01 Mar 2006
What’s it like to make movies in Hollywood outside the big-budget studios? A handful of independent producers talk about the risky but rewarding business of working in the film industry as it confronts new economic and technological realities.Re: Teddy Zee (MBA 1984); Doug Mankoff (MBA 1995); Eric d'Arbeloff (MBA 1993)by Julia HannaTopics:
The summer blockbuster, a genre unto itself, has long been seen as a surefire way to lure audiences to the air-conditioned sanctum of movie theaters. A movie like last year’s Star Wars: Episode III can rack up U.S. box office receipts of just over $380 million (not including consumer product tie-ins), and unexpected hits like Mel Gibson’s The Passion of the Christ grossed $370 million in 2004, earning a respectable third-place finish to Shrek 2 ($436 million) and Spider-Man 2 ($373 million).
“Tentpole” productions (so named because they would “hold up” the smaller, less commercial movies made by studios) and the odd dark horse can still rake it in at the box office, but these days it’s less of a given that consumers will ante up $10 to see a $100 million–plus extravaganza at the local multiplex. Why bother, when you can watch a movie in your “home theater,” complete with high-definition screen and surround sound? Last year was dubbed “year of the missing moviegoer” by the Los Angeles Times, with box office receipts down 7 percent from 2004. Opinions vary on whether this decrease represents a growing trend or an unsettling blip, but one thing is certain: As many changes as there have been in the film industry, more are sure to come as technology alters the way movies are made and how we watch them.
The movies are still a $25 billion business whose product many consider to be the United States’ most visible, influential export. But given its uncertainties, what would drive HBS alumni to enter an industry characterized in the best of times as “the business of rejection”?
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In Hollywood, the spotlight belongs to the stars and a few directors like Steven Spielberg and Martin Scorsese. But a producer? What do they do, anyway? Part of the confusion lies in the burgeoning number of credits (executive producer, coproducer, co–executive producer…) that have become a familiar part of a film’s opening moments. With that said, the independent producers featured in this article see a project through from start to finish. They find a story and package it with any combination of a writer, director, or star before pitching it to investors or one of the big studios. If they’re successful in assembling financing (through equity, presales of rights, bank financing, and/or tax incentives), they will work on the set for months at a time and follow through on marketing once the film is complete. However, there are often no guarantees that a project will make it to the big screen, and for that reason it’s important to have many potential projects in the works, or “lottery tickets,” as one alum puts it. (A producer working for one of the big studios has a more stable existence, receiving an up-front fee and offer of net profits, although these are rarely realized.)
Diane Nabatoff (MBA ’82) has her own definition of what she does. “Once I’m in production, I describe myself as a shock absorber,” she says. “My job is to take care of everyone on and off the set and solve their problems on a day-to-day basis.” As an undergraduate at Harvard, Nabatoff was the first woman to produce the Hasty Pudding show. She went on to work under Joseph Papp at the New York Shakespeare Festival before getting her MBA and heading to Hollywood. In 2000 she founded Tiara Blu Films, producing movies such as Narc and, out in April, Take the Lead (with New Line Cinema). The film, which stars Antonio Banderas, tells the true story of Pierre Dulaine, a professional ballroom dancer who volunteers to teach dance in the New York City public schools. “I want to make movies that are entertaining and commercially successful but also have the potential to change someone’s outlook on life and make a difference in a good way,” remarks Nabatoff. “You have to love the stories you’re working on and believe in what you’re doing because you’re pushing a boulder up a hill every single day.”
When Teddy Zee (MBA ’84) went to Hollywood over twenty years ago, MBAs were a rare commodity. “We were the new toys,” he recalls of his early days at Paramount. Zee later worked at Columbia and then at actor Will Smith’s production company, Overbrook Entertainment, producing last year’s hit comedy Hitch and 2004’s Saving Face, a romantic comedy about a Chinese-American lesbian’s coming out in her tradition-bound community. Now an independent producer, Zee is developing a number of projects simultaneously. It’s a familiar juggling act in an erratic business that can see an actor suddenly drop out or a director lose interest. “My days are endless phone calls, e-mails, reading, and meetings,” says Zee, “talking to writers, studio executives, agents — panning for gold. It’s about being out there and never knowing what’s around the corner.”
Speaking of gold, the financial reward an independent producer can expect to see from a project varies greatly, with up-front freelance fees ranging from $150,000 to as high as $5 million for a blockbuster specialist like Jerry Bruckheimer. “Back-end” deals, or profit-sharing after a film has been released, also vary widely — if the producer is even included in that aspect of the contract. “Controlling the capital, rights, and distribution are the three keys,” observes Zee, “and studios have at least two out of the three. As an indie producer, if you can maintain the rights, or have a pool of capital at your disposal, or both, you are ahead of the game.”
Zee and the other alums interviewed for this article agree that it’s become more difficult over the past ten to fifteen years to secure financing for movies. “Hollywood has become vertically integrated,” he notes. “Studios used to be stand-alone companies that were run like fiefdoms. Now they’re run like major corporations answering to shareholders.”
Skyrocketing fees for star actors coupled with the high marketing costs necessary to get a movie noticed in an increasingly noisy marketplace mean studios are making fewer and bigger movies. “Corporations are about reducing risk; making movies is about taking risks,” says Zee. “The safest bet seems to be franchises and big, expensive movies. But where is the innovation going to come from? You can only mine television remakes for so long.”
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As president of Echo Lake Productions, Douglas Mankoff (MBA ’95) is doing his bit to foster movies that might fall through the cracks at a big-budget studio. In 1997, Mankoff raised a private equity fund to finance and produce independent films with budgets of $5 million or less. Among other projects, this year will see the U.S. release of Water, a film written and directed by Deepa Mehta and produced by David Hamilton (MBA ’69) that focuses on a group of widows in 1938 colonial India during Gandhi’s rise to prominence. Also out this spring: the South African drama Tsotsi, an Oscar winner for Best Foreign Language Film, and Twelve and Holding, a film by director Michael Cuesta that follows on his earlier, acclaimed examination of adolescence and identity, L.I.E.
“Our basic pitch to investors is that banks and other potential financing partners outside the business don’t read the script or look at the director’s work when they’re deciding whether or not to fund a film,” says Mankoff. “We’ll do those things. If a project makes sense from a creative point of view, we can ostensibly take on a bit more risk.” Mankoff foresees a future in which film production will shift from risk-averse studios to smaller, independent entities. He believes the low quality of recent movies is responsible in part for decreasing box office receipts, a situation that he says will correct itself as smaller producers focus on entertainment that has more to do with drawing audiences to the theater than selling toys and other consumer product tie-ins, which is a significant revenue stream for studios.
At Roadside Attractions, Eric d’Arbeloff (MBA ’93) has found a niche as a distributor of independent films such as the fast-food documentary Super Size Me and the New Age spirituality hit What the Bleep Do We Know!? Most recently, the company scored with the edgy comedy concert film Sarah Silverman: Jesus Is Magic. D’Arbeloff’s producing credits include Trick (the subject of an HBS case) and Lovely and Amazing. D’Arbeloff, who began his career working for reality-TV innovator Stephen Chao (MBA ’81), hopes to eventually do production and distribution simultaneously. For now, however, Roadside is finding success by venturing where others fear to tread.
“We’re surrounded by studios that can outspend us, so we have to find movies that have inherent press appeal or target audience niches that are underserved by the studios,” d’Arbeloff remarks. Thanks to technological advances in moviemaking such as the digital video camera and relatively inexpensive editing software such as Apple’s Final Cut Pro, a greater number of small, independently financed films are being made than ever before. “The sheer number of films being made increases the chances that someone with real talent will get behind the camera and make something people want to see,” says d’Arbeloff. “Hollywood is very good at tentpole movies, but there’s room for something more.” He cites Super Size Me as an example. A documentary about a young man’s thirty-day fast-food binge, the film’s initial budget was $65,000. It grossed nearly $16 million worldwide in 2004.
Some suggest that technology will also change the way the public watches movies. When broadband becomes speedier and more prevalent, why wouldn’t consumers simply download movies — legally or illegally? Uneasy parallels have been drawn between the movie industry and the music industry, which continues to fight against illegal downloading. One entrepreneur, Mark Cuban, has signed Steven Soderbergh to direct six high-definition movies, each of which will be released simultaneously in Landmark Theatres, on DVD, and on the cable channel HDNet Movies, all part of Cuban’s holding company, 2929 Entertainment. (The first, Bubble, was released in January.) Such “day-and-date release” is still in the earliest stages of experimentation, but Disney’s new CEO, Robert Iger, raised more than a few eyebrows last year when he conceded that it might be an inevitable strategy if studios are to avoid the mounting costs of marketing a film twice — first for its theatrical release (often a loss leader), then for the DVD.
“A generation said that downloading music is the way to go, and that revolutionized the music business,” says Teddy Zee. “So yes, things could change. But my job is not to figure out where the industry is going to go — my job is to understand where it’s at and exploit it. I don’t want to bet on the future. I just want to do what I love.”
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An MBA isn’t a prerequisite for entrée to Hollywood, but the entrepreneurial demands of starting up a movie require many of the skills honed in the HBS classroom. “For a producer, every project is a new product,” says Diane Nabatoff. “I’m the CEO of that company. I have to make sure the product gets made efficiently and that it’s marketed effectively. I also have to solve problems every day within a corporate culture that changes with every movie.”
“The negotiation courses I took at HBS have been extremely valuable,” observes Douglas Mankoff. “Whether it’s to get the rights to the project, or to make a deal with an actor, or the distributor, or a producing partner — you’re negotiating at every step of the process.”
Eric d’Arbeloff admits that he struggled in first-year TOM and that he’s been surprised at how useful it’s been. “There are amazing similarities between the manufacturing analysis we learned and making a movie,” he says. “With a movie, you take a dream — like somebody’s script — and break it into tiny pieces, or individual shots. A film typically contains hundreds of shots, and each one has specific requirements in terms of actors, crew members, and special needs like a prosthetic nose or a trained dog. If the process works, once the pieces are reassembled the film resembles or even improves on the original dream.”
Even so, all agree that sometimes the decision of whether or not to take on a project is determined less by analytical skills than a strong gut connection with the material. “We can do some quantitative analysis because we’re getting advances from video companies and thinking about the potential television value of a project,” says d’Arbeloff. “We’ll project the box office and work backward from there. But on some level you do live and die by your taste.”
With even the best actors, script, director, and production values in place, generally most movies don’t break even. According to Dominic Ianno (MBA ’95), a former studio executive at Artisan Entertainment and partner of the late indie producer Bobby Newmyer (MBA ’82, see sidebar), the general rule of thumb is that of ten movies, one will hit, two will break even, and seven will lose money. “When I went back to HBS for my 10th Reunion I was initially embarrassed to say that I was working in this industry,” says Ianno. “At HBS you are trained after reading a case to determine whether a venture is a good or bad business. Film in general is a bad business. But producers can change that equation in their favor if they have unique access to creative material, studio distribution, or cofinancing so as to control and own part or all of the rights.”
Other distinguishing characteristics of the film industry are the visibility of its product and steep marketing costs during the product’s short life span, says Teddy Zee. “In the past, a movie premiered on 1,000 screens across the country and played for ten or twelve weeks,” he points out. “Now you go out on 4,000 screens and try to recoup everything as fast as you can with a blitz of advertising over the first weekend.” Clearly, there are easier ways to earn a living than to produce movies — but few other businesses create a product for which the consumer has such a strong emotional attachment.
“We don’t save lives, but we definitely influence lives,” says Zee. “There’s something profound about being able to tell a story that moves people. That’s a reward that goes beyond monetary considerations.” For Zee, at least, and others dedicated to telling stories on the big screen, the difficulties of the film industry — now and in the foreseeable future — are an acceptable price for following their passion.
Class of MBA 1982, Section A