JUMP CUT
A REVIEW OF CONTEMPORARY MEDIA

The future of selling the past:
studio libraries in the 21st century

by Eric Hoyt

A motion picture studio library.[1][open endnotes in new window] The term likely brings to mind the image of a large room with a high ceiling, filled with shelves of movies on various formats, perhaps tastefully decorated with vintage posters of The Maltese Falcon and A Place in the Sun. But in the lexicon of Hollywood-speak, the word “library” means something far different. The major Hollywood studios define their libraries as the films they own that have already gone through the roughly seven-year period of first cycle exploitation; that cycle encompasses separate windows for a theatrical release, home video, pay television, syndicated television, and so on. After seven years, a particular film’s budget has already been fully depreciated from the company balance sheet, the executive responsible for the project has either been promoted or fired, and the movie has generated the vast bulk of its ultimate earnings. Any new money to come in as library value is largely profit. Multiply this by the huge volume of library titles—a fraction of which become “evergreens” that perform exceptionally well after the first cycle—and the studio can add hundreds of millions of dollars each year to its bottom line.

Libraries have become a crucial piece of infrastructure for the major Hollywood studios. Studios with large libraries, such as Warner Bros. and Universal (both of which exceed 5,000 titles), can count on their libraries to usher in cash flows exceeding $500 million per year. Unlike a major theatrical release—requiring tens of millions in marketing expenses—relatively few costs are involved in bringing library titles to market. As media industry commentators, such as Edward Jay Epstein have noted, these libraries give the classic Hollywood studios a comparative advantage against any new firms entering the marketplace for the new firms lack the annual library revenues that help cover overhead and offset any disastrous new productions.[2]

Studio Library Size Chart[3]

However, studio libraries are not simply corporate infrastructure. These libraries themselves rely on a historically changing set of infrastructures. Over the past sixty years, changes in technology, markets, and intellectual property law have greatly added to the value of film libraries. Television, video, and DVD have all provided studios with new ways to monetize old movies. The implications of the libraries extend beyond corporate infrastructure into the political realm. Studios have successfully lobbied the U.S. Congress to expand the terms and duration of copyright protection, ensuring that as few of their films as possible enter the public domain.[4] The Hollywood studios today continue to rely on library revenues and use new media and technologies to exploit their copyrights. In this paper, I want to examine new attempts at library exploitation and look particularly closely at two major, pending library deals—the sale of MGM and Comcast’s acquisition of NBC-Universal. By exploring these changes in distribution and ownership, we can begin to consider what new forms of library exploitation mean not simply for the studios but for other stakeholders as well.

Old movies, new media

Let’s start with a survey of the current attempts to use new media to exploit the libraries. In March of 2009, Warner Bros. announced it would press DVDs and sell downloads of hundreds of unreleased library movies on an on-demand basis under the banner “The Warner Archive.” Although the DVD sell-through market has declined significantly in the last two years (dropping an estimated 13.5% during the first half of 2009), the Warner Archive seeks to capture a niche audience and tap into “the long tail” business model popularized by Wired Magazine’s Chris Anderson.[5] By keeping a low overhead, eliminating inventory costs, and cutting out middleman retailers, Warner Bros. can turn a small profit on selling only a few hundred of each title (DVDs sell for $19.95, downloads for $14.95). Warner Bros. uses the concept of the archive as a selling point, promising cinephiles greater access to film history through the browsing and purchasing of hard-to-see films.

In writing about analog videotape, Lucas Hilderbrand identifies that medium’s “aesthetics of access”—the audio-visual degradation resulting from user duplication, home recording, and extensive reuse of videotapes.[6] The Warner Archive, as a corporate venture, differs from the user-driven bootleg networks that circulated videos unavailable for purchase anywhere else. However, the Warner Archive still carries its own aesthetics of access. As a consequence of the venture’s cost-cutting, long-tail business model, the DVDs lack special features and frequently utilize poor film prints. The Warner Archive privileges greater access to the library over the optimal DVD experience.  

Hollywood’s current push toward 3D, on the other hand, is trying to raise the bar for what constitutes an optimal theatrical and home viewing experience. In the mid-to-late-1980s, some studios monetized their libraries (and horrified filmmakers, critics, and cineastes) by colorizing black and white films. Studios today are exploring the potential riches of “dimensionalization,” the term used for converting old films into 3D. Dimensionalization is an expensive process with estimated costs in the $5 to $15 million range per feature, so it is currently only viable for blockbuster library titles that could do significant business in re-release. Disney’s October 2009 release of the Toy Story films to 3D theaters marked the first wide dimensionalization release of library films. One of the challenges for dimensionalized theatrical releases is that there are not enough theaters equipped for 3D to accommodate all the 3D films in the pipeline.[7] But as electronics companies begin to roll out 3D TVs, and as the cost of 2D to 3D transfers decreases, we will likely see a greater push toward dimensionalization.[8] Sony stands the most to gain of any studio. The electronics giant can both monetize its film library and use dimensionalized films to sell 3D TVs and Blu-ray consoles.

Dimensionalization has thus far attracted little of the public scorn heaped at its great-uncle, colorization.[9] Audiences at industry and technology conventions (admittedly a biased crowd) responded enthusiastically to promotional dimensionalization screenings, viewing 3D as an immersive experience that enhances cinematic storytelling.[10] Whether film critics and general audiences will react similarly remains to be seen, but the companies leading the charge toward dimensionalization have strategically courted film directors, who were the most vocal opponents of colorization. One of the leading dimensionalization firms, Los Angeles-based In-Three, has published a white paper that emphasizes

“the directorial control offered by Dimensionalization of 2D into 3D films.”[11]

However, In-Three’s recent partnership with Indian conglomerate Reliance to open a 1,000-worker shop in Mumbai suggests that while the process will cater to the concerns of film directors, much of the dimensionalization labor will be outsourced to South Asia, following the familiar Hollywood cost-cutting model used to produce visual effects and animation.[12]

The colorized Maltese Falcon outraged filmmakers and critics. How will they react to the film in 3D?	YooStar: A Guitar Hero for movies?
MGM’s ThisTV venture gives local stations an inexpensive way to fill their new digital channels.	The once mighty studio finds itself in financial crisis.

A few more ventures deserve mention. In an attempt to cash-in on the success of music games like Guitar Hero and Rock Band, we’ve seen the launch of Yoostar, which for $169 lets users hook up a camera to a computer, act in front of a green screen, and then watch themselves perform in one of 14 movie scenes, including clips from Some Like It Hot, Rocky, and Saw II.[13] Hundreds of additional movie clips can be downloaded for $1.99 or $2.99, allowing users to create their own library of clips performing alongside movie stars and then post them to Yoostar’s online gallery. What users may legally do beyond this remains severely restricted by Yoostar’s Terms of Use, which limits the circulation of the copyrighted film content and, furthermore, grants Yoostar

“all ownership rights in any Performances, whether uploaded or stored on your computer.”[14]

There have also been attempts to take library films and slice them into 3 to 5 minute segments for mobile phone downloads. The number of downloads for Yoostar and mobile phone library clips remain small, but these digital ventures involve little-to-no financial risk for the studios and represent tiny revenue tributaries that flow into the great river of library profits.

Finally, among the most interesting new developments is ThisTV, MGM’s 2008 venture to provide library content 24/7 to television stations. In the transition from analog to digital broadcasts, digital technology reduced the amount of necessary spectrum space for each channel. In this way many local stations gained the ability to transmit several channels of programming. How would they fill the new space? ThisTV provides a cheap solution: for no cost up front to the local stations, MGM provides a 24/7 stream of programming from its film and television library. The stations then split their advertising revenue with MGM. The service has caught on quickly with stations, and ThisTV is already available in an estimated 80 million homes.[15]

Although ThisTV does not offer the sort of local affairs or multilingual programming that many hoped the digital transition would bring, the channel clearly does offer a service, particularly for those viewers who do not subscribe to cable but seek access to older U.S. movies and television. ThisTV features commercial interruptions and eclectic, some would say erratic, programming (on a given day you are likely to encounter obscure westerns, 1980s action movies, and multiple episodes of The Patty Duke Show), but it has found a contingent of fans. Some fans have even instructed cable-subscribers, who may receive the commercial-free Turner Classic Movies, on how they can bypass their cable boxes, reinstall rabbit ears, and pick up ThisTV.[16] The full impact of U.S. television’s digital transition has yet to be seen. However, the example of East Texas’ KTLV, which offers ABC on its main channel and ThisTV and the Spanish-language network Telemundo on its two subchannels, suggests that the transition has increased the diversity of over-the-air television, though via national providers rather than locally produced material. But as over-the-air viewers surf channels and discover Vincent Price and Annette Funicello on their screens, few realize just how important their viewership and every dollar of library revenue is to ThisTV’s parent company, MGM.

MGM

For the past forty years, MGM has endured a series of ownership and management crises, and studio once again teeters on the precipice of sale and/or bankruptcy.[17] When I presented an earlier version of this paper in early-November 2009 at the University of Oregon’s What Is Film? Conference, I noted that MGM had stayed afloat the last few years entirely due to its library revenues but that those revenues were on the decline. One week later, the studio announced itself for sale and began opening its financial books to potential buyers via a “virtual room.”[18] By the time this paper is published in 2010, MGM may belong to a media conglomerate or have entered into a prepackaged bankruptcy. Regardless of the ultimate result, we can study MGM in its late-2000s incarnation as a case study in both the strengths and limitations of a film library.

Now you may be wondering—what is even in the MGM library? After all, Ted Turner purchased MGM’s library in 1986, and all of those titles now belong to the Time Warner/Warner Bros. library. MGM’s current library is—in the words of Jan-Christopher Horak—“the Frankenstein monster of film libraries,” a motley collection of over 5,000 films patched together from a variety of acquisitions.[19] So while the MGM library does not include The Wizard of Oz (1939) or Singin’ in the Rain (1952), it does include: Robocop (1987), Dances with Wolves (1990), and the rest of the Orion library; Beach Party (1963), The Pit and the Pendulum (1961), and the full AIP library; Mister Ed (1961—1966), The Addams Family (1964—1966), and the other film and television programs of the Filmways library; The Graduate (1967), Four Weddings and a Funeral (1994), and over one thousand other titles from the PolyGram library. Finally, MGM’s library includes the studio’s own post-1986 productions and, most importantly, the United Artists library. The enormously valuable James Bond franchise sits as the crown jewel of MGM’s United Artists collection.

In 2004, a consortium of Sony, Comcast, and three private equity firms acquired MGM for $5 billion intending to produce and distribute new content while finding new ways to exploit its library (particularly through new Comcast cable channels).[20] But like many Hollywood vehicles, the MGM acquisition did not deliver on its promise. By the end of 2009, MGM was $3.7 billion in debt with virtually no equity. The company finished the year having only released one theatrical movie—the remake of Fame, which grossed under $25 million domestically. The cash flow from MGM’s film and television library has been solely responsible for keeping the studio alive—covering its steep overhead costs and nearly $300 million in annual interest payments. In 2007, MGM’s library brought in a cash flow of over $525 million. In 2008, the library cash flow dropped 5% but still exceeded $500 million. Still, both years provided cash flow necessary to cover interest and overhead and keep the studio out of bankruptcy, even if it didn’t leave much funding for new productions or for paying off the debt’s principal.[21]

Although precise data is difficult to obtain (I sadly was not invited to enter MGM’s virtual room), it is clear that library revenues decreased significantly in 2009. The cash flow no longer covered MGM’s interest payments and overhead, let alone the ambitious slate of pictures the studio wanted to produce. Why did library revenues decrease? The slump in DVD sales certainly hasn’t helped, but that is not the primary cause. Film libraries earn the bulk of their revenues through being bundled and licensed as TV packages to broadcasters worldwide.[22] Studios need fresh titles to drive these package sales and gain leverage in negotiations with television broadcasters. None of MGM’s 21st century attempts at library exploitation—Yoostar licensing, iTunes sales, mobile content, or ThisTV—have been able to come close to matching the revenues from the 20th century technique of TV distribution packages.

As MGM’s Frankenstein library awaits its new master, the studio demonstrates how libraries can offer tremendous cash flow, but without new product, these libraries grow stale and lose market value. The MGM example also shows how a library in the hands of an active studio can be much more valuable than in the hands of a dormant studio. This is why Lions Gate Entertainment, an active and growing studio, has been so aggressive about acquiring film and video libraries over the past decade. It now earns annual library revenues in the $250 million range. Lions Gate has the output of new product to successfully exploit its 8,000 film library, which includes Terminator 2, the Saw franchise, and scores of exercise videos. The library also gives Lions Gate collateral to borrow against and provides a steady source of cash flow.[23] Lions Gate is now in the running alongside Time Warner, News Corp, and others to acquire Hollywood’s original lion, MGM.

Comcast, the public interest, and video nirvana

In a deal that dwarfs the sale of MGM, Comcast recently announced its $30 billion purchase of control over NBC-Universal from General Electric. The acquisition of NBC, USA, Bravo, and several other cable channels will—pending government approval—vertically integrate Comcast in the television industry, turning the cable giant into both a content distributor and supplier. However, entertainment journalists were also quick to note the value of Universal’s film library to Comcast’s future business model. In its coverage of the acquisition, the Los Angeles Times ran the pull quote:

“the largest cable company is eager to get its hands on the studio’s prized library of more than 4,000 movie titles and new releases.”[24]

Universal’s film and television library—which is closer to 5,000 films—will give Comcast a wide array of content to offer on demand to subscribers, advancing Comcast’s pledge to deliver media “anytime, anywhere” across multiple platforms.[25]

Although I have focused this paper on the way film libraries impact the studios, I also want to call attention to the other stakeholders in the libraries and how the new changes in ownership and media delivery may affect them. The actors, directors, writers, musicians, and technicians who constitute Hollywood’s labor force earn residuals for the sale of their work on television and home video. How will they be compensated as their work is distributed across a growing number of portals and contexts? The Screen Actors Guild and the Writers Guild of America have long sought for a better residuals arrangement than the deal they struck in the 1980s on home video. However, as these guilds turn toward more moderate leadership, any such gain seems increasingly unlikely. Another stakeholding group is media repurposers. Studio libraries contain works of cultural salience that are necessary building blocks for the free expression of professional and amateur artists who remix media. Yet the free appropriation of these works may run counter to the financial interests of both studios and labor. Moreover, even as remixers gain new access to content through the Comcast digital delivery model, their ability to make fair uses of copyrighted media remains limited by the Digital Millennium Copyright Act’s provisions against circumventing security encryptions. 

And, finally, there is the public interest, which should be valued most highly of all the stakeholders. As the FCC and Justice Department begin review of the proposed Comcast deal, debates have emerged in the New York Times, Los Angeles Times, and blogosphere about whether such flagrant vertical integration goes against the public interest. On the New York Times “Room for Debate Blog,” Andrew Jay Schwartzman of the Media Access Project warns that Comcast’s purchase of NBC Universal

“poses a genuine threat to free expression and diversity of speech,” noting that the mega-conglomerate could smother local TV stations and new Internet video services.[26]

Comcast seeks to counter such claims by arguing that the acquisition is "pro-competitive, pro-consumer and strongly in the public interest."[27] In fact, Comcast very much equates the public interest directly with “anytime, anywhere” media delivery, which company representatives have also referred to as “TV Everywhere” and “video nirvana.”[28] Some commentators have found the cable company’s argument persuasive, judging an on-demand media universe to be an acceptable tradeoff for greater media consolidation and higher costs for consumers. On the same New York Times “Room for Debate Blog,” Christopher Rosen argues that the acquisition promises “viewer convenience” and

“the Comcast-NBC merger might just be the straw that breaks the back of traditional television and gives us the complete viewing freedom we’ve long desired. And if it the price of that freedom is 99 cents, I think we’ll all survive.”[29]

The new Comcast-NBC-Universal may provide convenience for some, but it will deny access to others. Media concentration limits the access of diverse groups to the means of producing and distributing new works. And even as viewers may have the option of scrolling through hundreds of older NBC Universal shows and movies, there will be countless films and programs not accessible through the video nirvana. These questions of public access ultimately bring us back to the image with which we started: the library. The fantasy of complete video nirvana—that a satellite dish or cable subscription that can let you access any piece of media content you want anytime, anywhere for a monthly fee—now seems within closer reach than ever. However, the economics of digitization and distribution mean that many works will never become available. Complete video nirvana will remain a fantasy.[30] The big questions we the public confront are these:

• What gets excluded from the on-demand universe, either because of costs, conflicts over ownership, or inconvenience?
• What will be the cost to consumers of vertical integration?
• Who will be able to afford video nirvana?
• And who will lack access to the library?

Go to notes page

To topPrint versionJC 52 Jump Cut home

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 2.5 License.