The Antitrust Attorney Blog
Author: Steven Madoff
Steven Madoff is a former Executive Vice President at Paramount Pictures and General Counsel for its Home Entertainment Subsidiary. He is Of Counsel at Bona Law.
When you see someone acting strangely, do you ever wonder if they are possessed? If you do, it might be because of the everlasting influence of a classic film that I am certain you know: The Exorcist.
One of the great joys of a film is that you can turn down the lights, let your problems disappear, and enter a meditative zone where you become engrossed in the movie and nothing else. You surely know that a lot goes into making a film and that it takes many talented people working really hard to do it well.
But do you ever think about how much thought, work, and fighting (yes, fighting) goes into marketing, distributing, and monetizing a film? Indeed, because films continue to make money for years and sometimes decades after they are made—especially for a classic film like the Exorcist—the battles over revenue and its dissemination can be everlasting.
During my decades at the studios and in the film industry, I had a front row seat to the methods, money, and machinations of the entertainment industry.
Even still, after I left Paramount Pictures, I did not think of myself as an “expert.” I had worked at Paramount for 20 years, the last ten of which I served as Executive Vice President of Worldwide Business and Legal Affairs for the Home Entertainment and Pay Television Divisions. I had also worked at the Motion Picture Association of America for five years in a business development position and then as International Counsel. The Motion Picture Association of America is the trade association representing the interests of the (at the time) seven major Hollywood Studios: Disney, MGM/United Artists, Paramount, Sony Pictures, Twentieth Century Fox, Universal and Warner Bros.
So after 25 years working for the major studios, I knew that I was very experienced and highly knowledgeable about certain aspects of the motion picture and television industries, but I did not think of myself as an “expert” on whose word courts should rely.
That was, anyway, until shortly after leaving Paramount, I started receiving phone calls from other studios involved in one form of litigation or another that were looking for someone who could qualify as an expert and would be willing to render an opinion and possibly testify in court in their litigation. Each one was certain that based on my 25 years of experience in motion picture and television industry business affairs (including all forms of licensing, sales, distribution and acquisition transactions), I would qualify as an ”expert.”
Malcolm Gladwell wrote about the 10,000 hour rule in this book “Outliers.” This rule states that it requires at least 10,000 hours of practice to become an expert in a particular field. I figured that my 25 years of practice in one industry, at a minimum of 40 hours per week, equates to about 50,000 hours that I had practiced in motion picture and television business affairs. Maybe these people were right. As it turns out, my qualifications as an “expert” in multiple cases have never been successfully challenged. That may, in part, be attributed to the fact that I have always been very selective in choosing which matters I offered my services for—I stick with what I truly know.
One of the more interesting cases on which I provided services as an expert witness involved the classic motion picture, “The Exorcist.” The case was before the U.S. District Court for the Central District of California.
For those that don’t know, “The Exorcist” is the 1973 Warner Bros. release which, for many years, was the highest box office grossing horror motion picture of all time. In fact, adjusted for inflation “The Exorcist” is probably still the highest box office grossing horror motion picture of all time. It is certainly in the top five. If you haven’t seen it, you should.
Film finance can be complicated and there are typically investors that put up money or creative services for the film, alongside a studio and others, and, in exchange, they receive a contractual right to participate in the profits of the particular film. These are commonly known as participation agreements.
As often happens in Hollywood, claims were made against Warner Bros., the distributor of “The Exorcist” by a party who has a right to participate in the profits of the film. Basically, the claim was that Warner Bros. had not been properly exploiting “The Exorcist” in subsequent media and therefore the film’s gross revenue and profits were less than they otherwise could have been.
In essence, the claim was that the highest box office grossing horror film of all time should have received greater license fees than it did: Not an unreasonable assertion considering that we all tend to judge the value of motion pictures by their box office performances.
As part of my role, I reviewed hundreds of Warner Bros.’ distribution contracts that license “The Exorcist” to end-user television stations, pay-TV channels, cable networks, pay-per-view and video-on-demand services and digital media. I had to determine—as an expert—whether Warner Bros. did what they could to fully exploit “The Exorcist” film for the benefit of its investors and partners. And based on my 25 years of experience licensing and selling thousands of motion pictures, it did not seem to me that Warner Bros. had under-valued or under-exploited “The Exorcist.”
I was then asked to write an expert’s report explaining how motion pictures are valued when they are exploited in subsequent media (after theatrical release). In other words, when buyers and sellers are trying to arrive at a mutually agreed price for a film, I had to explain what factors they consider.
If film monetization interests you—and it should—here are the factors that negatively affected the post-release value of “The Exorcist” relative to its box office performance:
- The age of the picture. At the time, “The Exorcist” was almost 40 years old. As pictures age, their value tends to decline.
- The genre of the picture. Horror pictures are usually not as re-watchable because once you know what the scary parts are, the horror goes away. In addition, horror films generally utilize a lot of special effects. And in the case of “The Exorcist,” the special effects from 1973 do not hold up well compared to modern special effects.
- The rating of the movie. “R” “X” and “NC-17” films are more difficult to relicense because the audience is more limited and they may require heavy editing. “The Exorcist,” of course, was rated “R.”
- The stars of the film. Films with major stars tend to hold their value, because the audience always wants to see them. The stars of “The Exorcist” (Max Van Sydow, Ellen Burstyn, Lee J. Cobb and Linda Blair) are not considered major box office draws, notwithstanding their outstanding talent.
- Licensees also look to whether a film is part of a greater franchise with multiple successful sequels. Those films can create their own marketing benefits and opportunities. “The Exorcist,” although it had sequels, was not part of a successful franchise like Star Wars, Indiana Jones, or any sort of comic book series.
- Perhaps most importantly, licensees will look at historical audience ratings for the picture to see if the picture was viewed, and will be viewed, enough to drive higher advertising rates and/or subscription fees. As it turns out, the audience ratings for “The Exorcist” were relatively low compared to its box office performance, probably because its “R” rating and sensitive subject matter required that it be broadcast in early morning (or late night) hours rather than around prime time viewing hours. Other factors already mentioned like the lack of star power, the age of the film and the special effects probably also explain its audience rating levels.
Accordingly, there were a number of very good reasons explaining the after-market value of “The Exorcist,” which demonstrated that Warner Bros. was not under-valuing or under-exploiting “The Exorcist.” The case was resolved to Warner Bros.’ satisfaction.
When deciding whether an expert witness can help in a case and if so which expert witness to select, it is vitally important to choose an expert whose background and experience closely matches the needs of the case.
Image by David Mark from Pixabay