Forget the Movies, TV Is King in Hollywood

Suddenly it seems TV is running the movies.

Last week, Robert Iger, former head of ABC, got Michael Eisner’s spot at Disney. This week, Gail Berman left Fox TV to join another new refugee from television, Brad Grey (former head of Brillstein Grey Entertainment) at Paramount. And the co-president of Paramount’s parent, Viacom, is Tom Freston, onetime head of MTV. The story is similar at Sony, Fox and Time Warner Entertainment & Networks Group, where former TV executives have taken over top jobs.

No one should be surprised, because the key to understanding the New Hollywood is this: What used to be a business centered in movie houses has been transformed into a business centered at your house. The humble home-entertainment business outpaces the glitter and glamour of red carpets and movie stars.

In Old Hollywood, prior to 1948, the studios owned or controlled movie houses. In New Hollywood, studios or their corporate parents own or control the main television conduits. Indeed, the major studios’ corporate parents now own all six broadcast networks – NBC, CBS, ABC, Fox, UPN and WB. They also own nearly all the principal cable networks, including ESPN, HBO and CNN.

Underlying this transformation is a singular reality: The adult population no longer goes to the movies on a regular basis. In 1948, more than two-thirds of Americans went to the movies weekly. Now barely 10% of Americans go in a typical week – and most of them are teenagers.

Where is today’s mass audience? On any given night, more than 90% of the population is at home watching something on a television set. So Hollywood followed its audience home.

The six major studios go to great lengths to conceal the different components of their revenue streams from the public and even from financial analysts. The rationale given by one top executive is “to avoid showing Wall Street how volatile the movie business is and how tricky are its profit margins.” They may also want to keep agents and stars in the dark about where they should be demanding the highest participations.

But I got the numbers, from a studio executive, that each of the major studios furnish to their trade association, the MPA, including the detailed breakdown of the money they actually receive, country by country, from movie theaters, home video, network television, local television, pay television and pay-per-view.

The numbers tell the story. Ticket sales from theaters provided all the studios’ revenues in 1948; in 2003, they accounted for less than 20% of the take. Instead, home entertainment provided 82% of the 2003 revenues. Further, print and advertising costs eat away most if not all the theatrical revenues, but the studios retain most of the money they garner from home entertainment.

All of this has transformed the way Hollywood operates. Theatrical releases, despite the blinding allure they hold for the media, now serve essentially as launching platforms for videos, DVDs, network TV, pay TV, games and a host of other products. And New Hollywood’s line of succession now runs through television and other home entertainment executives.