How Hollywood studios lost control of the movies

For decades, American-owned movie studios filled our screens with films primarily for American audiences – but things have changed.

By the time the rights to Michael Crichton’s book, Rising Sun, were being sold off for a possible movie, some studios were out of the running before they’d even read a script.

The novel, a controversial tale from the Jurassic Park author about a culture clash between America and Japan, was criticised for its depiction of Japan, and faced accusations of racism when it first hit bookstores. The late Crichton was taken aback by those criticisms, but they very much lingered. The book, he argued, was a story about America, and how he thought it was selling its future to Japan. It would be fair to say that not everyone saw it that way.

Nonetheless, Rising Sun was a hot novel and, with buzz building up about Jurassic Park, a hot novel that had Hollywood studios getting their chequebooks ready, looking for the next big hit. But, in this instance, not every Hollywood studio. In fact, the auction to the rights of Rising Sun was notable for who was out of the running before the race had even begun.

Ownership

By the early 9os, Hollywood was in a transitional phase. The studio ownership and moguls of old were gone, and new money was coming into the town. After The Coca-Cola Company had dabbled with the movies – unsuccessfully – it sold Columbia and Tri-Star to Sony. And at the start of the decade, Universal Pictures was sold to MCA. That put three traditional studios in the hands of Japanese owners, and the idea of making a project as insensitive to Japan as Rising Sun was a flat-out no-no for each of them.

In the end, it was 20th Century Fox that ultimately snapped up the rights, and made the film with Sean Connery and Wesley Snipes, the eventual screenplay changing the lead character in the book from Caucasian to African-American, which, if anything, managed to inflame controversies still further. The film was a modest hit.

Yet, just the mere bidding for the project had given a glimpse of the shift in Hollywood. After decades of making movies for an American audience first – overseas often as an afterthought – it was feelings primarily outside of the US that saw major studios resisting what, on paper, was a lucrative project. A quiet, ultimately dramatic evolution was taking place. Sure, Hollywood films travelled all over the world, and became one of America’s biggest exports. But even a film such as E.T. – the biggest box office hit of the 80s – was grounded in American culture and foundations. Yet, over the course of the subsequent 25 years, much changed. And quite dramatically so.

Not that many in Hollywood necessarily saw it coming. The 90s were a ripe time for the studios, after all. The star system was still just about hanging together, and at the start of the decade those movie stars were still the key ingredient to a big film getting made. The $20m upfront actor payday came about with Jim Carrey in The Cable Guy, with the likes of John Travolta, Mel Gibson and Tom Cruise subsequent beneficiaries. And that’s before back-end deals were factored in too. It’s well known, for instance, that Bruce Willis took a cut of The Sixth Sense profits on top of his salary, reportedly trousering around $100m when the film became a huge success.

Then, towards the end of the 9os, a new cash cow arrived: DVD. It’s hard to overestimate just what an impact this had on Hollywood’s bottom line. There had always been an argument that a cinema release had become a promo effectively for a film’s video bow, where it would make most of its profits. But DVD numbers started well, then continued to soar for nearly a decade. Studios couldn’t get their back catalogue titles onto the format quickly enough (accounting for the poor technical quality of some of the releases). Furthermore, having seen the success Disney enjoyed with its straight-to-video Aladdin sequel, The Return Of Jafar, studios had already been toying with making more straight-to-video franchise extensions.

When the DVD scene exploded, we ended up with umpteen American Pies and Bring It Ons, belated sequels to films such as War Games and The Net, and Disney was throwing any excuse for a straight-to-DVD sequel on a disc and shipping it out.

The knock-on was that this seemed to reinvigorate the audience’s broader interest with films. As DVD sales spiked, so cinema admissions benefited too. Virtually all of the big movie studios were awash with money. It was discovered in the midst of this – and both Jurassic Park and Independence Day were real pathfinders here – that movie stars weren’t as vital as had been assumed (Will Smith’s star was on the rise come Independence Day, but still some way from its peak). By leaning more on effects-driven movies, they tended to play better away from America, and thus more revenue streams were being opened up. Hollywood had lots of money and seemed in rude health. It helped that a visual effects artist didn’t expect a slice of the profits, as a big movie star generally did.

The start of a tiny company in the middle of all of this would have ramifications a lot further down the line. On 29th August 1997, in California, a new business started up with the idea of renting DVDs by post. It would launch its website the following April, offering just over 900 titles. It would take a further decade or so before this company’s impact on Hollywood would start to be felt. But in the background of the next stage of the story, that little firm – Netflix – was slowly building momentum. Again, it was a story that the studios never saw coming.

The next decade continued to be peak times for the Hollywood studios. But it couldn’t, and didn’t, last. In 2008, DVD sales – and, as it would turn out, sales of physical film media altogether peaked. In the UK alone, over 240m units were bought in 2008, more than double the level VHS ever managed. Yet, in a fight to benefit from future revenues, a format war between HD DVD and Blu-ray had slowed down adoption of a high-definition disc format. Furthermore, the average retail price of a DVD was falling, cutting into profits. And, as more and more of the world found itself connected to broadband internet services, so more and more people turned to the internet to download their movies, both legally and – more prevalently – illegally.

For an industry that had got used to the revenues DVD had been bringing in, and had expanded to rely on them, significant challenges were about to hit. At first, the drop in disc sales was modest. But a report published by the Motion Picture Association of America (MPAA) in 2019 would lay bare how savage the ultimate fall was. Between 2014 and 2018, disc sales fell by 50%. And whilst streaming has picked up some of the slack, digital revenues have diversified and aren’t going in the same pockets DVD sales were. There’s an income shortfall, and the money that’s coming in isn’t primarily going to the traditional Hollywood studios. I’ll come back to that point.

However, even before this, heads had been turned by what happened at the international box office in 2004. The general rule of thumb to that point was that the US box office total and the non-US figure were around the same. A film that grossed $200m worldwide would expect half of that number to come from the US. Yet, in 2004, that changed, and dramatically so. Suddenly, non-US box office spiked by over 40%. Not just from the domestic hits within countries around the world, but also a raft of big films saw over 60% of  their income brought in from outside America (Harry Potter & The Prisoner Of Azkaban, The Day After Tomorrow, Troy, Ocean’s Twelve, The Terminal, for instance). Since then, non-US box office has outweighed US takings. Nobody expects that situation to ever reverse, either. Not only were several Hollywood studios owned by non-US companies, but now the films they were greenlighting were requiring more and more international appeal. Arguably, few understood that more than the Ice Age franchise, where appetite for the animated sequels dampened in the US. Yet, 2009’s Ice Age: Dawn Of The Dinosaurs grossed a staggering $888m at the global box office, with just 22% of those takings coming from the US.

Hence, as DVD sales fell, the drive to explore more and more territories around the world became vital for the traditional studios. And that’s how the strange tale of Iron Man 3 came about.

You probably know the tale of this one. The 2013 Marvel sequel grossed over $1bn at the global box office, of which over $100m of its income came from China. But then Disney/Marvel had been keen to ensure a Chinese release, just for this reason. Analysts had long concluded that the Chinese market for cinema alone was set to ultimately overtake America as the biggest in the world, and the studios wanted a cut of that.

The problem: Chinese authorities were and are notoriously restrictive on how many imported movies can play and when. The way around that? A co-production. As such, Iron Man 3 is legally a co-production between Disney, its Marvel studios subsidiary, and a company well rooted in the Chinese film industry, DMG Entertainment. To further ensure the film would get a prime, lucrative Chinese release, parts of Iron Man 3 were shot in China. Most notoriously, a four-minute extra sequence was added purely in China, which included product placement for Chinese products and extra material featuring Wang Xueqi in the role of Dr Wu.

Iron Man 3 wasn’t alone in its approach. 2014’s Transformers: Age Of Extinction, from Michael Bay, became a co-production between Paramount, China Movie Channel and Jiaflix Enterprises. Large parts of the film were set and filmed in China. And whilst the movie was savaged on its initial release by critics, the financial rewards were jaw dropping. The franchise’s declining US gross was offset dramatically when the movie scored over $300m in China alone.

What Hollywood was finding with Chinese co-productions, though, was that the cash grab was so overt it was affecting the films. Notably, Chinese audiences were (rightly) loud complainants where Iron Man 3's clumsy extra footage was concerned, and the contrivances of 2016’s The Great Wall were also off-putting for many. A more recent hit such as 2018’s The Meg, which wouldn’t have existed were it not for Chinese investment, effectively found itself telling the same story twice to try to cater for all the audiences it needed to cover. The Meg 2 is now on the way, mind.

Even films that don’t enjoy lucrative Chinese co-funding have been changing. It’s no coincidence that 2018’s Men In Black film went International, for instance, and fewer and fewer blockbusters are definably about America. No bad thing, but it’s very much affecting the decision making. In 2019, Universal sold on the hugely expensive, US-set Dwayne Johnson-headlined action movie, Red Notice, to Netflix (it arrives in November). Just a year earlier, it was happy to back the China-set action flick Skyscraper from the same star and director.

The way Marvel has approached this shows it can work. Its collection of comic book movies has organically traversed the globe and harnessed universal appeal. Likewise, the Fast & Furious movies speak in the universal language of extreme car chases. But that Dwayne Johnson example is an interesting one, as it points to the other transformative force in blockbuster movie culture: streaming services and, in particular, Netflix.

When the Red Notice project was first mooted, it made headlines as one of the biggest bidding wars for a blockbuster movie in recent memory. The package put out to studios was an action thriller, written and directed by Skyscraper's Rawson Marshall Thurber, which would star arguably the reigning biggest movie star in the world, Johnson. The bill for the film was set to be at least $125m, but in February 2018 there was no shortage of suitors willing to pay it. Paramount, Warner Bros (through its New Line subsidiary), Sony, Netflix and Legendary Entertainment were in the bidding. The successful bid saw Universal and Legendary agree to co-fund the movie.

The underwhelming box office of Skyscraper in the summer of 2018 (as well as Rampage a few months before) presumably tested Universal’s resolve, and whether it wanted to place so many chips on the table for just one project. In the end, even pre-pandemic, it was too much of a gamble. In spite of having announced a (pre-Covid) November 2020 release date for the movie, Universal sold it to Netflix. Ryan Reynolds and Gal Gadot have now signed up to co-star, and it’s telling that only a streaming service had the financing to fund such a standalone American project outright.

At the end of 2018, meanwhile, there was a further concern for the studios. The most talked about movie of Christmas 2018 wasn’t a blockbuster from the traditional sources, but the Sandra Bullock-headlined Birdbox. A film exclusive to Netflix that people took to social media to discuss in sizeable numbers.

Netflix had already thrown a notable spanner in the Hollywood works when, in 2014, it signed Adam Sandler to an exclusive deal. Derided at the time, it’s proven to be a smart bet. As ridiculed as his movies had become, Sandler was and is a movie star name, and his Netflix-only films have become arguably far more watched than his cinema outings were (and his films, lest we forget, were profitable hits for the studios). Netflix soon extended his deal, and other stars have now taken their movies to the streaming service.

Of course, the impact of Covid means that Hollywood continues to shift at breakneck speed, as the power of most of the studios feels like it’s diluting further. Hollywood has clearly tried to adapt, not always by choice, and the most successful films of 2019 – the last full year of normality – at the box office reflect that.

Avengers: Endgame and Captain Marvel were both filmed extensively outside of the US. Aladdin was made in Britain, by a British director. How To Train Your Dragon 3 is the closing part of a trilogy, where each chapter has been distributed by a different studio. Pokémon: Detective Pikachu, Alita: Battle Angel and Godzilla: King Of The Monsters are rooted in eastern culture. The Wandering Earth, the fourth biggest film of the year, made virtually all of its money in China. Only Shazam and John Wick 3 stand as primarily American films.

Even the most currently successful of the traditional studios, Disney, is hedging its bets. It’s gradually wound down the number of cinematically released films it puts out a year over the past decade, opting for a small slate of very big films. But it’s also gambled the house by snapping up the Fox empire, so that it has sufficient material for arguably its most pivotal modern play of all, the Disney+ streaming service. A service that’s speedily giving Netflix a run for its money.

Streaming services are the new battleground, and the players are very different. Whereas Warner Bros, Paramount and Disney have launched services of their own, they’re up against hugely cash-rich firms such as Amazon and Apple, which are also trying to become big players in the movie business. Netflix continues to invest heavily, albeit with primarily borrowed funds, and the competition is now less for cinema space amongst the big players, instead focusing on who controls the streaming platforms that most of us watch lots of films on.

The Future?

It’s all a gigantic contrast from 1993, but the clues were there when the auction for those Rising Sun rights began. It was one of the first in a series of changes that came at a movie business that wasn’t quite ready for them.

Hollywood studios have always, of course, followed the money, but when the money ceased to be primarily about making American films for American customers, many struggled, and some still do. It was a struggle hidden by the DVD revenue boom, but even in the backdrop of that, change was happening.

It does feel like the era of absolute studio power has passed, certainly in the traditional sense of how the movie business used to be run. It also feels like those changes are irreversible. But then, if the last 25 years have taught us anything, it’s that a small company may already be out there, perhaps a modest one at the moment, which may yet have something to say about that…

Lead image: BigStock

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