Hollywood

Hollywood’s Summer of Flops: Can the Studios Survive?

As Hollywood's summer blockbusters falter, streaming platforms and technology companies are challenging the studios' business model. Husam Sam Asi examines the box-office slump, changing audiences and the industry's struggle to survive.

Husam Sam Asi 17 August 2017

Husam Sam Asi with Vin Diesel during promotion for The Fate of the Furious, March 2017 — Husam Sam Asi with Vin Diesel during promotion for *The Fate of the Furious*, March 2017. ASI Photos archive.

Hollywood’s big-budget films have been dropping like poisoned flies at the box office this summer, deepening studio executives’ fears that they face an existential crisis more serious than any challenge the industry has encountered since its founding more than a century ago. A few days ago, a studio boss told me that Hollywood must change its approach if it is to survive.

Hollywood has faced several existential crises before. They have sometimes forced it to change direction and helped filmmaking evolve. Among the most important were the rise of television in the 1950s, videocassettes and the home-video boom, followed by DVDs in the late 1990s. Can it withstand the present crisis and overcome it?

The summer’s films

Hollywood usually releases its biggest films during the summer holidays to maximise returns. This summer, however, teenage audiences have not flocked to see them, leaving cinema operators under severe financial pressure. Ticket sales across the market have fallen by 10.8 per cent, while AMC, the largest cinema chain in the United States, has lost around 27 per cent of its value during the summer. The four biggest cinema operators have collectively lost roughly $1.3 billion in market value.

In the past, Hollywood relied on films starring its international celebrities, comedies, action movies and sequels to lure audiences into cinemas. Those attractions appear to be losing their power.

Even the industry’s biggest stars have struggled. Tom Cruise’s The Mummy disappointed at the box office, casting doubt on Universal’s plans to build a shared universe around its classic monsters. Johnny Depp also failed to draw the expected crowds to Pirates of the Caribbean: Dead Men Tell No Tales, the fifth instalment in the series. Even the popular comedian Will Ferrell could not persuade people to visit cinemas for his new film, The House.

Hollywood recognised the weakening influence of stars more than a decade ago, when it became clear that audiences were coming to see characters, especially superheroes, rather than the actors playing them. The studios consequently concentrated on franchises built around those characters. Sequels multiplied, becoming an insurance policy intended to guarantee Hollywood’s profits.

Yet several sequels have met with a cool reception and disappointing returns. Alongside the latest Pirates of the Caribbean, films such as Cars 3, Transformers: The Last Knight and Alien: Covenant have struggled to match the grosses of their predecessors. Resident Evil: The Final Chapter also performed poorly domestically, although its strong international earnings made it the franchise’s biggest worldwide box-office success.

Sequels had already delivered disappointing results last year. Hollywood interpreted this as evidence that repetition was boring audiences, so it began developing new franchise launches, often drawing on established comic-book stories, to tempt people back into cinemas. That strategy has also struggled.

Many films the studios hoped to turn into franchises set in imaginary worlds have failed to capture audiences’ interest and quickly faded from cinemas. They include The Great Wall, The Mummy, Ghost in the Shell, King Arthur: Legend of the Sword, Power Rangers, The Dark Tower, Valerian and the City of a Thousand Planets and The Emoji Movie.

Comedy has offered little relief, with disappointments including Baywatch, Snatched, Fist Fight and Rough Night. Girls Trip, however, has been a notable exception, drawing large audiences rather than joining the list of failures.

Success beyond Hollywood’s familiar formula

Ironically, some of the films keeping the studios afloat have departed from Hollywood’s familiar formula: they were not led by its established white male stars. At the forefront was Wonder Woman, directed by a woman, Patty Jenkins, and starring the Israeli actress Gal Gadot, who was not yet an established box-office draw. Another female-led film, Beauty and the Beast, starring British actress Emma Watson, earned more than $1 billion.

What truly startled Hollywood, however, was the extraordinary success of Black director Jordan Peele’s Get Out, starring Black British actor Daniel Kaluuya. Made for just $4.5 million, it took more than $250 million at the box office.

Even one of this year’s commercially successful sequels, The Fate of the Furious, the eighth film in the Fast & Furious series, features a diverse cast, including Latino and Black actors. Its star Vin Diesel told me that Hollywood had rejected him because it did not believe there was a market for films led by non-white characters.

These developments have forced Hollywood, an industry run largely by white men, to reassess its criteria. It has begun opening its doors to women and to directors and actors from ethnic minorities, recognising that the world is not white and that white people are a minority, rather than a majority, outside the United States.

But Hollywood faces challenges more complex, and more dangerous to its continued existence, than the content of its films. Chief among them are technology and streaming companies. They reach millions of people, hold information about their tastes and preferences, and deliver the entertainment they want through their online platforms.

The challenge from television and streaming

In recent decades, cable companies such as HBO have attracted audiences by producing films with artistic merit and meaningful content. Hollywood had neglected these in favour of special-effects spectacles with broad appeal in international markets, which have become more lucrative than the American market. In recent years, streaming companies such as Netflix and Amazon have joined the cable networks and taken a commanding position in the independent-film market.

These developments have contributed to the financial distress of studios that made such films. Relativity has struggled through bankruptcy and severe disruption. Open Road, which released Oscar-winning films such as Spotlight, has recently been sold to a Chinese company amid financial pressures. Broad Green has announced that it will stop producing films and concentrate on distribution. Lionsgate, the studio behind The Hunger Games, has also been discussed as a possible takeover target.

The major Hollywood studios have so far paid little attention because the returns from art films were modest compared with those from special-effects films. International audiences flocked to see those spectacles on the big screen, generating hundreds of millions of dollars at the box office.

Streaming companies initially avoided effects-heavy productions because the technology was expensive and televisions were not technically equipped to present them to the same standard. But the cost of producing visual effects has fallen considerably, while television picture and sound quality have improved to the point where they can rival the cinema experience. Producing and showing such work on television has therefore become a practical reality. Netflix, for example, has partnered with Marvel to produce superhero series such as Jessica Jones and The Defenders for its online service.

When I interviewed producers of effects-heavy entertainment at San Diego Comic-Con last month, they told me they were now reworking their productions for television. They said they could make greater profits than with cinema films because, through the internet, television programmes reach homes around the world.

Film stars also told me that they no longer distinguish between working on cinema films and television programmes. The Hunger Games star Josh Hutcherson, for instance, was there promoting the science-fiction television comedy Future Man, in which he plays the lead.

Drying up investment, rising technology power

Making matters worse, sources of finance for Hollywood projects have recently dried up. In the past, investors from around the world, particularly Germany, the Arab world, Russia and Texas, competed to invest in Hollywood films, dazzled by its glittering stars. Heavy box-office losses have dampened their enthusiasm, prompting them to withdraw investment from Hollywood and redirect it towards technology companies in Silicon Valley.

At the end of last year, the Chinese government also tightened the flow of money from companies whose investments had breathed new life into Hollywood studios over the preceding two years. Several investment agreements and major production projects were consequently cancelled.

Box-office losses and shrinking sources of finance have left studios burdened with debt and increasingly vulnerable to technology and telecommunications companies. AT&T has agreed to acquire Time Warner, the parent of Warner Bros., in a deal that is still awaiting completion. Its interest goes beyond studio profits: films and television programmes can supply its mobile and other distribution platforms with content.

Another telecommunications company, Verizon, has also been linked to a possible acquisition of a major studio to feed its digital platforms. Sony Pictures and Paramount already belong to larger corporate groups, Sony and Viacom respectively, illustrating how studios can operate within wider technology and media businesses.

Hollywood studios may survive, but without the enormous political and economic influence they once enjoyed in the United States. Instead, they may become subsidiaries supplying the entertainment needs of technology companies’ customers. Those companies have penetrated nearly every aspect of life across much of the world, acquiring influence that can rival that of the governments of major powers.