation and consumer welfare. But what has happened since the turn of the 21st century is anything but incremental. The rise of the internet and the advent of new digital technologies have accelerated the transformation of film and TV.