‘Choose Facebook, Twitter, Instagram,” says Renton in T2 Trainspotting, in his update of the famous “choose life” speech from the original film. For Sony Pictures, which released the movie and saw the value of its film division written down by $1bn (£800m) last week, that is exactly the problem: too many consumers are choosing the digital lifestyle.
The owner of Columbia Pictures cited an “acceleration of market decline” in people buying DVDs and Blu-ray discs, brought about by the global boom in streaming and on-demand viewing on services such as Netflix, Amazon Prime and iTunes. It is a crisis Sony shares with its Hollywood peers. In the UK and the US, revenue from streaming and downloads of films and TV shows passed sales of DVDs and Blu-ray discs for the first time last year.
“Streaming is a problem for all the Hollywood studios,” says David Hancock, an analyst at IHS Markit. “There is more value per unit for a studio in the sale of a DVD than in providing a film or TV show” [to a service like Netflix]. “Growth in the digital retail and rental market is not compensating for declines in the physical market, which have been falling for a decade.”
Sony also referred to reduced profitability projections for its future films, after a year in which the Japanese-owned studio presided over several flops. Those include the all-female reboot of Ghostbusters and the genre-crossing Pride and Prejudice and Zombies; even the usually bankable Tom Hanks couldn’t save the day, as Inferno, the sequel to The Da Vinci Code, failed to spark.
But studios can have one bad year and come bouncing back the next. It is long-term factors that have underpinned the decision by Sony Corp, which bought Columbia in the mid-80s, to write down the film unit’s value. Those factors include a golden era for TV programming. As well as launching streaming services that have hit DVD sales, Netflix and Amazon are pouring billions into high-quality drama like House of Cards and Transparent. Traditional broadcasters such as Game of Thrones maker HBO and Sky, which produces Fortitude, are also investing heavily in high-end shows.
Sony has tapped into this trend too. Its own TV division, which is part of Sony Pictures and has been in better health than the movie studio, has co-produced with Netflix the £100m drama The Crown and Moulin Rouge director Baz Luhrmann’s troubled The Get Down.
Netflix and Amazon Prime have at least boosted demand for film rights, but the growth of original programming is a problem, according to Richard Broughton of media research firm Ampere. “Although the home entertainment market as a whole may be growing there is evidence to suggest that a big chunk of that growth is not necessarily flowing back to the same companies it used to. The abundance of high-quality TV, for instance, acts to boost competition for entertainment time and spend,” he says.
While all of Hollywood’s “big six” studios – Sony, Warner Bros, Disney, 20th Century Fox, Universal and Paramount – are facing the same issues, it is the smallest players that are feeling the squeeze.
![Pride and Prejudice and Zombies](http://web.archive.org./web/20170223112153im_/https://i.guim.co.uk/img/media/4c4a2756ee8b0b084f0a040cc34a4706f404bb32/0_115_3504_2102/master/3504.jpg?w=300&q=55&auto=format&usm=12&fit=max&s=164f010f539d81708e9c49f2a86acc18)
In 2012, Sony was the biggest studio in the world’s biggest market, the US, with more than 16% share of the box office thanks to Skyfall and The Amazing Spider-Man. With few bona fide hits since then, that share shrunk to just 8.4% last year, a distant fourth. Sony’s lack of hits is in stark contrast to Disney, which became the first studio to take $7bn at the global box office last year, thanks to billion-dollar blockbusters including Star Wars: The Force Awakens, Captain America: Civil War and Finding Dory.
“Sony’s woes are partly because of the types of film they have been trying to invest in,” says IHS Markit’s Hancock. “Disney and Fast and the Furious-maker Universal have had several good years. Disney started its strategy a decade ago, buying up valuable franchises and companies such as Pixar, the Marvel universe and Star Wars. There is room for the biggest two or three players in this kind of market but it is much more difficult if you are fourth, fifth or sixth.”
In recent years the major studios have moved to releasing fewer, but bigger, films. Combined with the growth of international markets such as China, this has put a premium on globally recognised franchises such as Star Wars and remakes of famous titles. According to box office analysis firm Exhibitor Relations, Hollywood will produce around 40 sequels or reboots this year.
“With studios releasing fewer films there is more to lose from any given film failing to perform well at the box office,” says Ampere’s Broughton. “So this results in a model of safe bets and has contributed to the importance of franchises. Big hits are key for studios in order to maintain the profitability of their titles in deals with digital services such as Netflix and Sky.”
Sony has said that despite its difficulties it has no plans to sell its film operation. The writedown caps a difficult few years for the studio, which was humiliated by a cyber-attack in 2014 and whose chief executive, Michael Lynton, stepped down last month to become chairman of Snapchat app-maker Snap. The chief executive of the entire Sony group, Kazuo Hirai, is reportedly planning to spend two weeks a month at the film and TV unit’s Culver City base in Los Angeles.
Sony’s woes have not dissuaded Dalian Wanda, the property and media group controlled by China’s richest man, Wang Jianlin, from entering the market. Last year it paid $3.5bn for Legendary Entertainment, producer of films including Jurassic World and Godzilla.
Wang, who has made much of his desire to take on Disney’s theme park business, has not been put off by Tinseltown’s uncertain digital future. But could he be making the same mistake as the Japanese conglomerate?
“I don’t think they are making a bad bet because you are talking about taking control of high-quality media assets,” says Broughton. “But it is extremely expensive to buy in the US at the moment with the strength of the dollar. Strategically it does make sense if Dalian Wanda wants to take advantage of Hollywood expertise and take that to one of the world’s largest cinema markets, where they have a vast cinema chain business.”
Consumers, however, will continue to make choices that pose a long-term threat to Hollywood.
BRITISH STUDIOS STRETCHED BY SUCCESS
![Claire Foy in The Crown.](http://web.archive.org./web/20170223112153im_/https://i.guim.co.uk/img/media/6190fc1cc1d3b59d408231d754bd7119c0014fd5/0_99_3600_2160/master/3600.jpg?w=300&q=55&auto=format&usm=12&fit=max&s=0afe26fe786b82666826329667ece56b)
Stars of the big screen will descend on the Royal Opera House in London this month to celebrate the year’s best films at the Baftas. It will be a glittering occasion, yet behind the scenes the UK’s film and TV industry is being stretched to the limit by a talent shortage and lack of studio space.
While Netflix and Amazon are not in the running for gongs on 12 February – their time will come at Bafta’s TV awards in May – the impact of their British productions is being felt across the industry. Netflix’s £100m co-production The Crown has tied up resources, while Amazon is looking to increase its UK commissions after giving the green light to eight British shows so far, including comedy hits Fleabag and Catastrophe.
From actors and producers unavailable because of packed shooting schedules to a dearth of special-effects creators and craft skills such as wig- and dressmakers, the domestic entertainment sector is struggling to keep up with the resulting production boom.
“There are shortages with directors, producers, script editors, location managers, hair and makeup, and camera people,” says Jane Saunders of Creative Skillset, the industry body that supports training in the creative industries.
This shortage extends to studio space. The Crown, with a second season under way, has booked out about half of Elstree Studios for two years. The production has semi-permanent sets including parts of Buckingham Palace and Downing Street. Other films, such as Paddington 2, had to use alternative studios.
The UK film production industry has flourished over the past decade following a 25% tax break for foreign film-makers, mostly exploited by Hollywood studios making productions in the UK. However, the introduction more recently of a similar tax break for high-end TV drama – shows that cost at least £1m per episode to make – is now exacerbating the talent shortage.
Netflix and Amazon have joined the likes of HBO, which has made Game of Thrones in Northern Ireland since 2010, in jostling with film companies for talent.
“While it is fantastic to be so in demand, it has caused problems because talent is increasingly spread very thin,” said Kate Harwood, managing director of Euston Films. .
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