The Hollywood Economist 2.0: The Hidden Financial Reality Behind the Movies

by Edward Jay Epstein

A fully revised edition of the popular guide to Hollywood finances, updated to reflect even newer films and trends

In a Freakonomics-meets-Hollywood saga, veteran investigative reporter Edward Jay Epstein goes undercover to explore Hollywood’s “invisible money machine,” probing the dazzlingly complicated finances behind the hits and flops, while he answers a surprisingly difficult question: How do the studiosmake their money?

We also learn:

+ How and why the studios harvest silver from old film prints ...

+ Why stars do—or don’t do—their own stunts ...

+ The future of Netflix: Why the “next big thing” now seems in such deep trouble...

+ What it costs to insure Nicole Kidman’s right knee…

+ How Hollywood manipulates Wall Street: including the story of the acquisition of MGM… wherein a consortium of banks and hedge funds lost some $5 billion… while Hollywood made millions.

+ Why Arnold Schwarzenegger is considered a contract genius…

+ The fate of serious fare: How HBO, AMC, and Showtime have found ways to make money offer adult drama, while the Hollywood studios prefer to cater to teen audiences.

+ Why Lara Croft: Tomb Raider is considered a “masterpiece” of financing ...

Genres: Nonfiction, Economics, Film, Business, Finance, Media Tie In, Cultural

240 pages, Paperback

First published January 1, 2010

About the author

Edward Jay Epstein (born 1935) was an American investigative journalist and a former political science professor at Harvard, UCLA, and MIT. While a graduate student at Cornell University in 1966, he published the book Inquest, an influential critique of the Warren Commission probe into the John F. Kennedy assassination. Epstein wrote two other books about the Kennedy assassination, eventually collected in The Assassination Chronicles: Inquest, Counterplot, and Legend (1992). His books Legend (1978) and Deception (1989) drew on interviews with retired CIA Counterintelligence Chief James Jesus Angleton, and his 1982 book The Rise and Fall of Diamonds was an expose of the diamond industry and its economic impact in southern Africa.

Reviews

[brian · Rating 3 out of 5]

fascinating freakanomics take on the hollywood money machine, but lacking the proper heft... possibly due to the fact that much of the book is basically a reprinting and/or reworking of the author's previous book and published articles. despite that, it's a must read for hollywood folks.

although i hope to make enough money to snort many a rail of coke off many a stripper's tit and asscrack... the money + art equation is perennially icky. but y'gotta know about it. and y'also gotta know that despite all the vampiric blood-sucking greedy fatfucks out there, this kinda magic is still possible:

[Matthew · Rating 4 out of 5]

This book helps to explain the behavior of the movie studios, for better or for worse. And I was pleased with how the author approached the subject; what could have been a dry topic was kept interesting by a little bit of humor, a random smattering of interesting behind-the-scenes type stories, and a straightforward explanation of why movies are financed the way they are financed.

I never thought I'd be typing these words but it's true, I have a new-found respect for Tom Cruise and Arnold Schwarzenegger. Or, their lawyers? Either way, they were able to structure contracts in a way that had never been done before and consequently shape the face of entertainment.

Other takeaways --
No one makes money on the movie itself but rather it's all about orchestrating fees and access to the movie. For example, movie theaters don't make money off the movies themselves. 75% of theater operating costs come from concessions and advertising.
The tax breaks for filming in certain geographical areas are INSANE.
The book talks about issues like that.

[Paul · Rating 3 out of 5]

I would not give this book a high recommendation, but it's a quick and easy read which gives fascinating behind-the-scenes information about the rapidly changing business of movies. It's an area that all the PR surrounding movies never focuses on, outside of box office grosses. Unless you read the specialized trades or work in the industry, it's not something that you would know about, but I find it interesting. My restricted endorsement reflects that it's not that well written and it reflects its nature as basically an assembly of previously published columns which originally appeared in various periodicals.

[Budd Margolis · Rating 4 out of 5]

2010 so a tad outdated but worthy for those who wonder how studios make money.
Short books filled with some good facts. Knowing what the state of the industry was before everything became Netflix. Hulu & Amazon Prime is very useful!

[Kali Koba · Rating 4 out of 5]

The book is largely a collection of small essays and articles written elsewhere but revised and organized into chapters which are more like categories. The writing can be a bit repetitive, and you won't get any sort of real systematic breakdown of things, but it is immensely useful for the thoughts it inspires and the sheer range of topics it covers. It is also a pretty light read, so it is something I would not feel bad about recommending to even the really uninitiated. Overall, a solid book.

[Damon · Rating 4 out of 5]

Fun, bite-sized book on the movie business. I love Edward's clear, pop cultural take on how the debt-based business runs, though some repetitive themes and too-brief chapters prevent it from being the definitive, deep tome it could have been.

[Дмитро Булах · Rating 5 out of 5]

Great food for mind and excellent writing.
Could never imagine that Hollywood is so complex and interesting.

[Magdalena]

Mocno przestarzała pozycja (przez ostatnie półtorej dekady zmieniło się bardzo wiele rzeczy), ale nadal chyba nie ma nic lepszego w kategorii literatury dla laika, co tak przejrzyście pokazuje kuchnię finansową przemysłu filmowego - w idealnej rzeczywistości autor napisałby mi sequel na tu i teraz :) (i jeszcze w brytyjskim angielskim, bo moja znajomość słownictwa księgowo-finansowego z amerykańskiej strony jest jednak uboższa)

[Sashko Valyus · Rating 5 out of 5]

Прекрасна книга. Невилика за об'ємом, вона дуже просто і наглядно показує стан справ в сучасному Голівуді. Як і чому знімаються фільми, звідки беруться і куди ідуть мільйони доларів, і чому блокбастери не висуваються на оскар.

[Chris · Rating 3 out of 5]

A good look into "Hollywood" or "creative" accounting that often subverts what one would normally expect. However, Epstein often reveals an ignorance of technology (for instance, one cannot play a DVD on an iPod) that can be distracting.

[Robbie · Rating 4 out of 5]

very easy read and a great way to learn about hollywood

[Monica Goyal · Rating 4 out of 5]

Fantastic insights into the Hollywood money making machine. I will never watch a Hollywood movie in the same way

[Green Hedgehog · Rating 5 out of 5]

Мне нравится смотреть фильмы. И я даже где-то горжусь тем, что за всю жизнь посмотрел что-то в районе трех или четырех тысяч (пожалуй, не самое значимое достижение, но приятное). Так вот, когда отсмотрел такое количество, начинает появляться ощущение, что можно провести какие-то параллели. Найти закономерности и общие детали. В принципе, подобные мысли возникают даже после пары сотен блокбастеров. Шутить на тему: «Голливуд производит только ремейки и тупые фильмы, наполненные взрывами» уже давно не оригинально. И вот эта книга способна дополнить мозаику недостающими кусочками.

Итак, автор рассказывает о том, что происходит в Голливуде, приоткрывая многие секреты этой кухни. Например, почему многие высокооплачиваемые актеры готовы сниматься в низкобюджетных фильмах, буквально за копейки. Или какая основная аудитория у кинопрокатчиков и почему получилось именно так. А заодно, почему и как создание мультиплексов изменило лицо киносъемочного бизнеса. Если вы хоть раз задумывались об этом, когда шли на очередной сиквел знаменитого фильма со слабым сюжетом, зато с кучей взрывов и компьютерными спецэффектами – эта книга точно для вас.

Да, можно сказать, что идея о том, что Голливуд – это в первую очередь про бизнес, а не про искусство, она, мягко говоря, не самая актуальная. Но вот различные детали этой идеи – вот что интересно в этой книге. Сравнение собственных ощущений и поиск подтверждения собственных мыслей в книге – забавно. Ну, например, то, что фильмы редко когда сним��ются в США, а все больше в других странах. Почему? Ведь возить всю технику и людей за границу – не самое дешевое удовольствие. Ответ прост – налоговые льготы. Отчего даже уже готовые хорошие фильмы снятые независимыми разработчиками так мало прокатываются в кинотеатрах? Просто кинотеатрам это не выгодно – очень уж мало людей знают о подобных фильмах. И выбирая между малоизвестным и широкоразрекламированным фильмом, большинство людей пойдет именно на второй. Как так получилось, что именно подростки становятся целью рекламы фильмов и почему, все фильмы создаются именно для них? Ведь по логике, они не самые платежеспособные клиенты. Да все просто – эта аудитория лучше поддается внушению, она посещает большинство торговых сетей, которые платят за рекламу в фильмах и множество других преференций, по сравнению со взрослыми.

И таких забавных закономерностей из книги можно узнать достаточно много. Так, чтобы выстроилась более-менее стабильная и стройная система того, что сейчас происходит в крупнейшем поставщике кинофильмов в мире. А заодно посмотреть, как вообще развивался весь этот бизнес, начиная с «Золотой эпохи Голливуда». Как они перешли от системы, когда каждая кинокомпания владела собственными кинотеатрами, а актеры были связаны кабальными договорами к тому, что происходит сейчас. Ну и интересные попытки каких-то прогнозов на тему «что будет с индустрией дальше».

Так что, книга получилась интересной. Небольшая по формату, с россыпью достаточно общеизвестных мыслей (вроде того, что кинотеатры получают основную прибыль от продажи попкорна), но от этого не менее ценная. Прочитать её стоит любому, кто задумывался о кинематографе и о том, что в нем сейчас происходит. Да, можно сказать, что какая-то часть из этой информации уже устарела, а за какую-то очень сложно поручиться. Впрочем, последнюю претензию можно объяснить моей личной недоверчивостью. Но даже с этим, вся предоставленная информация выглядит вполне логичной и стройной.

[fonz · Rating 3 out of 5]

Un libro muy interesante sobre el elemento más importante de la existencia, sólo detrás del agua potable y las fuentes de energía, el dinero. En este caso el dinero en su relación con una de las más importantes fábricas de producción de entretenimiento para las masas; el cine. Cómo se financian las películas, de dónde obtienen los beneficios y como la tecnología y los cambios sociales obligan a los grandes estudios a modificar sus fuentes de ingresos mediante una inaudita capacidad de adaptación (de intentar prohibir la venta de los videocassettes a principios de los ochenta a sacar un pastón con las ediciones de las películas a vídeo). Y finalmente, cómo los cambios sociales y demográficos en la asistencia a las salas (básicamente en USA ya ni dios va al cine salvo los adolescentes para salir de casa), los avances tecnológicos en la reproducción y distribución de cine casero y el sistema de producción dan forma al tipo de cine que producen los estudios, a lo digamos, "artístico". Además, en el ensayo se aportan diversos datos que desmienten muchas de nuestras ideas establecidas sobre el negocio fílmico; apenas un treinta por ciento de lo que ingresa una película se obtiene de la taquilla, las salas no viven de las entradas sino que ganan dinero con las palomitas, los snacks y los refrescos que se venden con un ochenta por ciento de margen de beneficio, el público de una película no existe, sino que se crea con descomunales campañas de publicidad, muchas películas de estudio están fuertemente subvencionadas o acogidas a exenciones de impuestos según el estado norteamericano o el país (Alemania o Canadá) donde se rueden (hasta un treinta por ciento de la producción de una película puede estar subvencionada), por muy flop que haga una película en taquilla, gracias a la ingeniería financiera en la producción, las subvenciones y la entrada de fondos de capital-riesgo, las películas ofrecen un mínimo del 15 por ciento de beneficio sobre lo invertido. Y, finalmente, la cínica afirmación de un alto ejecutivo según el cual a los grandes estudios les viene muy bien que todo el mundo crea que se encuentren en permanentes problemas económicos ya que les beneficia, por ejemplo, a la hora de negociar con las grandes estrellas.

En el debe; se nota mucho que estamos ante una recopilación de artículos y columnas publicadas previamente en internet, falta consistencia y una mayor cohesión y organización de ideas que suelen aparecer varias veces de forma repetitiva (dista mucho de su equivalente en el mundo de la música pop, el estupendo "Rockonomics" de Marc Eliot). A veces parecen las notas para la elaboración de un libro o ensayo más cohesionado y mejor estructurado. Pero resulta una lectura interesante, amena e informativa que debería leer todo el mundo al que le interese como funcionan realmente las cosas en la industria del cine.

[Sergey Kryzhanovsky · Rating 4 out of 5]

Любопытнейшая книга, хоть и с броским заголовком. Как обычно, всё гораздо сложнее, чем выглядит со стороны.

Например, кассовые сборы фильма от проката в кинотеатрах — фигня. Некоторую сумму они приносят, да, но… В 2007 г. кассовые сборы составляли лишь 10% от общего дохода крупнейших киностудий. Остальное — продажа DVD, а также лицензии кабельным и сетевым телеканалам плюс куча долларов от авансовых продаж. Тем не менее, публичные рейтинги по-прежнему опираются на сборы. Причина проста: реклама. Фильм, "победивший" в кассовых гонках, называется "самым кассовым фильмом" и участвует в шумихе. Всем выгодно.

Или вот: на чём делают деньги кинотеатры? На фильмах? Не-а. В 1997 г. киносеть Hollywood Theaters получила $23 млн. от продажи билетов, остальное ($27 млн) забрали киностудии. Затраты при этом составляли $31.2 млн. Убыток, казалось бы. Ан нет, продажа попкорна — бизнес с рентабельностью выше 80%. От этой деятельности сеть в том же году получила $22.4 млн. Слова управляющего: "Каждый предмет интерьера в холле кинотеатра имеет одну цель — завлечь посетителя в буфет". Прибавим прибыль от продажи Coca-Cola (поставщик напитков для более чем 70% американских кинотеатров) — $8 млн.

И ещё десятки рассказов: маркетинговые кампании, почему так много кинотеатров с кол-вом мест менее 300, почему в блокбастерах нет секса (тут-то до меня внезапно дошла объективная причина наличия нескольких вариантов картины), в чём ценность старых киноплёнок, затраты на съёмки "Терминатор-3", роль страхования, отказ от новых сюжетов и т.д.

Резюмирую: интересная книга.

[Liam · Rating 5 out of 5]

"In 1948, 65 percent of the population went to a movie house in an average week; in 2008, under 6 percent of the population went to see a movie in an average week." (53)

"A vice president at Paramount explained to me how these invisible maneuvers, including pre-sales abroad, can reduce the risk to practically zero. As an example, he cited Paramount's Lara Croft: Tomb Raider as a 'minor masterpiece' in the arcane art of studio financing. Although the official budget for this 2001 production was $94 million and reported even higher in the press, the studio's outlay was only $8.7 million." (102)

"[T]he movie-business is a fee-driven business. When viewed from the outside, movies, which are almost always set up as separate off-the-books entities, rarely, if ever, show a profit. Nevertheless, when viewed from the inside, they serve as vessels for collecting and dispensing billions of dollars in fees." (157)

"The studios simply followed their audiences home. To do this, they first repackaged the movies shown at theaters Pied Piper-style by making movies that visually appealed mainly to children and teenagers and then recycled them into home products, including DVDs, TV shows, games, and toys, which, in 2008, produced some 80 percent of their revenues." (165)

[William · Rating 2 out of 5]

Basically a collection of Edward Jay Epstein's columns of the same name for Slate and other publications, and it shows. I still thought it was a good read until, well, maybe when I saw a handful of Amazon reviewers lament it was largely a rehash of a 2003 book on the same subject (called "The Big Picture"). Okay. But I'm still giving it a slight "recommend" for anyone interested in the film industry today for a late chapter, "Are Indie Movies Dead?" The answer, it turns out is, kind of. I mean, yes. Maybe? I did finish this on a plane back from the Sundance Film Festival, where I saw a few indie movies all right. But as Epstein explains, truly independent films are rarer than ever. Foreign "pre-sales" financing is rarer than ever thanks to falling DVD sales, online file-sharing making it harder to recoup costs, the closure of several independent distributors (New Line Cinema folded less than half a decade after releasing Oscar heavy "Return of the King") and a little thing called the 2008 global financial crisis. So what's left? A few indie distributors owned by the big studios and a handful of very brave souls. No one said hustling was easy.

[Pete · Rating 4 out of 5]

The Hollywood Economist 2.0 (2010) by Edward Epstein looks at how the finances of Hollywood work. It’s a fascinating account of how the contents of Hollywood films are driven by financial considerations.
The book looks at Arnold Schwarzenegger’s remarkable contracts, star insurance, how concession sales drive the economics of what Hollywood makes and how TV, video, DVD and now streaming is driving how Hollywood runs its finances. The other thing that is covered in great detail is the incredible financial engineering that goes on with a myriad of corporate entities constructed for each film. The book details how Hollywood has out conned Wall Street in financially dodgy deals which is really something. For any country or state that tax breaks for the film industry the book also describes how Hollywood launders these breaks and it really makes you question why governments go to such lengths to try and persuade the industry to come and work in their jurisdictions.
It’s a very entertaining read. However the book is apparently a collection of magazine columns and there is some repetition. However, the book does really shed a light on what really drives how Hollywood operates.

[J. Singleton · Rating 4 out of 5]

This is a good brief read if a bit short and lacking in visuals, which is ironic, since it's about the film industry. Being a writer myself, I was aware of a lot of these tricks that get movies made; nonetheless, seeing them all rolled into a single tome is helpful.

Epstein truly places himself as a top notch expert on film financing, if not necessarily film criticism, as he details tyhe frequently bizarre ways modern movies get made, from indies to blockbusters. He does not allow the quality of the picture get in the way of his analysis--like so many studio execs, I imagine.

The lack of illustrations is unfortunate. If ever there was a time for some graphs and charts, it's in discussion of economic matters or business. Epstein shows his age by announcing you can watch a DVD on your iPod. Of course, you have to download a "digital copy" of the movie onto your mobile device; you generally can't watch a film directly on the little screen because discs are copy-protected.

What is eye-opening is that a movie such as "Lara Croft" costs essentially nothing to make. Gems such as these are why I choose to read this book, and you'll enjoy it too.

[Chad · Rating 4 out of 5]

Mandatory for basic cultural literacy.

"When studios found that they could no longer count on habitual moviegoers to fill theaters, they went in to the very risky business of creating tailor-made audiences for each and every movie they released. Like in an election campaign, the studios had to get people to turn out at the multiplexes on a specific date-- the opening weekend. The principal means of generating this audience is to buy ads on national television. For this strategy to work efficiently, the studios find a target audience that predictably clusters around programs on which they can afford to buy time. They then bombard this audience-- usually seven times in the preceding week to an opening-- with thirty-second eye-catching ads.
The studios zero in on teens not because they necessarily like them, or even because the teens buy buckets of popcorn, but because they are the only demographic group that can be easily motivated to leave their home. "

Tons of similar such basic information about how our culture actually gets made.

[Jenny · Rating 4 out of 5]

There aren't many books about how Hollywood or the filmmaking industry works that aren't told through the lens of an actor/ actress writing his/her autobiography. Therefore, I appreciate Epstein's take and straightforward approach. This book is cut up into many short factual accounts - some just two pages long, others as a whole chapter of a book. It covers a wide range of interesting-to-know topics that any curious minded person would enjoy reading.

For example, here are some of the topics:
1. How do movie theaters make most of their money (most people know that it is through the high margins on selling food and not from ticket sales)?
2. How are the financial statements of films structured to ensure that investors are cheated out of any profit-sharing terms?
3. Why does Tom Cruise make so much damn money?
4. How do movie theaters determine how many seats to limit their screens to?

I found this book to be an entertaining and quick read. There's nothing else out there like it.

[Muneeb · Rating 4 out of 5]

This book was recommended to me by a friend. He found this book interesting even though he was not a business graduate.
I found this book to be quite interesting. This is basically the behind-the-scenes book for the major studios and their movies. It discusses how a movie is financed, who finances it and what factors are in play, how the 6 major studios have major influence over the industry, how often times the profit from a movie is not what is reported because of high margins to distributors etc.
One really interesting point was how studios are “creating” audiences for movies.
Some of the issues I can think of regarding this book is the lack of multiple resources. Quite a few of the topics discussed and the proofs given were by one of two closely related sources, but not a wide ranging or diverse source

[Christopher Pufall · Rating 4 out of 5]

Although some of the material could use a small bit of updating -- just to be current with most recent and constant changes in the industry -- I found this book (vers 2.0) to be highly relevant and insightful. It covers a wide swath of the head-spinning business of making and distributing movies in the global marketplace, illustrating assorted ways that the studios have wrung out other sources of income to creatively aid in the financing of movie productions.

I have read this book twice and still find myself going back to it as a reference for how fees, revenue, and percentages are tracked and vary with situation and contract. Though my head still spins in the reading, it is a book highly recommended for those interested in diving deeper into the industry, particularly as part of one's career path.

[Raphael Bernardo]

Read it in two sittings. By now most of what's said is history as the book ends in 2012. I'm happy the book exists, but now I'm wondering how the hell I'm going to get updated info on this stuff. As the book explains entertainment websites love box office numbers but don't have access to the actual data like where the financing came from, the marketing budget and the break even point. Studios are very tricky, giving outsiders the lesser parts of deals and making money in many little ways. The book gives insights on how much money theaters make and ends with a short chapter on streaming. Unfortunately things changed so much, we now need a book of this nature but on streaming. There's a lot going on, a lot of money is being spent on streaming content and I want that juicy info. Comment below if you can point me to a book on streaming...

[QR · Rating 4 out of 5]

A well-written, thorough analysis of the economics of Hollywood film production and distribution. The only thing this book needs is an update. I'd really like to see commentary on how SVOD (streaming) affects the way these studios do business as I'm sure they do/have. Marketing costs and methods have also likely changed thanks to social media. Great read!

[Andre Colin · Rating 4 out of 5]

Very good book!Although I was looking for something different, this book captured my attention with its interesting stories and perspectives that I couldnt help but going all the way! How the studios interact with the movie theaters, the innovation of internet streaming and the opportunities of making movies abroad are only a few of the discussions you will find.

And for my surprise, on the last three pages Mr. Epstein mentions the book I am expecting to find... but how he mentions is even more interesting: he describes a movie yet to be made (at the moment he wrote the book), a movie where we could see the story of hollywood, how it started, the challenges and the successes! So, if any of you have met a book like this, I would really be thankfull if you could tell me its name!

[Alec · Rating 4 out of 5]

Well-balanced between a layman's explanation of Hollywood's financial system and a more in-depth examination of dealmaking and accounting for those already familiar with the entertainment world. Kept interesting with many anecdotes, Epstein sheds light on how entertainment - an industry that never seems to lose our attention - really keeps the wheels turning.

Particularly interesting areas include: 'no net' (fluid bookkeeping appears constantly), financing indie films, dealmaking from positions of power, risk mitigation (a major theme throughout), the history of studio power (anti-trust, the new movement away from audience creation and into audience retention), bank involvement.

[Michael · Rating 4 out of 5]

If you still think most Hollywood movies make a healthy profit, this is the book to read.

That movies even get shown in cinemas .... after surviving the entire process from someone's idea to being written to being deemed worthy of a studios efforts of distribution to getting insurance to getting financing and then being made well enough for moviegoers to see after all the people put it together (e.g. producers, director, actors, editors, and thousands of other cast/crew)....is a pure miracle.

[Petr Kalis · Rating 4 out of 5]

Interesting book with short episodes how the Hollywood empire is working. Author shares with readers complicated background of box office magic, recent development of digital frontier.
I guess that book is completed out of newspaper or blog articles, so parts are not connected much and sometimes you are reading some bit of information over and over (I am eyeing you, this piece of info how hollywoods moguls now need to create a separate audience for each and every movie..)
Book is light reading without much unwanted bias, contains up-to-date informations, for movie buffs must read.

[Mike · Rating 4 out of 5]

Five stars had this been written in 2014, with an updated outlook. In my mind, the economics of the future of the business hinge on the dynamics between the studios and the theaters, and the former's willingness to cannibalize revenue at the theater with revenue at home. Timing this will be critical. It probably can't happen until broadband access and smartphone penetration reach extreme levels in frontier/emerging/developing markets - at which point digital downloads and streams may hit a volume where it makes sense.