Do declining Hollywood revenues mean fewer movies or smaller mansions?
| Gabriel |
Matt Yglesias has a characteristically smart reply to my post on the effects of piracy in Hollywood vs music. Specifically, he notes that movie stars make a lot of money and we can expect losses to piracy to mostly affect them. That is, much as I argued that music piracy is not that big a deal because it mostly affects rent dissipation in the form of payola, Yglesias makes a parallel argument about elite labor compensation in film. I agree with this argument in part (in fact I anticipated it in my penultimate paragraph) but I think he goes a bit far in expecting that the cost will primarily be felt in the form of reduced star compensation with little impact on the filmgoing experience.
Before quibbling, I should say that I totally agree that reducing the rewards to elite Hollywood workers will not greatly reduce the quality of our stars. If you think, as I do, that fame is endogenous and only very loosely coupled to native talent, then we might have some retirements in the short-run but in the long-run we can expect very little decline in movie star or screenwriter quality if the top movie stars and screenwriters take a pay cut. The real issue is not that cutting above-the-line costs will hurt quality but that above-the-line costs are a minority of all costs.
Since Yglesias brought up Tom Cruise, let’s use the example of Mission Impossible: Ghost Protocol. IMDb estimates the production budget at $145 million. For the sake of argument, let’s assume that Tom Cruise got paid $20 million, and maybe another $20 million spread between the other above-the-line talent like Brad Bird and Jeremy Renner. (These are probably overestimates, but I’m trying to make a conservative argument). This still leaves at least $100 million for below-the-line costs. If the expected value of green-lightening MI4 were cut in half by piracy there’s no way this could fall entirely upon Tom Cruise and other elite labor, even if we assume they would work for free, because their total compensation was probably less than a third of the budget.
Making big tent-pole films is really expensive and not just because the director, screenwriters, and starring actors can bid up their compensation. In Hollywood accounting these people are known as “above-the-line” and their wages are, to a first approximation, equal to the expected value of their marginal contribution to the film’s revenues. Although the guilds set minimums, anyone you’ve heard of gets paid much more than union scale and in practice above-the-line wages are negotiated for each elite worker on each film. (This is why people need agents).
In addition to the marquee collaborators, there are lots of craft workers who contribute to films. To a first approximation their wages are set by unions and their cost is a multiple of the number of days on the shooting schedule. Spectacular shots take skilled labor and time. For instance the shooting for MI4‘s amazing hotel climbing sequence alone took eight days, all of them overseas where you have to fly in and put up the expensive union crew. Yes, they could do this more cheaply with digital but I think we’ve all learned that over-reliance on digital matte painting leads to terrible acting performances and a generally creepy uncanny valley feeling.
In much the same way that we can imagine cramming down the compensation of red carpet celebrities we can similarly imagine cutting the wages of below-the-line workers. However this is a much more difficult proposition, even if we put aside the “Hollywood craft workers are the salt of the Earth” talking point that Chris Dodd likes to use to pitch SOPA to left-wing audiences. Key grips are in some sense “overpaid,” but not by nearly so much as are movie stars. The fact is that if you want a master craftsman you need to pay a solid middle class living or that person will defect to another industry. We can imagine cutting celebrity wages by maybe 90% without much hurting labor quality but there’s not nearly as much fat to cut on the below-the-line side, maybe 30% or so. If you want to get below that it’s not going to come out of pay cuts but reduced labor utilization, and by extension lower production values. Contrast the flat lighting in Dawn of the Dead with the rich depths in Land of the Dead and you’ll get a sense of why the latter film had a budget that was eight times higher in real dollars.
That’s in the long-run. There’s also an issue of what the transition would look like. As I mentioned above, movie star compensation is negotiated ad hoc for every film. If revenues drop appreciably the quote price for above-the-line workers will follow almost immediately. In contrast, getting a 20% or 30% clawback from both craft workers and non-name creative workers is a different procedural ball of wax. These wages are set by union contracts and would have to be renegotiated with SAG, WGA, and IATSE. Paring back the cost structure of an industry under threat is really hard and creates lots of resentment. Moreover the studios are notorious for their sketchy accounting which means that workers will understandably find it difficult to believe “we can’t afford it.” As such an attempt to clawback from union contracts would almost certainly provoke a series of strikes, which not only disrupts shooting during the strike itself but for any film that can’t be completed before a possible strike date.
So I agree that a lot of reduced revenues will be felt in lower star compensation, but a lot of it will cash out in terms of lower compensation for below-the-line workers and lower production values. And that’s after we suffer through a series of strikes to renegotiate the union contracts.