The Hollywood Economist by Edward Jay Epstein

division is that a film, after paying this enormous tariff, rarely shows a profit, even if the studio is making a profit from the distribution fee, and so the writers, directors, actors, and other participants in the profit rarely see anything but red ink on their semi-annual statements.
    When it comes to films that are financed by other people’s money, the distribution fee is the subject of often contentious negotiations. Most outsiders needing to reach a wide audience wind up paying about 18 percent. Since the actual cost of distributing a movie is 8 percent, a figure which includes the incremental cost of PR specialists, media buyers, customs clearance, transportation, and lawyers’ time, the studio makes as pure profit 10 percent of the gross revenues of a film on which some other party financed and took all the risk. Stronger players often negotiate the fee down to 12 percent, but that still leaves the studio a 4 percent profit on their gross, and hedge funds, which co-invest in entire slates of studiofilms, pay only 10 percent, yielding still a 2 percent profit. There are also “a few gorillas,” as a Paramount exec calls them, whose movies are so vital to studios, that they pay only 8 percent, the magic number at which the studio makes no profit.
    But such nonprofit arrangements are the exception, numbering in 2008, according to the Paramount executive, only three: Steven Spielberg’s deal with Universal, and Dreamworks Animation and Marvel Entertainment’s deals with Paramount. Most of these studio distribution deals with outsiders yield substantial profits on Other People’s Money. A top executive at Disney calculated, for example, that Disney made over $80 million in 2005 from outsiders (after deducting its actual costs of distribution). This skim, which goes to the bottom line, makes the six studios the biggest gross players in Hollywood.

PART IV
     

HOLLYWOOD POLITICS
     
     

IN THE PICTURE
     
    In November 2009, Oliver Stone literally put me in the picture. I was seated at an oval table under an eerie light in what purported to be the office of the Chairman of New York Federal Reserve Bank. As the meeting continued throughout the night, people around screamed about the ‘moral hazard’ of saving a failing investment bank. At one point, there was even a call from the White House doomingthe bank in question. The frenetic scene is no more than a consensual hallucination directed by Oliver Stone for the movie
Wall Street 2: Money Never Sleeps
. (A sequel to his 1987
Wall Street.)
The magnificently wood-paneled room is actually the executive conference room of an insurance company, MetLife, which is serving as a location for this part of the filming. The eerie glow comes from powerful lamps ingeniously suspended from helium balloons above us. The shouting is coming from actors Frank Langella, Eli Wallach, and Josh Brolin. Although I had only a bit part in this drama, it provided me with an opportunity to see how a Hollywood movie is made from the vantage point of the set.
    The project was initiated in 2005 by Edward R. Pressman, the producer of the original
Wall Street
, after he saw the fictional villain of
Wall Street
Gordon Gekko (portrayed by Michael Douglas) on the cover of
Fortune
, accompanied by a headline about the return of greed to Wall Street. Pressman reasoned that if eighteen years after the movie, Gekko was still the media’s icon for greed on Wall Street, a sequel was in order. He owned the rights for the sequel but sought to interest Twentieth Century Fox, which had distributed the original
Wall Street
. Getting a movie made in Hollywood when the hero isnot a comic book character was not an easy task. Just getting a script that was acceptable to Fox took four years—and three different (and very expensive) writers. Even then Fox’s approval was conditional on the stars and director, as are almost all movie deals. Pressman persuaded Michael Douglas to again play Gekko, a role for which