The following post by Edward Jay Epstein, author of the forthcoming The Hollywood Economist: The Hidden Financial Reality Behind the Movies (available from Melville House on February 23rd), is the second in a series leading up to publication of the book. You can read more of Epstein’s writings about Hollywood’s hidden economy at his website, here.You can also see Epstein in Oliver Stone’s forthcoming Wall Street 2: Money Never Sleeps wherein Epstein plays the head of the Fed …. Read all posts in the series here.

The video pirates of Shanghai have developed an amazingly successful business model for exploiting the home market. In the back rooms of video stores, shoppers fill their baskets while choosing from an almost endless inventory of DVDs that includes all of the studios’ new movies as well as a full compliment of Oscar screeners. You can also buy current television series—even the latest episodes of House, Lost, and 24. In addition, in a non-Internet form of video on demand, if a title is not on the shelves, the store gets it bicycled over from some other location in a matter of minutes.

In this business model, unlike Hollywood’s, there are no “windows” or artificial delays before a new movie is released on DVD, no ratings restricting audiences, and no zone restrictions that can prevent DVDs from being playable. Most are professionally burned from digital masters made from copies of the studios’ own DVDS. While their quality may not always be up to Hollywood’s standards they are priced to sell. Even at high-end stores I visited in Shanghai, a DVD cost less than $1.25. Other retailers—including street hawkers— charge much less. As a result of this aggressive pricing, people in China rarely go to movie theaters. Instead, they buy shopping baskets full of pirated DVDs. According to the most recent estimates, Chinese manufacturers sold well over 1.5 billion pirated DVDs in 2009, which, if true, exceeded the major studios’ sales of legal copies in America in 2009. Not surprisingly, China is by far the world’s largest manufacturer of blank discs and DVD packaging (which they provide to the American studios as well). Since they do not pay any licensing fee, their main enterprise cost, aside from blank discs and boxes, are the pay-offs involved in stealing advanced copies of DVDs (which is greatly facilitated by studios’ practice of storing their DVDs for months in warehouses around the world while they wait for the DVD window to open at video stores). The economic principle that the pirates have amply demonstrated in China is that the demand for entertainment is exquisitely elastic: DVDs priced at $15—the studios’ retail price—hardly sell in China; pirated DVDs priced $1.25 a copy (or lower on the street) sell like hot won-tons. Continue Reading »

The following post by Edward Jay Epstein, author of the forthcoming The Hollywood Economist: The Hidden Financial Reality Behind the Movies (available from Melville House on February 23rd), is the first in a series leading up to publication of the book. You can read more of Epstein’s writings about Hollywood’s hidden economy at his website, here.You can also see Epstein in Oliver Stone’s forthcoming Wall Street 2: Money Never Sleeps wherein Epstein plays the head of the Fed …. Read all posts in the series here.

There was a time, around the middle of the twentieth century, when the box office numbers that were reported in newspapers were relevant to the fortunes of Hollywood: studios owned the major theater chains and made virtually all their profits from their theater ticket sales. This was a time before television sets became ubiquitous in American homes, and before movies could be made digital for DVDs and downloads. Today, Hollywood studios are in a very different business: creating rights that can be licensed, sold, and leveraged over different platforms, including television, DVD, and video games. Box office sales no longer play nearly as important a role. And yet newspapers, as if unable to comprehend the change, continue to breathlessly report these numbers every week, often on their front pages. With few exceptions, this anachronistic ritual is what passes for reporting on the business of Hollywood. To begin with, these numbers are misleading when used to describe what a film or studio earns. At best, they represent gross income from theater chains’ ticket sales. These chains eventually rebate about 50 percent of the sales to the distributor, which also deducts its outlay for prints and advertising (P&A).

In 2007, the most recent year for which the studios have released their budget figures, P&A averaged about $40 million per title—more than was typically received from American theaters for a film in that year. The distributor also deducts a distribution fee, usually between 15 and 33 percent of the total theater receipts. Therefore, no matter how well a movie appears to fare in the box office race reported by the media, it is usually in the red at that point. So where does the money that sustains Hollywood come from? In 2007, the major studios had combined revenues of $42.3 billion, of which about one-tenth came from American theaters; the rest came from the so-called back end, which includes DVD sales, multi-picture output deals with foreign distributors, pay TV, and network television licensing.

The only useful thing that the newspaper box office story really provides is bragging rights: Each week, the studio with the top movie can promote it as “Number 1 at the box office.” Newspapers themselves are not uninterested parties in this hype: in 2008, studios spent an average of $3.7 million per title placing ads in newspapers. But the real problem with the numbers ritual isn’t that it is misleading, but that the focus on it distracts attention from the realities that are reshaping and transforming the movie business. Consider, for example, studio output deals. These arrangements, in which pay-TV, cable networks, and foreign distributors contractually agree to buy an entire slate of future movies from a studio, form a crucial part of Hollywood’s cash flow. Indeed, they pay the overhead that allows studios to stay in business. The much more frequently in about 2004, can doom an entire studio, as happened in 2008 to New Line Cinema, even though it had produced such immense box office successes as the Lord of the Rings trilogy. Yet, despite their importance, output deals are seldom mentioned in the mainstream media. As result, a large part of Hollywood’s amazing money making machine remains nearly invisible to the public. The problem here does not lie in a lack of diligence or intelligence on the part of journalists. It proceeds from the entertainment news cycle, which generally requires a story about Hollywood to be linked to an interesting current event within a finite time frame. The ideal example of such an event is the release of a new movie. For such a story, the only readily available data are the weekly box office estimates; these are conveniently reported on websites such as Hollywood.com and Box Office Mojo. If an intrepid reporter decided to pursue a story about the actual profitability of a movie, he or she would need to learn how much the movie cost to make, how much was spent on P&A, the details of its distribution deal and its pre-sales deals abroad, and its real revenues from worldwide theatrical, DVD, television, and licensing income. Such information is far less easily accessible, but it can be found in a film’s distribution report. But this report is not sent out to participants until a year after the movie is released, so even if a reporter could obtain it, the newspaper’s deadline would be long past. Hence the media’s continued fixation on box office numbers, even if reporters themselves are aware of their irrelevance in the digital age. The purpose of my forthcoming book The Hollywood Economist is to close gaps like thesein the understanding of the economic realities behind the new Hollywood.

Edward Jay Epstein studied government at Cornell and Harvard, and received his Ph.D from Harvard in 1973. His master’s thesis on the search for political truth (Inquest: The Warren Commission and the Establishment of Truth) and his doctoral dissertation (News From Nowhere) were both published as books. He is also the author of The Big Picture: Money and Power in Hollywood.

PW's controversial "Afro Picks" cover

Barely a month after finding itself in hot water for having no women on its best books of the year list, Publishers Weekly magazine found itself embroiled in another controversy over a cover (see image, right) that many are calling racist. Or, as a headline on the Daily Finance website put it, “Afro-themed image on a magazine cover shocks industry, ignites firestorm.”

As a slightly less sensational report by Carolyn Kellogg on the Los Angeles Times‘ book blog Jacket Copy explains, “The magazine — which posted the cover image, as it does every week, on its own website — dedicates an issue annually to African American publishing. But something about the picture and the phrasing got on people’s nerves,” and before long, “Twitter burst into a heated discussion, using the hash tag #afropw.”

According to the Daily Finance report, HarperStudio editor Julia Cheiffetz “sounded the first alarm in the imprint’s blog: “Publishers Weekly, Have You Lost Your Mind?” It was all downhill from there.

By yesterday, the situation had gotten bad enough for the person from PW who’d chosen the cover to make a statement:

The resulting response to the choice of that particular image and that coverline was not anticipated by the person most closely involved with this week’s cover. That person was me, PW senior news editor, Calvin Reid. I organize, edit, and oversee the annual feature story on black books. I chose the cover in collaboration with the magazine’s creative director and I wrote the coverline, Afro Picks!, which was intended as a pun to highlight a story that “picked” new black titles of interest. The image was reminiscent of the 1970s and appealed to me, someone who grew up in the middle of the 1970s-era wave of black pride, black power and big afros with big afro picks stuck right in the back. To me it is a sweet, tongue-in-cheek funny and striking image of quirky black hair power. And while it never occurred to me that anyone would be offended by these images, I was very wrong and I have to acknowledge that. Quite a few people were offended by it and outraged by what some perceive as a disparaging or degrading image of a black woman. I certainly regret offending anyone and while I still love that image, I intend to think long and hard about whatever  image is chosen for next year’s cover.

Today, Nielsen announced that, as part of the sale of all of its publications, it would be shutting down Kirkus Reviews (and its 125-year old co-publication, Editor & Publisher, as per this New York Times report). This came as a shock for a number of reasons, but mainly because Kirkus has been a staple of the publishing industry for so long (since 1933) and because Kirkus is always the first publication to review forthcoming books, usually several months before their release.  It’s a good barometer for what is to come.

Nonetheless, I had mixed feelings about the impending end of the magazine. (Unlike the co-head of mega-agency ICM Esther Newberg, whose feelings were anything but mixed: “it’s never been a publication worth anything,” she says in a New York Observer story. “The reviews were almost always negative and not helpful in any way. And so that’s it. Good riddance.”) As a publicist, the only thing that I’ve ever used it for (or seen it used for) is that one pull-quote, along with that other pull-quote from Publishers Weekly, that’s used to promote the book post-blurbs, pre-reviews. I’ve never seen anyone leaf through an actual issue of Kirkus (probably because it costs a fortune). There’s no other content except reviews. As soon as something bigger and better comes along (New York Times? Washington Post? take your pick), you never see that Kirkus quote again. So I can’t say that it will be sorely missed. And as someone working at a small, independent house, it was a publication that only took our books seriously half of the time.

That said, Kirkus hired excellent reviewers to write smart but condensed evaluations of upcoming books. They were always honest, sometimes brutally so, and I didn’t always agree with the negative ones (because they were always of books I was trying to promote), but it was one of the last magazines to eloquently evaluate books in brief (sorry New Yorker, your “Briefly Noted” just doesn’t compare).

As usual, discussion broke out on Twitter post-announcement, and some accurate points were made (which Jason Boog over at Galleycat wraps up nicely): laments over the decline of book review space, worries about selling-in books without pre-pub reviews, and fears that blogs won’t be able to compensate for all of these changes in the media.  But as much as I’ll miss Kirkus and what it offered me as a publicist, I have to say that I think we’ll get on without it.  It’s just not the same bookselling world that it was when Virgina Kirkus first started sending her newsletter to bookstores around the country, giving them one of their only glimpses into upcoming titles.  Now there’s buzz way, way before the book publishes, and a much faster information system.

Still, it’s sad to see such an institution fade away at the end of the first decade of our new millennium.  So thanks, Kirkus.  And we’ll just have to wait to see what happens next.

At Oxford University, where they have this really over-valued poetry chair, which they had a really revealing campaign for a few months ago, which was won by a woman, Ruth Padel, who subsequently was hounded from office within days after it was discovered that she had observed in some emails to journalists that her opponent — Nobel-winner Derek Walcott – had been subject to numerous charges of sexual harassment … they have “announced changes to the centuries-old tradition of voting for its professor of poetry post,” according to a Guardian report by Mark Brown.

Brown lauds the school for “introducing processes that bring it something closer to the 21st century.” What are they? Allowing eligible voters to vote online. In this way, says Brown, “Oxford hopes to avoid” the kind of embarassments the school underwent with the Padel-Walcott contretemps.

Brown then goes on to mis-report several notable things. He says Padel was implicated in a smear campaign, whereas she was actually guilty not of a “campaign” but of writing two (count ‘em, two) emails citing the factual cases against Walcott. He says there were one charge of harassment against Walcott when there were actually several, including two in which he made out of court payments; and he says the poetry chair at Oxford has been “vacant since Sir Christopher Ricks finished his five-year term last year, by autumn 2010.”

Brown seems to have forgotten what he himself wrote only a few paragraphs earlier: Padel won an uncontested election for the chair, and was the last person — the first woman, and the last person — to hold it.

Sounds like voting online isn’t really going to solve the problems there.

In case you for some reason missed the Bill O’Reilly Show the other night — God, it really cracked me up to write that — you missed the response of the crew at Sesame Street to the various over-the-top attacks they’ve been undergoing from the cretinous types at Fox after the famous kids show — gasp! — made fun of them.

Yes, as a Yahoo News Blog report details, the We Report You Decide network, in its unimpeachable sense of news timeliness, has been going on about a sketch on the beloved children’s program that aired two years ago. According to the Yahoo report, the sketch that began the controversy featured Oscar the Grouch reporting for the Grouch News Network, or GNN. After hugging and kissing his interview subjects, Oscar is lambasted by an angry caller for not providing news she deems sufficiently grouchy, prompting her to exclaim, “From now on, I am watching Pox News,” adding, “Now there’s a trashy news show!”

In the latest development, the executive vice-president of Sesame Workshop, Sherri Westin, was finally given a chance to appear on O’Reilly’s show to defend Oscar. Westin promptly announced “a new Grouch News Network character to follow in the footsteps of Walter Cranky and Dan Rather-Not: Spill O’Reilly.” Says the Yahoo report, “The new muppet promptly took over the camera, welcomed viewers to the ‘No-Spew Zone,’ and encouraged them to run out to purchase his new book, ‘A Stinky Rotten Pile Of Grouchiness,’ an obvious parody of O’Reilly’s recent book, ‘A Bold Fresh Piece of Humanity.’”

You can watch it here ….

The Washington Post announced just before Thanksgiving that it was partnering with Amazon so that online readers of Book World could purchase featured books immediately after reading the review. They announced the new program, which is technically a Washington Post “store” on Amazon, as “a convenient service for our online readers and a new source of revenue for our business.” If the pilot is successful, they plan to expand the program for other product reviews.

I have no problem with links to purchase the book, from a business perspective; online readers will find their way to online bookstores any way; why shouldn’t the Post capitalize on that? Especially in a time of decreased circulation and ad revenue. What I don’t understand is why they have chosen to partner specifically and exclusively with Amazon.

The New York Times, on the other hand, doesn’t offer links to purchase the books in the reviews themselves. However, they have offered several links to purchase the books that made their holiday gift guide — links that include Amazon, but also Barnes & Noble and Indiebound.

Although I know (and as a publicist, am grateful for the fact) that reviews, especially those online, sell books, I can’t help but thinking that by inserting links into the reviews, that they have almost stopped becoming criticism and have moved on to become advertisements in themselves. The Post’s fiction editor, Ron Charles, spoke to mediabistro.com’s GalleyCat and emphasized that there was no consultation with the editorial staff before this new initiative was launched, but it worries me all the same. Does this new linking system shift the review to a sales pitch?  Will it become financially beneficial for the Post to run positive reviews?

Maybe I would be less concerned if the Post had handled themselves like the New York Times (or the Los Angeles Times, which doesn’t link to online retailers either), and hadn’t tied themselves to one specific retailer. If Amazon is the only retailer supplying a product in your paper, is there a conflict of interest when covering that company? There are already enough opportunities for such conflicts within the world of reviews itself (see for example the controversy over George Packer’s review of Mark Danner’s latest book).  Why make it murkier?

I propose that if the Post insists that they will continue this initiative, that they a) expand to include other retailers, and b) that, like the Times does, they make clear to their readers on each page that: “Links to retailer sites are provided as a convenience for readers of washingtonpost.com and do not represent an endorsement of any store or brand” (adapted New York Times link disclaimer).

A few years ago, when Michael Wolff was still writing for New York magazine, he wrote a fun column taking the book business to task: “I mean, books suck. Most books are dopier than television or movies or even advertising (many books tend to be just collateral promotions or the lesser offspring of dopey television, movies, and advertising). Even if there are precious exceptions, the overwhelming number of big-money, industry-sustaining books are incontrovertibly dum-dum things. More cynical, more pandering than any other entertainment product.”

The “books suck” comment, he says, led to his being subjected to “much middlebrow opprobrium.”

But now, Wolff says in a scathing new column at Newser, “I’d like to revise that line: Books are evil. They’re pernicious. They represent themselves as being one thing, when they’re insidiously the opposite.”

What is Wolff — the author of several books himself — talking about? He cites recent books by Sarah Palin and Glenn Beck, books that are not written by the people whose name is on the cover, and aren’t really meant to be read in any traditional sense. He’s worth quoting at length:

This sort of book once fell into a particular publishing category called a vanity book—it was not to be taken seriously. It was to be dismissed, or tolerated only with the clearest condescension.

But now the most valuable and therefore well-looked-after books are vanity publications.

If there are still good books, they are largely irrelevant to a form and business that is largely about the creation of the artifact—identifier, symbol, leave-behind, brand enhancer.

Books are a sales tool. They’re propaganda.

And they’re fake. A lie. So many are just simply not written by the people the publisher tells you they are written by. Somebody should sue.

It’s a sleight of hand. A bait and switch. It’s not that there is anything wrong, or at least out of the ordinary, with salesmanship or promotional copy, or with even saying you wrote what your ghostwriter wrote. This is the stuff of speeches, advertising, and testimonials. What’s insidious here is that these forms, which are understood to be insincere and a confection, are now in the guise of a book, which is understood to be genuine and substantial.

And, indeed, people are fooled. And, to the extent that readers are not fooled (and reading just a few paragraphs of these books, if you do read them, ought to raise questions), the form of the book itself is undermined. Books lose value and meaning. Real readers come to understand there are fewer and fewer real books.

Publishers publish fake books because, if you have an “author” who has some larger cause to promote, the publisher gets free promotion. What the publisher has traded for such an abundance of promotion is its own brand. HarperCollins does not really believe Sarah Palin has written a valuable book—or even that it is really a book, not in the way that HarperCollins has historically understood books, or in the way that people have counted on HarperCollins to have understood a book. But, these are desperate times and real books are an increasingly equivocal proposition anyway, so almost all publishers are willing to engage in the strategic mix-up between real books and fake books.

This really isn’t quibbling. We have created a giant system of national agitprop, in which books and the book business have become one of the most effective tools.

So what’s the solution? Says Wolff, “Literate people should boycott books.”

Reasons to not blog about something: 1. Everyone else is writing about it and we have nothing to add; 2) we don’t think it matters as much as everyone else does; 3. the main source is a New York Times article, where the book biz reporting is either way late or provided by one of the big houses; and 4. WRITING ABOUT IT IS JUMPING THROUGH THE HOOP OF SOME EVIL SLUG.

Oprah Winfrey deserting TV and the book biz is an example of the first (alright, we could add that no one has mentioned her ratings plummeted and she probably had little choice); just about any literary award is an example of the second; almost any time the Times spots a “trend,” or decides to cover the Google Book Search Settlement, is an example of the third; and writing about Sarah Palin’s new book is an example of the fourth.

So imagine our consternation to discover yesterday that Frank Rich — you know of the New York Times — had written a column that more or less touches upon all our above-stated reasons, and in particular zeroes in — brilliantly — on the many perversities of so much as talking about Sarah Palin.

After making the distressing observation that critics of both the right and the left (Liz Cheney, Ana Marie Cox) are writing reviews wherein they mention they haven’t actually read the book, and noting that as a result they’re missing some juicy lunacies:

Easily the most startling passage in “Going Rogue,” running more than two pages, collates extended excerpts from a prayerful letter Palin wrote to mark the birth of Trig, her child with Down syndrome. This missive’s understandable goal was to reassert Palin’s faith and trust in God. But Palin did not write her letter to God; she wrote the letter from God, assuming His role and voice herself and signing it “Trig’s Creator, Your Heavenly Father.” If I may say so — Oy!

But the point of the column is that the book represents a genuine American phenomenon, one that rises up in our midst during times of economic collapse. Sarah Palin, truth be told, is a classic American demogogue-cum-fascist, in the spirit of Father Coughlin and Huey Long:

Culture is politics. Palin is at the red-hot center of age-old American resentments that have boiled up both from the ascent of our first black president and from the intractability of the Great Recession for those Americans who haven’t benefited from bailouts. As Palin thrives on the ire of the left, so she does from the disdain of Republican leaders who, with a condescension rivaling the sexism they decry in liberals, belittle her as a lightweight or instruct her to eat think-tank spinach.

The only person who can derail Palin is Palin herself. Should she not self-destruct, she will doom G.O.P. hopes of a 2012 comeback. But the rest of the country cannot rest easy. The rage out there is larger than Palin and defies partisan labeling. Her ever-present booster [Matthew] Continetti, writing in The Weekly Standard, suggested that she recast the century-old populist outrage of William Jennings Bryan by adopting the message “You shall not crucify mankind upon the cross of Goldman Sachs.” If Obama can’t tamp down that rage across the political map, Palin will at the very least pave the way for a demagogue with less baggage to pick up her torch.

Ergo, reason enough for MobyLives to break its own rules, no?

In case there was any doubt in your mind, you can hereby put it to rest and safely ignore this story for the rest of its run: Sarah Palin’s Going Rogue — releasing tomorrow — is a pack of lies and distortions. That, according to an in-depth fact-check from the Associated Press, which also makes note of her nasty attitude toward them what brung her to the dance (that is, John McCain and his staff, meaning she lied during the campaign about how great her running mate was and how honored she was to work with him and his team). Should be devastating, no? Should be, but you never know in Dumbfuckistan.

And who knows if others will be as honest as the AP in their coverage. Take, for example, the wishy-washy review by the New York Times‘ Michiko Kakutani in her now-traditional leaked-from-the-publisher-so-I-can-review-it-first review. In it, Kakutani goes somewhat rogue herself, giving Palin a much friendlier treatment than she used to give dangerous folk like, say, old Johnny Updike.