Hollywood’s Economics Are Impressively Capitalistic Despite Its Politics

Despite the predominance of progressive ideology in Hollywood, the industry itself is an upstanding example of the free market.

Hollywood has a bad reputation—and rightfully so. Around the country, Americans have expressed concern , if not revulsion, toward the entertainment industry’s practices, from the “casting couch” culture to the sometimes radical political views and activism of celebrities and studio executives alike.

Indeed, the industry is awash in superficiality and questionable values. Even more concerning, it often works hand in hand with the US government. The major film studio lobby the Motion Picture Association of America (MPAA) that represents Disney, Warner Brothers, Paramount, Sony, 20th Century Fox, Universal, and most recently, Netflix, is routinely chaired by former political power players . The organization, which also rates films, attempts to squeeze out competition from smaller producers and pushes to enact controversial congressional legislation to benefit their industry, often finding itself at odds with Silicon Valley. Even more alarming are its direct partnerships with federal agencies like the Pentagon , the FBI, and the CIA, which collaborate to produce state-approved narratives in film and television.

The next time you watch a movie, simply watch the credits to take in the cooperative efforts of countless individuals coming together.

Few can appreciate the corruption and sleaziness of the film industry more than I can. I grew up in Los Angeles and was so steeped in Hollywood culture that after college, I attempted to join the industry. I had no idea what exactly I wanted to do after college but knew I wanted to write, so I took an internship in the production and development department of a widely-known studio. Though the experience ultimately taught me I wanted nothing to do with Hollywood, it also showed me that despite the predominance of progressive ideology in Hollywood, the industry itself is an upstanding example of the free market. While we may recoil at the unethical behavior that permeates the highest echelons of the industry, the foundation of the industry is impressively capitalistic.

Profitability

Back when I was interning as a script reader, one of my tasks was to evaluate the profitability of scripts the department was considering purchasing.

It went like this: A talent agent would submit a script, I (and other interns) would read it and summarize it for the executives to review, and if they felt it had potential to generate revenue, they would consider purchasing it. My job on numerous occasions was to compile spreadsheets of similar films in the same genre to determine just how much money they might earn.

In considering a dance script, for example, the producers needed to know how much other dance films earned at the box office. Using a popular industry site called boxofficemojo.com , I’d look up the data for the department’s decision-makers to review. If there wasn’t money to be made based on market preferences, rest assured the studio would not pay for the script and invest resources to turn it into a film.

The law of supply and demand is at work: If it makes money, Hollywood will produce it.

The same principle applies to much of the content many Americans bemoan. Nine Fast and Furious installments ? An endless slew of Star Wars films? Constant remakes of Spiderman, Batman, and Superman? There is money to be made— billions per franchise. While some Americans may scoff at Hollywood’s tendency to recycle unoriginal content, the market speaks loudly, and Hollywood keeps responding to consumers' demonstrated demand.

This is the case even in instances where the industry colludes directly with the government (a practice documented by mainstream media outlets ). Films like Zero Dark Thirty are what I—a libertarian anti-war activist who values civil liberties—would consider effective pro-state propaganda, and would not be made if the public weren’t eager to consume them.

There is, of course, the question of the chicken versus the egg: have Americans been indoctrinated by culture to crave pro-government films or had they already embraced big government, leaving Hollywood to satisfy their preferences? Regardless, the law of supply and demand is at work: If it makes money, Hollywood will produce it. If it doesn’t, it won’t (there may be some exceptions to this, such as when the CIA instigated production on the film version of George Orwell’s Animal Farm , but this does not appear to be the norm based on available information about these collaborations).

Shows with poor ratings are inevitably canceled because they can’t draw enough advertisers to continue being profitable. If a show is canceled due to low ratings but has a cult following, however, the market can still provide: there’s a decent chance another studio or network will pick it up, responding to consumer demand and niche markets. This was the case with Arrested Development , a television series that first appeared on Fox only to be canceled—and picked up by Netflix nearly a decade later.

Cutting Costs

In another show of the market at work, film studios and production companies always try to secure the best value for the lowest price. For example, special effects and animation jobs are often sent to other countries where people with similar skill-sets are willing to work for less. The consumer still enjoys the product, but that product is thus more profitable for the studio, which creates more money to produce more films for a public eager to consume them.

Jobs Creation

While people (myself included ) love to criticize California for its backward government policies, the fact remains that it has a massive economy—the fifth largest in the world—which may be why the state hasn’t collapsed amid the ever-encroaching nanny state.

Hollywood is part of the reason for this. The industry generated $43 billion in 2017. In 2016, the industry supported an estimated 2.1 million jobs. Jobs include people who specialize in everything from stuntwork to writing and animation to set production, post-production, marketing, lighting, costuming, makeup, and music. There are even people’s whose job it is to make sure, for example, that the bulletin board on an office set has the exact same arrangement of pins and sticky notes throughout every day of filming. Catering services, insurance companies, accountants, special effects, camera operators, and experts from various fields (like medicine, science, or crime) to ensure the story is realistic all benefit from the Hollywood juggernaut. Further, the industry paid roughly $49 billion to 400,000 local businesses in 2016. This complex ecosystem of varying expertise and specialization echoes FEE founder Leonard Read’s famous “I, Pencil” essay , beautifully highlighting the vast network of individuals needed to produce the final film product.

Rather than compensating according to what might be deemed “fair pay,” employers allow the market to determine wages.

The next time you watch a movie, simply watch the credits to take in the monumental, cooperative efforts of countless individuals coming together to produce a product you enjoy consuming.

The Hollywood job market also functions in accordance with the free market. Top actors, actresses, and directors earn exorbitant sums of money for their unique ability to attract audiences, and therefore, profit. Their market value is high—they earned hundreds of millions, if not billions of dollars just last year. On the other end of the spectrum, individuals are willing to work, for example, as assistants and in mail rooms for very little pay because so many people consider getting a foot in the door to be worth the sacrifice of a temporarily small paycheck. Rather than compensating according to what might be deemed “fair pay,” employers allow the market to determine wages amid a massive, eager labor pool.

Competition and Evolution

While the studio system in Hollywood continues to generate a great deal of revenue, this dominant paradigm isn’t perfect. In fact, the established industry has suffered from falling revenue for years. Back in 2011 when I was interning as a script reader, an assistant to the department chair advised me it would be difficult to find paid employment because Hollywood was shrinking. Theaters struggled (and still do) to draw patrons to the box office, and many people who worked in the industry for the duration of their careers found themselves out of work. In fact, one of the reasons I was unable to find a job in the industry—despite having glowing recommendations from highly connected people who put in a good word for me—was that people far more qualified than me, an unpaid intern who had put in nine months of work, were applying for assistant jobs.

The result of this competition is an ever-increasing library of content consumers can enjoy.

Though Hollywood still turns a large profit by providing content audiences want to consume, the established studio power players, which have been in place for close to a century—think Paramount Pictures—have struggled to maintain captive audiences.

A telling example of this is the television industry specifically, which, within the industry, has long been viewed as inferior to film. But with the rise of premium content channels like HBO and Showtime, everything started to change. In the late 1990s, shows like Oz , The Sopranos, and Sex and the City showed that if a network invested to produce high-quality content, people would be willing to pay for it. The subject matter may have varied from show to show, but the specialization of these series drew enough satisfied customers to sustain the business model. This has ushered in a new golden age of television as shows like Shameless , Game of Thrones , and Westworld have continuously raised the standard for television, prompting traditional cable networks to up their game and ultimately provide more options for consumers.

In another example, the advent of streaming services — Netflix, Hulu, and Amazon Prime Video — has also challenged Hollywood to improve. These services allow users to access far more content for a better price than they would by simply paying to go to the movies.

Television networks are also adapting to the new streaming paradigm, attempting to combat decreasing viewership on traditional television.

Netflix generated $4.1 billion in the last quarter of 2018, also adding millions of subscribers. The new trend of original programming blew conventional practices out of the water. Shows like the (unfortunately now disgraced) House of Cards , the Handmaid’s Tale , Marvelous Mrs. Maise l, Orange is the New Black, Black Mirror, and Narcos have continuously molded a new paradigm for entertainment and drawn traditional “film” actors to join the new trend. A-list actors Emma Stone and Jonah Hill, for example, recently headlined a Netflix original series produced by Paramount TV, showing the powerful studio’s willingness to respond to a changing industry by partnering with Netflix. The Coen brothers recently produced a Netflix original film, The Ballad of Buster Scruggs .

Indeed, many studios are now trying to compete, adding streaming services to their repertoire. Disney is releasing a new streaming service where it will provide access to its content, including its most beloved classics. Television networks, like CBS and FX , are also adapting to the new streaming paradigm in their attempts to combat decreasing viewership on traditional television.

The result of this competition is an ever-increasing library of content consumers can enjoy. If consumers detest Hollywood so much, they are free to stop doing business with them. Niche genres have gained volumes of options that likely would have never been produced had the television market never evolved into streaming. Murder mysteries, baking shows, spiritual documentaries—you name it, chances are a streaming service has specialized content to satisfy any given audience.

Ultimately, as with any industry, Hollywood has problems, not least its tendency to embrace corporatism (both through the MPAA and its leaders’ support for establishment politicians). Nevertheless, it remains that the American public enjoys consuming their content, and while they may wag their fingers at the celebrities and executives who create it, they continue to vote with their dollar–and understandably so. Hollywood has long provided one of America’s best products, gaining popularity and promoting a love of our culture around the world, from Marilyn Monroe to Star Wars. Entertainment brings people joy; it is a cornerstone of the human experience for its ability to make people feel, whether that feeling is connection, sorrow, or joy.

And if consumers detest Hollywood so much, they are free to stop doing business with them. After all, there’s a good chance the market will respond.

Further Reading

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