[jasonwatkinspdx]

This article makes a couple good points, but the assumption that competitiveness can only be measured in capitalization is stupid. Anyone who believes that need simply review the proportion of acquisitions by fortune 500's that are still competitive in their markets 5 years later.

In annoying MBA language: cost of goods for cinematic content is falling rapidly due to technological and social progress, and this is reducing the negotiation power of large integrated production and marketing companies like the big studios.

The cost of script-writing and conceptual development is largely constant and independent of production cost. Nearly every feature of production cost is falling rapidly, from cameras to post production technologies. Even location shooting, which you might assume independent of technological factors, is being rapidly undercut by digital backdrops (which became the norm in cinema quality television shows with shocking speed).

The net effect of all this change is that negotiation power is moving from large integrated studio ventures to original content producers. Small production companies are less dependent on the capital advances, production infrastructure and marketing channels the big studios can offer.

Netflix definitely understands this, and also understands that the current Hollywood players fail to meet significant areas of demand. You see this in their choices of what productions they've funded directly like arrested development. It's a high risk venture, but it's not just a bluff or impossible. They are hiding in the blind spot of nearly all large market players: the unwillingness to abandon or cannibalize currently profitable activities because of changing market conditions.

[sriramk]

Is this really true? If you look at the top grossing movies, they're all studio blockbuster vehicles. The cost of star salaries, huge marketing splashes, etc are still as bad as ever.

I don't see any evidence that the COGs for producing the head revenue generators are any lower than what it was, say, 5 years ago.

[ebrenes]

To add to what jasonwatkinspdx has said already, it seems to me that this follows the typical pattern of disruption. First you'll see the bottom markets being let go by the big studios and you'll start seeing other independent bodies picking up those lower markets. Until finally the big studios only make up the top segments, if anything the polarization seems to indicate just this type of shift.

I think you're also seeing some breakthrough into the middle areas where players such as HBO are able to compete with big block buster movies in terms of mind share. Series like Game of Thrones for example opted to be produced in the "lower echelons" instead of being fit into block buster movies. In a way it seems obvious, the material fits better in a series format, etc... but the fact that it is possible should make it clear that 50-60 million budget can compete and in some cases excel that which is produced by a multiple hundred million dollar blockbuster.

That to me is a significant change, hopefully one of many to come.

[jasonwatkinspdx]

You can't expect to understand a broad shift if you're only looking at the top grossing movies. That's like predicting the US economy by only looking at Bill G and Warren Buffet's asset sheets.

The Crank movies are a good example of something you couldn't really do 10 years ago. They were filmed on budgets with 10mm to 20mm. Typically a movie involving so many stunts would be far more expensive. Compare to say the Fast and Furious movies which have budgets in the 100mm range.

And while the current financial picture for the studios is hit driven, that's largely because of the high minimum cost to get a production done. As production costs fall films don't have to sell as well to be profitable, creating more of a long tail to the market.