Originally established by a motley crew of gamblers and mavericks, Hollywood has never been shy of taking big risks, but with film budgets getting ever bigger and the Hollywood studios coming under the ownership of highly risk-averse public companies, the stakes have never been higher than today.
And failure has never been so public. "Box office results have become a national sport. Your successes and failures are much more in the public eye than in any other industry," says former Universal Pictures executive Jason Resnick. "There is so much more pressure because everyone is so aware of what you are doing."
Once upon a time, Tinseltown titans, such as Hollywood's 'Boy Wonder' Irving Thalberg, simply used their own judgement to decide what films to make and wouldn't think twice about remaking them if they didn't think they worked.
These days, a Hollywood studio film is usually green-lit by a committee of smartly dressed executives accountable to their corporate owners and responsible for driving up profits each year. Representatives from multiple departments, including finance, publicity, marketing and sales, work with complex financial formulas to decide if a project is
viable and then sign off on a film as a group.
And it's no wonder they're so cautious, bearing in mind the sums involved. James Cameron's recent 3D hit Avatar was budgeted at an estimated $300m (or closer to $500m if you include the amount spent on developing special technology). Green-lighting a film is now a major business decision.
"In the past, making films was more to do with personal preference," says Eric Stevens, head of digital at the London-based Independent Film Company and a former executive at Ingenious Media, which financed an estimated one third of Avatar. "Now it is much more about mechanisms, templates, Excel spreadsheets. Each studio film is green-lit like an individual business plan. You use a giant book that has every potential cost and box-office return, based upon complex financial models that give every possible permutation of a film's outcome."
In the case of Avatar, the green-lighting decision ultimately came down to Fox Filmed Entertainment heads Jim Gianopulos and Tom Rothman, with News Corp's then COO Peter Chernin weighing in on the decision, according to sources at the studio. (Representatives from the studio's corporate owners are not usually involved in these decisions.)
In this instance, Fox mimicked the independent approach to production by using outside financing. One third of the budget came from Ingenious Media and another third came from Dune Entertainment, an affiliate of the hedge fund, Dune Capital Partners, which in 2007 agreed to invest $500m in Fox films over a period of three years.
Although investors tend to ignore the impact of a single film on a corporation's performance, there have been many instances when a single picture has either sunk or saved a studio, or at least made a significant contribution to its performance. For example, Cameron's last feature film, Titanic, generated $1.8bn in worldwide revenues for Fox in 1997, making it the highest grossing film of all time before being overtaken by Avatar.
On the negative side, the failure of Michael Cimino's 1980 film Heaven's Gate, which had an estimated budget of $42m and garnered less than $3m at the US box office, saw the Transamerica Corporation, which then owned United Artists, exit the movie business altogether.
But perhaps the most famous example of all is the 1963 film Cleopatra with Richard Burton and Elizabeth Taylor. Originally budgeted at $2m, it finally came in at $44m. "If it wasn't for Cleopatra we would not have Century City," says the Hollywood historian Cari Beauchamp, referring to one of Los Angeles' Westside neighbourhoods. "Fox had to do something drastic after the film bombed and sell off one third of the lot. We have Elizabeth Taylor and Richard Burton to thank for the Century Plaza Hotel."
While government bonds might provide » insurance in some businesses, the filmmaker's equivalent has long been a star. Take the film Master and Commander, for which producer Sam Goldwyn Jr, son of the legendary Samuel Goldwyn, was the driving force. It took 12 years to make and was finally green-lit after Russell Crowe came on board. "It took so long because it was expensive and because everyone was looking to make it insurable," he says.
Back in the old days, there was a whole system in place to make sure that the stars and their films succeeded. "Up until the divorce between the theatres and studios, they manufactured films to feed the business," says Goldwyn. "They developed stars and a whole system. There will never be that system again. MGM once had 75 actors under contract. If there was any insurance, it was a star. It is changing so fast. Look at Avatar. They took a huge gamble on James Cameron. There are no stars in the film. He is the star."
The pressure of corporate ownership and demands for ever greater profits mean the studios are sticking to ever safer bets by producing more sequels, remakes and comic-book adaptations. Creative filmmaking, as seen in some of this year's Oscar winners, including The Hurt Locker and Crazy Heart, is often left to the independents.
"On the independent side, there is more freedom," says Stevens. "The business tends to be driven by a single producer who gets behind a film and pulls in all the other people. A green-lighting process exists loosely. With the independents every project is a passion project. The financing comes from multiple sources, there is no template or corporation. It is more like the wild, wild West. The producer is more like a salesman convincing people to finance the film."
The bottom line is that no matter how a film is produced, the process will always be an inexact science. "People try and make this a business but it is really a crap-shoot," says Goldwyn. "Filmmaking is a combination of two things, art and business, and it's in combining the two that the decisions come in. Sometimes it leads more towards the art and sometimes it leads more towards the business. Everyone is looking for the right chemistry in how the two come together, which is almost impossible to predict. Anyone who says that there is a formula doesn't know what they're talking about. It's what makes it fun and it's what makes some say that the business is crazy."
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