The Big Picture

Edward Jay Epstein investigated the economics of Hollywood using studio financial documents, and this book reports what they show. His central finding is that the theatrical box office, which is what the press reports and what the industry discusses, is not where the studios make money.

The accounting he reconstructs shows that a major studio's revenue comes predominantly from home video, television licensing, pay television and international distribution, with theatrical release functioning as a marketing event that establishes a title's value in those channels. He documents the specific splits: the exhibitor's share of box office, the marketing cost that studios bear, and the resulting theatrical contribution, which is frequently negative even for successful films. He also covers the six companies that controlled distribution, which he calls the sexopoly, and explains the barriers that kept the group closed: the library, the distribution infrastructure, the relationships with exhibitors and broadcasters, and the ability to absorb losses.

The second half covers the social and political machinery of the business: the talent agencies and their control of packaging, the accounting practices that make participation in net profits worthless, the studios' relationship with technology and their handling of each new distribution format. Epstein's data comes from a specific period in the early 2000s, and the economics have changed enormously since: home video collapsed, streaming replaced television licensing, and the studios' ownership changed. The analytical method, of following the actual cash rather than the reported box office, remains the right approach.