The reason Hollywood's studio leadership is in flux: The business model is changing

Former Paramount Pictures Chairman and Chief Executive Brad Grey. (Dimitrios Kambouris / Getty Images) (Dimitrios Kambouris / Getty Images)

 

Ryan Faughnder

From the outside, Hollywood looks like a thriving town with massive blockbusters and growing box-office revenue. But pull back the curtain and the legacy movie business is under siege, contributing to the highest level of executive churn in years.
Three of the six major studios — Paramount, Sony and Fox — have removed or replaced their top executives in the last year. Jim Gianopulos, the longtime head of the 20th Century Fox movie studio, lost his job. Paramount Pictures Chairman Brad Grey was pushed out. Michael Lynton resigned last month as chief executive of Sony Pictures Entertainment. Warner Bros., Walt Disney Co. and Lionsgate have also made high-level changes.

Some of the current leadership turnover reflects long-term struggles at the individual companies, especially Paramount Pictures and Sony Pictures Entertainment, which have yet to replace their chief executives.

But the management shake-ups also signal wider challenges in the movie business amid fast changing viewer habits. Consumers are going to the multiplex less often and gravitating more to premium television, streaming services and video games. The media companies that own the studios also are grappling with shrinking cable subscriptions as more consumers cut the cord.

“The studios are being challenged from every which way,” said a prominent producer who declined to be named for fear of jeopardizing his relationship with studio executives. “We're on the precipice of big seismic changes, and whenever that happens, there are upheavals in management.”

Hollywood has weathered multiple periods of disruption throughout its more-than century-long existence, all driven by technological advances. The end of the silent movie era in the late 1920s killed the careers of stars who couldn’t make the transition to talkies. The rise of television in the 1950s stirred fears that people would stop going to the cinema.

Decades later, studios were forced to adapt to VHS tapes, which upended how consumers watched movies in the home. The late Jack Valenti, who ran the Motion Picture Assn. of America for nearly four decades, famously described the threat of home video in 1982 by likening the VCR to the Boston Strangler. Those fears quickly proved to be misplaced as videotapes and later DVDs became a key profit center for the studios.

Now, emerging digital platforms and mobile technology are creating fresh anxieties about the future of the big screen. While annual box-office revenues has been relatively stable because of global blockbusters and higher ticket prices, movie theater attendance has remained stagnant. Cinemas in the U.S. and Canada sold 1.32 billion tickets last year, which was flat with 2015 and down from 1.4 billion a decade ago, according to a new report from the MPAA. Studios have long relied on foreign markets to power growth, but even the international box office is cooling off, thanks to a dramatic slowdown in China.

All this has made the job of running a studio more perilous than ever, especially as studio profits have inevitably eroded. Total profit for the seven biggest film studios declined an estimated 15% to $4.18 billion last year, a drop of $700 million from 2015, according to investment firm Cowen & Co. Much of the pain was felt at two studios. Paramount lost $445 million last fiscal year, and Sony recently took a $1-billion write-down on its film business.

“When studios lose money, people get fired, but that doesn't necessarily fix the problem,” Cowen & Co. media analyst Doug Creutz said. “The problem is audience behavior. People are going to movies less and less, and when they're going, everyone's going to see the same movie.”

 

You could bring in genius people to run these studios and I don't think the overall problems are going to change. — Doug Creutz, analyst with Cowen & Co.

Studios need their movies to be more visually stunning than ever to lure patrons to cinemas. So increasingly they are relying on so-called tent pole films — expensive movies for a global audience that spawn multiple sequels. Studios now spend $120 million to $150 million to market a potential blockbuster, compared with roughly $80 million a decade ago, according to industry sources.

When these high-cost movies flop, the studio bosses who approved them feel the heat. Paramount had hoped its CGI-heavy kids movie “Monster Trucks,” which cost $125 million to make, would become a new franchise, for example, but parent company Viacom Inc. had so little faith in the movie that it took a $115-million write-down months before the release. That ill-advised gamble, and the weak returns from pricey but supposedly reliable franchises such as “Teenage Mutant Ninja Turtles,” contributed to Grey’s ouster.

Twentieth Century Fox Film’s chairman, Jim Gianopulos, was pushed out last year by James and Lachlan Murdoch to make way for former DreamWorks CEO Stacey Snider. Although the studio had been profitable, Lachlan Murdoch, executive chairman of 21st Century Fox, blamed box-office results for the shake-up, illustrating the growing pressures on studio chiefs to consistently turn out massive hits. “It’s doing fine, but it should be doing much better,” he said of the film studio at a September industry conference.

Tent poles and franchises have become so important that Warner Bros. in December dismissed its development and production head, Greg Silverman, partly because of questions about his creative stewardship of the DC Entertainment superhero franchise. Even though “Batman v Superman: Dawn of Justice" and “Suicide Squad” made big bucks, the poor reception by fans and critics darkened the future of Warner Bros.’ most important property.

“I definitely think the atmosphere and the market have changed, and when that happens, usually someone’s getting blamed for it,” said Brian Oliver, president of Cross Creek Pictures, a film production company and financier. He also was a producer on “Hacksaw Ridge” and “Black Swan.”

The traditional studio chief’s usual bag of tricks doesn’t work the way it used to. Studios once could virtually guarantee a certain box-office haul by distributing a family movie with enough marketing dollars behind it and by releasing it on a holiday weekend. But that’s no longer the case, adding uncertainty for studio heads, as Lynton of Sony acknowledged a year ago at an industry conference. 

“That makes it a scarier business to be in,” he said.

 

The studios are being challenged from every which way — A prominent movie producer

Mid-budget movies in particular have been a casualty of the see-it-now-or-see-it-never marketplace. 

Warner Bros.’ “Live By Night,” a gangster movie starring and directed by Ben Affleck, this year grossed a pitiful $10 million domestically on a $65-million production budget. A similar fate befell Brad Pitt’s World War II drama “Allied,” a project that Grey touted in presentations to film journalists.

“When you have movies that are 'get-around-to' movies, people don't get around to it until it’s on home video or Netflix,” said Imax Entertainment Chief Executive Greg Foster.

Compounding matters, Hollywood executives confront rising competition from Silicon Valley. A growing fear is that tech giants such as Google Inc. and Apple Inc. will expand their entertainment businesses by making and distributing their own movies and TV shows the way Netflix and Amazon do. The specter of even greater competition from Silicon Valley prompted Time Warner Inc. to agree to sell to AT&T last fall.

Some blame the appeal of high-salaried technology jobs for draining the film executive talent pool. 

Although the movie business has traditionally been the industry of choice for ambitious young people seeking glamorous careers, many of those college grads have instead followed the lure of the booming technology industry.

“The real challenge is coming up with viable candidates,” said a movie executive who asked not to be named to protect business relationships. “There's not a really deep bench of people coming up. A lot of younger talent gravitated to Silicon Valley and social media.”

Even seasoned executives are going digital. For example, Scott Stuber, a former Universal Pictures executive who was considered a contender for the Paramount job, instead recently joined Netflix. The battle for talent has become so fierce that Fox has waged a legal battle with Netflix over the aggressive poaching of its executives.

And even though the tech world has created more outlets for people to watch movies, that hasn’t eased the pain for studios. Money from DVD sales and television licensing previously helped lift box-office duds into the black, but that revenue has dried up as fewer people are buying videos and watching movies on TV. Total U.S. home entertainment sales — including DVDs, Blu-rays and video on-demand — have shrunk nearly 50% in the last 10 years to $12 billion in 2016, according data from the Digital Entertainment Group.

The shrinking home video market has forced studios to rethink how they distribute movies to an on-demand generation. Studios are pushing for shorter gaps between when a movie is released in theaters and when it is distributed in the home. Theater owners, however, have balked at the idea, saying that would discourage people from going to cinemas.

Snider, Fox’s new film chief, has said the industry needs to adapt.

"One size fits all doesn't work in today's marketplace," Snider said at a recent UCLA symposium. 

"We have to expand our thinking to include more choices and more variety."

The digital shifts have pushed studio chiefs to invest in nascent industries such as virtual reality games, online video networks and YouTube video stars. Disney CEO Robert Iger has touted his company’s recent $1-billion investment in video streaming company BamTech and the plans to launch an ESPN-branded streaming service.

“You have to be willing to create or experience some disruption as we migrate from what has been a more traditionally distributed world to a more modern or nontraditional distribution world,” Disney CEO Robert Iger said in a recent earnings call.

There are still some indisputable bright spots for the industry. Movie ticket sales are up about 5% this year compared with a year earlier, thanks to hits such as the socially relevant horror movie “Get Out” from Universal Pictures and Blumhouse Productions.

But the spoils aren’t being evenly shared. Much of the business is going to one studio, Disney, whose hit “Beauty and the Beast” set box-office records this month. Disney has bet heavily on popular brands such as Marvel Studios, Pixar and “Star Wars,” a strategy that paid off big time.

“In a way, Disney is as disruptive to the movie business as Amazon is to retail,” said analyst Barton Crockett of FBR Capital Markets. “They've changed the game and it's very hard for other studios to adapt.”

The individual studios have very different priorities as they search for leaders who can guide their businesses into the future.

Viacom is trying to revamp Paramount’s strategy for making movies, relying more on properties from cable channels such as MTV and Comedy Central. The company is expected to tap Gianopulos for the job.

Sony Corp. CEO Kazuo Hirai is assessing how to turn around the company’s struggling studio after the departure of Lynton, who’s now chairman of Snap. The Tokyo-based Hirai is spending more time at the Culver City lot interviewing potential candidates. The Sony job is a difficult one to fill, spanning a robust television production arm and an international networks business.

Meanwhile, Disney is continuing its search for a successor to Iger, who this week extended his contract.

“You could bring in genius people to run these studios,” Creutz said, “and I don't think the overall problems are going to change.”

Chuck Berry, Father of Rock ‘n’ Roll, Dies at 90

  In this Oct. 17, 1986 file photo, Chuck Berry performs during a concert celebration for his 60th birthday at the Fox Theatre in St. Louis, Mo. James A. Finley / AP

by Kalhan Rosenblatt

Revolutionary blues singer Chuck Berry, often referred to as the "poet laureate" and "father" of rock 'n' roll, died Saturday, police in Missouri said. He was 90.


Officers responded to Berry's home outside St. Louis on Saturday afternoon and found him unconscious, the St. Charles County police said on Facebook. First responders were unsuccessful in reviving him and pronounced him dead at 1:26 p.m. local time. 

One of the first inductees into the Rock & Roll Hall of Fame, Berry wove together beguiling narratives, fusing rhythm and blues with country and western — transfixing the nation. 

Ted Nugent's amazing tribute to the legendary Chuck Berry.

In 2000, President Bill Clinton called Berry "one of the 20th Century's most influential musicians."


Known for chart-toppers such as "Johnny B Goode," "Roll Over Beethoven" and "Brown Eyed Handsome Man," Berry's career rocketed in the 1950s after signing a record deal with Chess Records at the behest of musician Muddy Waters, according to Rolling Stone.

In this Oct. 17, 1986 file photo, Chuck Berry performs during a concert celebration for his 60th birthday at the Fox Theatre in St. Louis, Mo. James A. Finley / AP

His first hit, "Maybellene," spent nine weeks in the No. 1 spot on the Billboard R&B chart and also rose to No. 5 on the pop charts. Berry reshaped the 1950s with a unique sound that appealed to both sides of a racially divided country.


"I made records for people who would buy them. No color, no ethnic, no political — I don't want that, never did," Berry told the New York Times in 2003.


The Rock & Roll Hall of Fame said in a statement Saturday that Berry "created the rock sound."


"Chuck Berry is rock and roll. The undisputed original poet laureate, he influenced every rock and roll artist after him and every guitarist that ever plugged in," hall of fame President and CEO Greg Harris said in a statement.


"Today, we celebrate his poetry, his artistry and his massive contributions to 20th century culture," Harris said. It's fitting that he was the first person inducted into the Rock & Roll Hall of Fame. Rock and roll as we know it would not exist without him. Hail Hail, Rock and Roll. Hail Hail, Chuck Berry."

Many of the biggest names in rock 'n' roll have cited Berry as an inspiration thanks to his earworm tunes.


John Lennon once said: "If you had tried to try and give rock 'n' roll another name, you might call it 'Chuck 'Berry.'"


The Twitter account run by Lennon's estate was among those paying tribute to the legendary musician Saturday. Beatles drummer Ringo Starr also expressed his condolences: "R I P. And peace and love Chuck Berry Mr. rock 'n' roll music."


Leonard Cohen believed, "all of us are footnotes to the words of Chuck Berry," while Bob Dylan dubbed him the "Shakespeare of rock 'n' roll," Peter Guralnick recalled in Rolling Stone in October 2016.


Berry's signature duck walk was adopted by the likes of admiring bands such as The Who and AC/DC.


Despite mesmerizing the country with his infectious hooks and rhythm, he was temporarily pulled from the spotlight in 1959 when he was arrested for violating the Mann Act by driving an underage girl across state lines from Texas to his native Missouri, according to Biography.com. He spent two years in federal prison.

Chuck Berry performs at B.B. King Blues Club & Grill on Dec. 31, 2011 in New York City. Bobby Bank / WireImage

As a teenager, Berry — born Charles Anderson Edward Berry to Martha and Henry Berry in St. Louis — was convicted of an armed robbery and spent 1944 to 1947 in reform school.


After his release, Berry worked an assembly line and studied cosmetology, before finding his place in American history with a guitar in his hands and a captain's hat on his head.


Later in life, Berry would serve another prison stint after running into trouble with the Internal Revenue Service, Rolling Stone reported.


But he would always return to the stage, even as he aged, playing shows into his mid-80s.


On his 90th birthday, Berry announced he was releasing his first LP in 38 years, slated to hit stores this year. He dedicated the album to his wife of 68 years, Themetta "Toddy" Berry, whom he is survived by.