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Hollywood – Fighting Back Against Netflix and Definitely Not Dead Yet

Traditional film-making is still highly profitable – if you invest right.

The days of ‘Hollywood or bust,’ it seems, are numbered. If the doomsayers are to be believed, it may soon be more a case of ‘Hollywood is bust’.

According to the Motion Picture Association of America, global box office totalled £29.6bn in 2016, but that was slightly down on an all-time high of £30bn in 2015. In part, these record figures are due to ticket price increases and inflation. The level of cinema attendance in North America, and Germany is in decline. Earlier this year, entertainment industry news company Variety painted a picture of the US movie business as a rusting, creaking old hulk about to rattle itself to pieces.

As mainstream movies grow bigger and more expensive, increasing risk and saturating the market with visual-effects-driven superhero adventures, the core audience of 12-24-year-olds is becoming more interested in YouTube and smart phones. Meanwhile streaming services like Netflix, which provide high-end, on-demand content, have disrupted viewing habits and business models. The market for DVD and Blu-ray is dwindling, decimating ancillary revenues for film companies. Finally, traditional investment sources like venture capital have moved away from the uncertainty of Hollywood to Silicon Valley, while Chinese investment in Hollywood is now being dialled back.

The UK is an attractive place to make movies. In 2016, British film and TV productions received £415 million in tax relief

It’s a gloomy picture. But that doesn’t mean the movie-making sky is about come crashing down, or that potential investors should run away screaming. “In terms of Hollywood, the audience sweet spot is getting smaller,” admits Andy Mayson, co-CEO of Altitude Film Entertainment, an independent British company which had recent success in the US with taut, tense shark thriller 47 Meters Down. “Technology’s changing so quickly there is pressure on the big studios.” But, he points out, the so-called Big Six – 20th Century Fox, Disney, Paramount, Sony, Universal and Paramount – “have a big library behind them, which adds some stability. Look at what Disney’s doing with its remakes of its animated features”.

Disney’s live-action Beauty And The Beast was a box-office phenomenon, making $1.3 billion worldwide against a production budget of $160 million. Disney also owns Marvel Studios, Pixar and, via Lucasfilm, Star Wars.

“From the perspective of Disney, the idea of Hollywood being in trouble seems ridiculous,” says Charles Gant, features editor of Screen International. If the big Hollywood movie has such an uncertain future, Gant wonders, then why was there such a scramble to buy into Luc Besson’s space opera Valerian And The City Of A Thousand Planets at the Cannes Film Festival market two years ago? “The companies that bought into that film don’t get offered superhero movies and they were desperate to do that movie,” he points out.

Though by backing the film, its investors also exposed themselves to big Hollywood risk. The $200 million-budgeted Valerian died at the US box office with a paltry $17 million haul during its opening weekend. Ironically, it was beaten to the top spot by Warner Bros’ Dunkirk, a studio movie in a supposedly unfashionable genre: the World War II movie. This, Gant says, provides “a fantastic example” of the kind of film a growing older audience is eager to spend money on seeing at the cinema. “It’s a quality, non-superhero film with an incredibly broad appeal that’s working in both multiplex and arthouse cinemas.”

“I don’t think Hollywood’s in trouble,” says James Swarbrick, CEO of specialist media financiers Hindsight Media. “I think these things are quite cyclical.” Swarbrick, who helped finance such hits as The Kings Speech and last year’s A Streetcat Named Bob, doesn’t even see streaming as a studio-system toppler. “Netflix relies on the studios to give them the best films, and there’s only so many Netflix or Amazon originals they can make. In fact, it’s given the market a slight boost. It’s given us more buyers and also incentivised the traditional distributors in various territories to start pre-buying and paying better money for independent films than they were before, because now there is a genuine possibility that Netflix or Amazon will take the show or the movie off the table before it gets bought by a traditional distributor.”

In this sense, a perceived threat to Hollywood like Netflix in fact provides more opportunity to get product to market. If you’re a nimble, flexible independent film company, there is much to feel optimistic about right now. Altitude, a relatively new indie company which Andy Mayson founded with Will Clarke five years ago, is thriving. “There are lots of opportunities in the independent world,” Mayson says. Especially in the UK, an attractive place to make movies, thanks to the Treasury’s generous tax credit scheme. In 2016, British film and TV productions received £415 million in tax relief. Production companies can claim a cash rebate of up to 25% of UK qualifying expenditure, regardless of the size of a film’s budget.

Of Altitude’s 24 UK theatrical releases, Mayson says 21 have been profitable. “We’re very lean, we can move very quickly, and the three parts of our business — development of production, international sales and UK distribution — feed off each other. We’re really in touch with the end consumer, so we’ve got a good understanding of changing tastes and that definitely focuses us on the product that we’re making or buying. We’re also very talent-friendly. We support the talent and we try and back smart, cutting-edge storytelling.” Altitude’s slate is impressively diverse: as well as producing 47 Metres Down, it was behind the release of Asif Kapadia’s Oscar-winning documentary Amy and Moonlight, winner of the Best Picture Oscar in February 2017. “We take manageable risks on films that are fresh, and in which we see a commercial potential.”

The old Hollywood maxim, framed by screenwriter William Goldman, is that nobody knows anything. Film-making will always be inherently risky. For every Avatar there will be a John Carter, and studio bosses know that more than anyone.

“Think very carefully,” is James Swarbrick’s advice for anyone considering investing in film. But, he says, there are ways to significantly mitigate risk in the UK, primarily by investing in film through the Enterprise Investment Scheme. “The tax benefits of doing that are pretty plentiful,” he says. “If you put £100 into an EIS company, you’re able to claim £30 of that back against your tax bill. Then, if the production or the film company you’ve invested in is profitable, any return on that money is tax free. If you lose all your money, you’re able to get tax relief on the £70 you didn’t get tax relief on in the first place. The minimum investment size is as little as £5,000, so it’s a good way of getting into what can be quite an exciting investment class.

Besides, the fact that nobody knows anything is what makes the film business so thrilling, believes Swarbrick. “That’s the joy of doing it. That’s what makes it so special. You don’t know, and there’s just this sort of ethereal chemistry that can occur that makes something fantastic.”

Dan Jolin is a Contributing Editor of Empire magazine.