Image: "Paranormal Activity"
AP
“Paranormal Activity” was filmed for only $11,000 yet grossed $100 million-plus for Paramount Pictures, making it among the top-grossing movies of the year. The film's bottom line was boosted by friend-to-friend reviews on Facebook and Twitter, which lured moviegoers into theaters.
By
msnbc.com contributor
updated 2/2/2010 6:14:11 PM ET 2010-02-02T23:14:11

The picture is more muddled than a bad script.

Hollywood kissed a pretty record in 2009 — $10.6 billion in ticket revenue, thanks, in part, to moviegoers flocking to theaters to escape their economic worries. Despite box office success, however, 2009 also was the year that some studios sat temporarily idle or even slashed jobs, production companies were shuttered, fewer films were released and DVD sales lagged.

Confused? Let’s cut to the chase. The oddly conflicting trends atop the movie industry can be partly explained in two words: Paranormal Activity. We’re talking both the movie of the same name and the ghosts of Hollywood past.

First, the flick.

“Paranormal Activity,” about a house haunting told via “found” video footage, was filmed for only $11,000 yet grossed $100 million-plus for Paramount, plunking it among the year’s top 30 earners. But talk about a horror movie: That juicy-fat margin spooked many studio chiefs, signaling a massive economic shift was underway inside their backlots.

With “Paranormal Activity” taking an unprecedented underground route to blockbuster heights, “Many in Hollywood realized that their old rules don’t apply,” said Tim Gray, editor of Variety. “But what are the new rules? Nobody knows.”

Last year was a game-changing year for Hollywood, and no one quite knows what the future holds for the movie industry.

“Every 20 or 30 years, there is a revolution in the way that entertainment is delivered,” Gray said. “It happened with the ‘talkies,’ with the popularization of radio, the introduction of television and home video. And it’s happening now. There is both excitement and fear ... a sense [of]: ‘I know something is happening but I don’t know what to do about it, and I don’t want to get left behind.’ ”

New revenue model
What it comes down to is not what the studio thinks matters but what consumers will pay for, said Jeff Cox, chief executive officer of ARSGroup, an Evansville, Ind.-based communication research agency. As DVD sales — a major source of revenue for studios — continue to slide (down 13 percent in 2009), and Video on Demand grabs a tighter toe-hold with movie lovers, Cox predicted: “a whole new revenue model” will shape the film industry.

Need hard evidence? Look again at “Paranormal Activity,” which was boosted largely by Internet chatter and friend-to-friend reviews spread via Facebook and Twitter.

“The explosion of ‘Paranormal Activity’ proved to motion picture studios that word-of-mouth could make or break a film and that viral marketing is a very low cost way to entice people to the movie theaters,” said Marjorie DeHey Daleo, president of MediaVix, a Los Angeles company that specializes in managing brand relationships.

The reason is as simple as a neighborly chat. People trust their friends’ film reviews — and their online friends’ opinions — more than they do slick movie advertising, according to a July 2009 study by the Nielsen Company. Nine out of 10 Americans rely most on the consumer recommendations of folks they know — or even people they know only through Facebook — while 62 percent trust TV ads, and only 52 percent are swayed by movie ads, the study found.

Of course, that shift can work to the advantage of the studios — especially those, like Paramount — that already are attracting audiences through social media pipelines. Simply put, Facebook and Twitter offer cheap advertising. That dynamic also played into the industry’s glowing, albeit somewhat misleading, 2009 revenue numbers, some experts said.

“A generation ago, publicizing and marketing a movie on a global scale involved hundreds of people spending thousands of man-hours around the world — advertising agencies in every continent, stars hustling to interviews in every major market, millions of dollars to take out ads in major publications. Today, five people can set up a Web site and do it all from the comfort of an air-conditioned office,” said Mario Almonte, a New York PR strategist and Huffington Post blogger.

A tired script
“Hollywood is basically shedding a lot of the ‘rank and file’ workers, replacing them with a few tech-savvy experts. ... But surprisingly, having less people doesn't mean Hollywood studios spend less; they are in fact spending more,” Almonte said. “Instead of spending money on personnel, they are spending it on talent. Today, the big stars command a $20 million per movie, but even a B- or C-level celebrity can easily see a million dollar paycheck. That's because creative projects in Hollywood are more expensive, and therefore a bigger gamble than ever.”

By maintaining that spending model — and by continuing to bank on DVD sales — Hollywood is sticking to a tired script, wrongly following the economic blueprint of a bygone era, some business analysts say. A few studio insiders even believe DVDs will disappear from the marketplace in five years, said Jim Strader, a creative talent manager and CEO of Quattro Media in Los Angeles. Meanwhile, cable On Demand services, which currently offer 100-plus films per provider, will grow within “a couple of years” to include 1,000-plus films, Strader predicted.

The On Demand boom, however, won’t save Hollywood, where DVDs remain “really the life blood of the studios, providing the most significant portion of revenues,” said Ronald Jacobi, former executive vice president and general counsel at Sony Pictures. “Alternative revenue streams such as online delivery have not made up for the (DVD) decrease and, in any event, the revenue splits and pricing for online delivery won’t be as lucrative as DVD.”

No question, the recession wilted DVD revenues. But that sales decline — which began several years ago — has languished because, so far, Blu-ray players have not become the popular consumer toy that studios envisioned, said Jacobi, now an attorney with the international law firm Bryan Cave.

“Also, young consumers appear to be satisfied with viewing films on lesser picture quality devises, such as their laptops and smart phones,” Jacobi said. “Finally, piracy and pirated file sharing continues to reduce the demand on legitimate delivery of films to consumers.”

Even worse, at the industry’s red-carpeted front door, box office receipts are hardly as rosy as the new record seems to indicate, Jacobi said. That’s in part because movie studios receive less than 50 percent of the reported gross profits.

“They are dependent upon film performance, which can rise and fall each year,” Jacobi said. “Further, the numbers are usually driven by a small percentage of megahits and don’t reflect the overall performance of films which are theatrically released.”

Tried-and-true formulas
You don’t need a pair of 3-D glasses to read between the lines: “Avatar,” despite its year-end release, helped inflate the 2009 box office stats. Some industry insiders argue that James Cameron’s behemoth-budgeted, passion project artificially skewed the annual revenue record. In late January, “Avatar” surpassed “Titanic” as the biggest-grossing international title in movie history, bringing in more than $1.8 billion.

“Avatar is an aberration which took James Cameron 12 years to create,” said Jeffrey Taylor, an independent film producer based in Phoenix. “We have to stop looking at one person, one film and draw conclusions about an entire industry. That would be like looking at McDonald’s and drawing conclusions on the entire fast food market. I believe that experts will look at 2009 as a continuation of the downfall of the Hollywood model. It needs to be replaced.”

The latest leaps in 3-D technology — as seen in “Avatar” —are an “easy parallel ... with the late 1920's and early 1930's when talkies were becoming the standard,” said Anthony Zanontian, co-founder of Taltopia.com, a social networking Web site for artists. “We are already seeing trend lines starting to form. ‘Alice in Wonderland’ is another 3-D release” set for March.

Of course, movies have been shown in three-dimensions for decades. In the early 1950s, American cinema was laced with 3-D movies, including “Bwana Devil” and “It Came from Outer Space.” Filmmakers and studio chiefs are still chasing the ghosts of Hollywood past.

“They are realigning their own resources to safer endeavors like ... franchises, while cutting costs in other projects as much as possible,” Zanontian said. “’Avatar’ is the perfect example of how Hollywood will reuse tried-and-true formulas.”

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