As Hollywood evolved from small production companies into large corporations, so did the financing of motion pictures. Large corporations could sell stock and borrow money from well-heeled investors. But this depended on the reliability of the investment. Investor fears of risky ventures forced Hollywood corporations to incorporate traditional business practices: “efficient management, timely production practices, and profitable results” (Lewis 477). Hollywood developed standardized practices that still survive today.
The Hollywood studios held a virtual monopoly over the production, distribution, and exhibition of motion pictures until 1948. With the Paramount decision, this monopoly came to an end. Suddenly, the studios lost much of the real estate they had used as collateral to borrow money. Following the example of independent filmmakers, such as David O. Selznick, the studios replaced the studio system with the independent system (Lewis 477).
Today, filmmakers have many options for obtaining financing. “Money may come from the studio, the producer, the investment community, or (most probably) a combination of these” (Lewis 477). Financing may be procured in stages as the production progresses. Controlling costs is a major concern, especially when it is difficult to accurately predict them (Lewis 479).
Under the studio system, the budget was based on direct and indirect costs. “Direct costs included everything from art direction and cinematography to insurance. Indirect costs, usually 20 percent of the direct costs, covered the studio’s overall contribution to ‘overhead’” (Lewis 479). The independent system calculates costs according to a 30/70 configuration.
Costs can become inflated by the use of union labor (Lewis 476), special effects technology, personnel with special expert skills, and the high salaries commanded by superstar actors, producers, and directors. Sometimes, it is possible to negotiate contracts that reduce upfront costs and benefit all parties involved.
Marketing, distributing, and exhibiting motion pictures depend on the product produced. Exclusive and limited releases assess audiences’ initial response; key-city releases assess audience reaction on a second-run basis; and “wide and saturated releases on hundreds or thousands of screens in the major markets . . . [test audience reaction] as good reviews and word of mouth build public awareness and demand” (Lewis 482). While studios have established methods for bringing their films to market, independents use various methods. They can rent their films to a studio or producing organization with the means to market, distribute, and exhibit them (Lewis 482).
Experts determine release dates, arrange tie-ins with toys, books, and other merchandise, decide screening locations, form contracts with DVD and streaming companies, work on advertising and publicity, and complete negotiations on domestic and foreign rights. Others calculate rental and download costs, ticket prices, and length of runs (Lewis 482). Movies are an expensive commodity!
Today, Hollywood comprises a combination of a modernized studio system and independent production companies that may or may not be part of a studio company. In total, this collection of Hollywood filmmakers grossed $10.9 billion in revenue in 2013 (Lewis 483). As Hollywood continues to evolve, it will discover new avenues of financing and generating revenue.
Dawn Pisturino
Thomas Edison State University
January 23, 2018
Copyright 2018-2022 Dawn Pisturino. All Rights Reserved.
Works Cited
Barsam, Richard, and Dave Monahan. Looking at Movies, 5th ed. New York: Norton, 2016.
Lewis, Jon. American Cinema: A History. New York: Norton, 2008.
Dawn Pisturino's Blog 
Filmmaking financial options are needed. So many filmmakers were happy when a breaking away from major movie studies led to a big creative independence (and the video camera helped). Now with big corporations leading the way in tv and cinema productions (aka Hollywood), I see a backward move from creative independence thwarted by the limitations of control (corporate money).😞
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Unfortunately, Hollywood has never been about creativity but making money, which is why it always reverts to the tried and true genres, re-makes of older productions, and formulaic plots. Luckily some creators, like Steven Spielberg, come around every so often to shake things up. Thanks for visiting and commenting.
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Money has always attracted and rewarded the creativity. Without creativity, there is no audience. 🤔
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There’s a difference between creating to make money and creating for the pure joy of creating something new. Orson Welles was a creative artist. I believe Spielberg started out that way. It seems like the longer people are in Hollywood, the more they get stuck into a box and feel forced to conform. There’s no doubt that creativity is rewarded with money, but it’s the mavericks who bring in new audiences.
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be it alec baldwin apparent murder or stephens blatant rip off remake of west side story indies are the way nurse dawn!
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Without a doubt!
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Interesting take!
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