3
The Brave New Ancillary World

The mergers and acquisitions traced in the previous chapter had as their rationale the integration of multiple markets for generating film revenue. Before the 1980s, these were mainly theaters and broadcast television. By decade's end, these included the former as well as pay cable, home video, the marketing venues of product placement and product tie-ins, and the synergies that might be obtained through strategic cross-promoting in these areas. (During the eighties, the majors also saw significant revenues from the production and syndication of broadcast television programming. In 1980, for example, Gulf and Western's Leisure Time Group derived 20 percent of its revenues from series and films for television.)¹ As a result, film marketing grew more complex and required new strategies but could deliver greater revenues when the ancillaries worked in synergy, reinforcing one another.

Marketing films has always been a difficult business because it requires predicting what an audience will want to see one or two years in advance of a production. For decades, the industry has relied on market research methodologies, using questionnaire or focus group interviews to elicit from viewers information about their movie interest areas and responses to story concepts and character types that might form the basis for upcoming films.² In spite of the industry's recourse to social science methodologies as a means of lessening the uncertainty surrounding the marketing of its products, intuition, hunches, and guesses have played bigger roles than the industry has cared to admit. But amid all the formal and informal prognosticating about audience interests, the basic pattern of film distribution remained relatively stable for decades. Films with great potential popularity would receive a wide (or saturation) release, opening in 1,000—2,000 theaters nationwide, supported by a high-visibility media ad campaign. Batman, for example, opened on 23 June 1989 on 2,194 screens and grossed $40 million in its first weekend. By contrast, a platform release was reserved for pictures with solid commercial potential but that required a careful build to reach that potential. Opening such a picture in a few major urban areas and then moving to a wider break allowed good wordof-mouth and favorable critical reviews to build an audience. Driving Miss Daisy (1989) opened in four theaters in New York and Los Angeles in mid-December. One month later it was on 277 screens. Six weeks after opening, it was on 895 screens, and at the end of March, its release had expanded to 1,668 screens. During its thirty-six-week domestic release, it grossed $107 million.³ The subsequent non-theatrical revenue lives of Batman and Driving Miss Daisy were lengthy and multifaceted, and this distinguishing feature differentiated the eighties from previous decades of film distribution. Until the 1980s, after a film had opened on either a platform or saturation release, and once peak viewer interest had passed, it would go to second-run theaters. Prime-time network television presentation followed the completion of theatrical release.

With the growth and maturation of ancillaries in the eighties, however, release patterns shifted to reflect the relative importance of the new revenue sources. Table 3.1 shows the changes in revenue sources between 1980 and 1989. The most striking changes are the displacement of theatrical, as the largest source, by home video and the diminution of network television revenues from nearly 11 percent of the total to less than 1 percent. The initial release venue, however, remained theatrical. A theatrical release, with its attendant hoopla, helped create and sustain viewer interest as the film passed through subsequent release windows into the ancillary markets. Big-ticket items

like Batman or Ghostbusters would be eagerly anticipated by viewers awaiting their availability on video or cable television. Furthermore, performance in the theatrical market was predictive of revenues to be derived from video and cable releases. Though theatrical's share of the film revenue pie diminished during the 1980s relative to ancillary revenues, theatrical release remained the foundation for all that would follow from it. (The exhibition boom of the eighties demonstrated the continuing importance of this venue.) Before the eighties, broadcast television was the main nontheatrical ancillary. In the eighties, however, a film passed through other release windows before getting to network television.

The second release window was home video. (During its theatrical release, a film would also go to nonresidential pay-per-view, e.g., hotels.) Films were released to home video approximately six months after completion of the theatrical run. One to two months after home video release, a film went to home pay-per-view. The pay-cable window opened six to nine months after video release. After presentation on pay cable, a film might pass to broadcast television, but by now viewer interest had been almost fully exploited. By the mid- and late-1980s, network premieres of Hollywood films were no longer the events they once were. By the time a major film premiered on network television, viewers had already seen it, either in theaters, on pay cable, or on home video. Thus, networks, the last stop on the evolving release schedule, found that they could pay studios less for their top films, and studios, in turn, began exploring alternatives to network television, primarily sales to the syndication market.

In 1984, the president of MGM/UA TV noted the diminished importance of network revenues for nontheatrical presentation of feature films. "The three networks are just not buying pictures in groups any more, so we've got to get that revenue from somewhere else."⁴ Accordingly, MGM/UA that year bypassed the networks entirely and offered a package of twenty-four prominent titles for TV syndication. None of these pictures, including Fame (1980), Clash of the Titans (1981), The French Lieutenant's Woman (1981), and My Favorite Year (1982), had had any network exposure. Two of these titles—Fame and My Favorite Year—had turned a nice dollar in theatrical distribution, and a third—The French Lieutenant's Woman—had been a favorite with critics. In 1987, Paramount got more than $2 million per title in license fees from more than 120 stations that bought a package containing such big box-office films as Beverly Hills Cop (1984), Witness (1985), Star Trek II: The Wrath of Khan (1982), and Trading Places (1983). Each of these titles was a major box-office hit. Orion Pictures bypassed network television by offering a package for syndication that included Hannah and Her Sisters (1986), F/X (1986), Back to School (1986), and The Woman in Red (1984). Orion sold this package of twenty titles to sixty-five markets, clearing over $1 million per title in each market.⁵ (Orion even offered these to the syndication market before pay cable. Syndie stations got to air each film three times over eighteen months before Orion would pull them for a three- to six-month pay-cable window.) As the studios redesigned their release windows to accommodate the ancillary markets, network television was the big loser, and syndication, pay cable, and home video were the important new kids on the block. Of these, by far the most significant in commercial and cultural terms was home video.

This surprised the studios because, as the decade began, home video was regarded by many in the industry as a frightening and dangerous drain on film revenue (I will discuss the reasons why in a moment) and because pay-per-view, via cable television, seemed to offer the greatest revenue bonanza coupled with maximum control of the product. (Videotaping of movies by viewers threatened studios with a loss of control over the product because viewers could generate their own copies of movies.) Extolling the virtues of pay-per-view, MGM/UA's chair Frank Rothman enthused, "When 20 million homes are equipped to receive pay-per-view, we could charge $5 a home for Rocky III, split the profits, and make $50 million in a single night."⁶ But pay-per-view never took off the way home video did.

Pay-per-view is to be distinguished from pay cable. On pay cable, a viewer has access to a month's worth of Hollywood features in return for a basic subscription fee, whereas pay-per-view requires a viewer to pay for a single viewing of one movie. The studios liked the pay-per-view concept because they could control the exhibition of a film and realize a fee from each television set per exhibition. By contrast, with pay cable the studios leased their films in packages to services like HBO or Showtime and often felt that they were forced to relinquish the packages at below-market prices. Relative to pay cable, syndication, and videodiscs, home video offered viewers an enormous flexibility in its use, and this was a large part of its great appeal. With movies on cable, syndication, and disc, one could only watch them, but with a VCR one could "timeshift," that is, record a program from any of these sources for later viewing, and one could erase old material by rerecording over it. With two VCRs hooked together, one could make personal copies of pictures in videotape release. Furthermore, with a camcorder, home video became more than a medium for watching movies. One might also make them, as many families did who set aside their old 8-mm cameras and used video to capture their home movies (ironically substituting one medium with proven archival value for another, much less durable one). The studios liked videodiscs because they were a read-only medium on which one could not record. (One could record from them, however, by using a VCR, and the studios' animosity toward VCRs was well established). Videodiscs, though, never took off like videocassettes because VCRs were cheaper than disk players and let their users record program material as well as play it. Furthermore, in comparison with videotapes, discs were bulky and large.

Thus, home video emerged as the most user-popular ancillary distribution medium, despite the studios' initial resistance and their fears about an uncontrollable technology that would destroy copyright protection. We need to explore this resistance and these fears because they offer a fascinating account of the problems and challenges that the studios had to overcome before they could exploit the home video market. After exploring these problems and challenges, I will discuss the enormous impact of home video on the industry, and I will close by discussing the ideal of synergy as it operated through the relationships among the ancillary markets.

The Home Video Explosion

The rapid growth and diffusion of home video, its enthusiastic adoption by users, greatly alarmed the film industry. As table 3.2 shows, yearly sales of VCRs jumped from 802,000 in 1980 to 11—12 million per year during the second half of the decade. Sales of videodisc players, by contrast, remained sluggish, never substantially clearing 300,000 in any year. Sales of prerecorded videocassettes (chart 3.1) neared 50 million in 1985 and exceeded 200 million in 1989. A comparison (charts 3.2 and 3.3) of the adoption curves for VCRs and pay-cable subscriptions shows pay cable peaking faster than VCRs early in the decade (pay-cable subscriptions jumped from 9 million to 28 million between

1980 and 1983), while VCR adoption saw a tremendous boom in the latter eighties, eventually surpassing the number of pay-cable subscriptions. In 1989, pay-cable subscriptions stood at 41 million as compared to more than 62 million VCR households. The number of television households with a VCR climbed steeply, from 2.4 percent in 1980 to nearly 70 percent in 1989.⁷

These data show that long-established patterns of film viewing were changing. In previous decades, watching a movie meant going to a theater or turning on broadcast television, but this was no longer true in the 1980s. Marketing studies conducted at mid-decade showed that most people were now watching their movies on video rather than in theaters. A 1986 survey commissioned by Columbia Pictures found that while most of the public did not go to a movie theater in a given month, rates of videocassette viewing were skyrocketing in every age group studied. Teenagers, for example, tripled their video viewing to 58 million films in August-September 1985 while reducing their theatrical filmgoing by 20 percent. Columbia's president of marketing and distribution, Peter Sealey, pointed to the study's finding that three-quarters of the public did not attend a monthly film at the theater and contrasted this with the runaway sales figures for VCRs. The latter, he said, "is the most staggeringly fast penetration of households by any electronic appliance, I believe, in history—including television in its halcyon days." More than half of all VCR households in 1985 were renting an average of four video films per month. Drawing the contrast with theatrical attendance, Sealey concluded, "As VCR penetration goes up, this becomes the dominant factor in seeing a movie. It's the dominant market. It's profoundly larger than the theatrical market."⁸ A 1987 American Video Association survey found a very robust video rental business nationwide, with average weekly rentals per store of 1,258 tapes, and in 1988 the Video Software Dealers Association disclosed that over 80 percent of the business lay in video rentals rather than sales.⁹

With the burgeoning popularity of video, the inevitable happened. Shortly after mid-decade, revenues from video outpaced those from theatrical box office. In 1987, home video revenues were $7.5 billion compared with a $4 billion box office. In 1989, the differential increased to over $11 billion for video against a $5 billion box office.¹⁰ Wall Street took notice and by mid-decade began using home video revenues as a basis for appraising studio stock values. An analyst for Shearson Lehman pointed out that the video business, following theatrical, was hit-driven. "If a major has successful theatrical product, a high built-in demand for ancillary will have been created."¹¹ In the video sell-through market, the popular titles typically were big box-office films, a relationship that demonstrated strong synergies between the two markets and that provided a rationale for the exhibition sector's expansion beginning in mid-decade. As table 3.3 shows, the ten top-selling video titles in 1987 were also, largely, the top ten box-office films from 1986.

Furthermore, the business transactions covered in the previous chapter operated to enhance the financial rewards deriving from film-video synergies. The industry's main film producers and distributors, who received most of the box-office dollars, were also the video suppliers with the biggest market shares. Table 3.4 shows the 1989 estimated video market shares and revenues of the seven majors who were also the top seven home

video suppliers. Enhancing the importance of this ancillary was the fact that the video market is a global one. The majors derived video revenues from overseas sales, and these revenues had swollen to gargantuan proportions by decade's end. Videocassette sales, for example, generated $6.8 billion in top foreign markets in 1988.¹² The most profitable territories that year were the United Kingdom ($920 million in sales), Germany ($829 million), Japan ($751 million), and Canada ($480 million).

Challenges in the Video Market

With its exploding popularity and its gushing revenue stream, home video was, as Variety termed it, a goose that laid golden eggs. As a financial analyst for Merrill Lynch observed, "Without homevideo, the whole [film] industry would look a lot less healthy than it does."¹³ Home video was a boon to Hollywood, but before the majors could exploit this ancillary market and dominate it, as they have come to do, a host of problems and challenges had to be surmounted. I turn now to these.

Piracy

The scariest aspect of home video for the majors lay in their perception of its threat to the revenues they derived from film production and distribution. To the majors, this threat assumed several forms, and the most urgent of these lay in the area of video piracy, that is, the unauthorized production and distribution of video copies of films that were then in domestic and overseas theatrical release. Before the advent of video, investigations of film piracy, conducted by the FBI with MPAA cooperation, focused on the nontheatrical 16-mm market. Videotape, though, created greater opportunities for making and distributing bootleg copies of motion pictures because the medium was so lightweight and portable and because duplication of tapes did not require the expensive lab work that film did. Thus, as videotape began its surge in popularity, the FBI and the MPAA shifted their antipiracy efforts to this medium, which the industry would calculate was producing a $1 billion loss worldwide.

In February, 1980, the FBI arrested thirteen people in eight U.S. cities on video piracy charges. Funding from the MPAA helped set up the sting operations that led to the arrests.¹⁴ The FBI confiscated a large batch of illegal tapes including some (The Baltimore Bullet [1980] and The Jerk [1979]) that had been in circulation as videos prior to the picture's theatrical release. Piracy convictions throughout 1980 climbed sharply. By year's end, sixty people had been convicted, and ninety more had been arrested and were awaiting trial. By contrast, between 1975 and 1979, only eighty-four people were convicted on piracy charges (thirty-seven of them in 1979). In 1975, the FBI confiscated 5,867 pirated films and 1,195 pirated tapes. In 1980, the numbers were vastly different (312 films and 16,635 tapes), demonstrating the changing nature of piracy operations.¹⁵ Video piracy would remain one of the industry's top concerns throughout the decade, and the problem would never, could never, be resolved. It only seemed to grow. In 1989, the FBI confiscated 659,615 illegal tapes.¹⁶ The piracy problem required continuing vigilance from the MPAA and prominent announcements of temporary victories, as in 1989, when the MPAA counted one of its top achievements of that year a $250 million reduction in piracy losses in Japan.¹⁷ But the electronic media had created an irresolvable problem for the majors that their antipiracy efforts could never hope to adequately control.

The Threat of Home Taping

Electronic media (videotape in the 1980s, digital video and the Internet in the 1990s) make the duplication and transmission of information infinitely easier than the chemical- and heavy-industry-intensive media that preceded them. Film belonged to the latter category for much of its history as a chemically-based medium that required laboratory processing and elaborate machinery for its manufacture, distribution (trucks and planes), and exhibition (theaters with fixed projection equipment). All of these requirements erected barriers against the illegal production and distribution of motion pictures. They made it harder, though not impossible, for film pirates to operate. By contrast, video (and today's Internet distribution of digital images) eradicated many of these existing barriers, and as the medium of film changed from an industrial to an electronic format, the problem of uncontrollable manufacture and distribution of copyrighted images became far more acute.

Herein lay a second, but far more significant, threat to the revenues of the major film producers and distributors. This was the threat to copyright posed by the new electronic media and which the videotape boom of the 1980s was the first to make clear. Copyright protection of their work is the foundation safeguarding and securing the revenues derived by the majors from film production and distribution. As such, and for copyright purposes, films belong to the corporate entities that fund or distribute them. Directors may get possessive credit on screen (as in a credit that reads "A John Landis Film"), and stars may be the highest-paid members of a production crew, but the film itself remains the property of the studio, or the distributor or the agency, that puts up the operating capital and retains copyright control of the work.

For the majors, home video delivered a severe blow to copyright law and to its safeguarding of their profits. The home video boom was a nightmare come true for the Hollywood majors. Studio executives lay awake at night, sweating and trembling. They pictured families across America watching video movies taped from cable television and loaning these videos to friends, or worse yet, pictured families with two VCRs hooked together, making video copies of other tapes. To the majors, everyone with a VCR was now potentially a pirate. With the ease of home taping, studios could no longer control the distribution and consumption of their own films. MCA president Sidney Sheinberg complained about hometaping, "The trouble is, one can't technologically stop it, and people don't think it is illegal or immoral."¹⁸ The majors resolved to fight the technology. Shortly after Sony Corp. introduced its Betamax videotape recorders (utilizing one-half- inch tape, narrower than the three-quarter-inch VHS format marketed by Matsushita and which would become the standard) in late 1975, Universal (MCA) and Disney filed suit against Sony, claiming that its machines facilitated copyright infringement. Prosecuting their claims would take Universal and Disney eight years, and the issues would go all the way to the Supreme Court.

The case illuminated the terrific anxieties of the industry regarding home taping. For the first time, the majors confronted a distribution medium for film that they did not control. Even with television, initially construed by Hollywood as a rival medium, the studios controlled their product. They licensed films to networks for a limited period of restricted showings. Viewers did not determine when they would watch those films, and they could not make physical copies for subsequent viewing. By contrast, the VCR gave viewers unprecedented access to films and influence over the conditions of their viewing. The majors were accustomed to deriving revenues from each public exhibition of their films, whether in theaters, via cable, or over the airwaves, and studio officials proclaimed that uncontrolled VCR use would economically undercut the industry. Jack Valenti called VCRs "millions of little tapeworms" devouring the industry.¹⁹

To the majors, then, the VCR was an insidious technology, and in the hostility of their first responses to it, the industry replicated its initial paranoid reactions to the advent of television. As with television, the hostility would be replaced with an understanding that the new medium need be no enemy and could add big bags of cash to studio coffers. But first, the industry had to acclimate itself to the VCR and the video revolution it heralded. This entailed accepting the many ways in which video would change the industry's production and exhibition practices, and it also depended on successfully surmounting the challenges of exploiting the new market. Before all of this could happen, though, the industry's frontal assault, the litigation against Sony, had to run its course.

Focusing their anxieties on the litigation against Sony, the studios argued that home taping fell outside the fair use provision of copyright law (which permitted limited copying of protected works for nonprofit or educational usage) and that Sony was liable for damages, along with retailers who promoted sales of the machines by stressing the conveniences of home taping and time-shifting. The trial began in January 1979 in U.S. District Court, California, and concluded with an October decision against the claims of Universal and Disney. The judge found that home taping fell within the fair use provision of copyright law and that Sony was not liable for damages.

Disney and Universal appealed the decision, and they got a ruling this time against Sony. On 20 October 1981, the Ninth Circuit Court of Appeals ruled that home taping did constitute copyright violation. The decision overturned the lower federal court ruling. The appeals court decided, "We find no Congressional intent to create a blanket home-use exception to copyright protection and that home video-recording does not constitute fair use. In addition, the defendants are legally responsible for infringing activity for such use."²⁰ While the court's ruling on the fair use provision was unequivocal, the de facto situation posed problems for the relief Universal and Disney might expect. Millions of videotape recorders were already on the market and in homes, and recalling these machines would be a logistical nightmare. Possible solutions ran the gamut from royalty fees on VCR sales payable to the majors to a redesign of the machines to prevent them from recording. These were discussed but not implemented, and any effort to redesign the machines to disable copying would run counter to the singular feature that had been responsible for the publics quick acceptance of the technology and its rapid diffusion. The appeals court decision was highly unpopular, and it was widely ridiculed and condemned in the press, which pointed out that it criminalized a huge segment of the public.

It did not stand for long. Sony appealed, and the Supreme Court agreed to hear the case. In a landmark ruling on 17 January 1984, the court ended the majors' eight-year effort to curtail home taping by ruling that it was a fair use activity and that, because no copyright violation was involved, VCR manufacturers and retailers were not liable as contributory infringers. The court took a conservative view of the law. Writing for the majority, Justice John Paul Stevens noted that "in cases like this, in which Congress has not plainly marked our course, we must be circumspect in construing the scope of rights created by a legislative enactment which never contemplated such a calculus of interests." The court viewed home taping as a noncommercial, nonprofit activity that, contrary to studio claims, did not materially affect the market for Hollywood films. "One may search the Copyright Act in vain for any sign that the elected representatives of the millions of people who watch television every day have made it unlawful to copy a program for later viewing at home, or have enacted a flat prohibition against the sale of machines that make such copying possible."²¹

In a sense, the court was simply ratifying a decision that had already been made by popular fiat. The millions of video customers clearly believed that their noncommercial, in-home taping habits (as distinct from the for-profit copying and distribution of tapes by video pirates) were harmless and of little economic consequence to an industry that was posting record revenues. The mass marketing of VCRs, and the public's desire for them, were initiating an irreversible series of changes in society and in the film industry. Home video was an early hub for evolving concepts of "home entertainment centers," integrated audiovisual systems that moved entertainment programming into the home and away from public spaces more profoundly even than television had effected in earlier decades. The VCR revolution changed not only the distribution pattern of films but even how studios and parent corporations thought about what they produced.

On the negative side lay the clear result (for the studios) of their lost eight-year court battle: loss of control over distribution of their product, at least in the home sector, and the erosion of copyright protection for their work. Regarding the latter issue, MCA president Sidney Sheinberg (MCA's Universal had pressed the litigation against Sony) reflected:

With the benefit of hindsight, I think it has been even more harmful than we thought. The harm is not only in the copying of material, which deprives us of subsequent potential revenues—all the arguments that we made in the litigation—but in the continuing degeneration of the concept of copyright. Whether it's people plucking the HBO signal off the air or not paying for taps on cable systems or whatever, it's caused and fed a deteriorating respect for a basic and constitutionally motivated right.²²

The industry's charges of copyright violation, and the litigation itself, masked a huge irony. During the years that Disney and Universal were pursuing the case against Sony and the industry was talking self-righteously about illegal incursions into its business operations by the manufacturers and distributors of video recorders, Hollywood itself went video. During those years it was moving aggressively into the video market that it professed to fear and loathe. The year 1981 was the first full year of operation for MCA Videocassette and for Disney's home video operations. By 1982 Disney had fifty-three titles in its home video catalog. That year it began overseas distribution of home video, marketing twenty-five titles in Western Europe, Australia, and South Africa, with plans to expand foreign markets to Spain, Italy, Latin America, and Asia.²³ In 1982, A Walt Disney Christmas and Disney's American Summer generated home video sales of more than $2 million, and at year's end the release of Tron generated over $1 million in initial orders. MCA Videocasette had placed eighty Universal films into home video release, and MCA jointly owned with Paramount a video distribution arm for foreign markets (the Cinema International Corp.). Paramount had commenced home video operations in 1980 with its division Paramount Home Video. Warner Bros. debuted Warner Home Video in 1979. Completing its first year of operation in 1980, Warner Home Video had forty-one titles in home video release in both Beta and VHS formats. In 1980, Columbia Pictures Home Entertainment completed its first year of operation and released videocassettes of twenty-four titles. In 1981, Columbia embarked on worldwide home video marketing, signing with RCA to form a joint venture, RCA Columbia International Video. The previous year, 1980, also saw completion of a very successful year for 20th Century-Fox's Magnetic Video Corp., which was distributing product for United Artists, ABC Video Enterprises, and Avco Embassy in addition to Fox films. Fox's Alien (1979) reached the million-dollar sales mark forty-five days after its home video release, and All That Jazz (1979) attained this mark in one day.²⁴ MVC released 9 TO 5 (1980) and The Stunt Man (1980) less than two months after their first-run theatrical release was concluded.

Disney, Universal, and the rest of the Hollywood majors commenced an aggressive expansion into home video simultaneous with their lawsuit against Sony. Thus, the industry's rhetoric about VCR tapeworms belied the economic reality that the majors were exploiting the market they professed to decry. Between January 1979 and March 1980, the majors placed 477 titles into video release, an 854 percent increase over the 50 titles that had been available until then. Jack Valenti noted that this shift toward video release reflected a new commitment by the majors to the video market.³¹ Furthermore, Sony's Betamax machines posed competition with the VHS market that Universal and the other majors had entered, and this provided a clear, albeit unacknowledged economic foundation for the lawsuit. Obliquely, the suit was about the competing claims of these two formats. Thus, the industry's rhetoric was not aligned with its business practices. The economic rewards to be derived from successful video sales and distribution drove the majors almost immediately into this market even as they backed legislation designed to curb the freedom of viewers to tape movies. This was a contradiction between the majors' desire for traditional copyright protection and their willingness to embrace the market created by a new technology. While they wanted the market and would get it, the majors would never find a way in the eighties of securing their copyright interests against the onslaught of the new army of electronic tapeworms. Furthermore, the majors confronted another set of problems, legally related to copyright. These lay in the consequences of the first sale doctrine and the challenge of whether video revenue would be better construed as sale or rental income.

Sales Versus Rentals

Copyright law distinguishes between copyright ownership and lawful ownership of a copy of a protected work. The Copyright Act of 1976 gives copyright owners six exclusive rights, which govern the copying, distribution, and performance of protected works. These rights notwithstanding, however, the owner of a legally obtained copy "is entitled, without the authority of the copyright owner, to sell or otherwise dispose of the possession of that copy…."* This provision has come to be known as the first sale doctrine. Of specific consequence to the industry, once a major sold a videotape to a retailer, the retailer was then free to rent the tape for home use and to keep the rental income. The studios had copyright control of their work, but if they sold video copies to retailers (whether chain stores or small mom-and-pop outlets), they failed to receive subsequent royalties from rental of those tapes. Congress extended specific exemptions to this provision for the record industry (the Record Rental Amendment of 1984) and the computer software industry (the Computer Software Rental Amendment Act of 1990) but not for videotapes.

Because of the peculiarities of this doctrine, the burgeoning rental market for videotapes threatened studios with a massive loss of royalty revenue. Across the country in the early 1980s, viewers were happily renting video copies of movies, rental outlets were happily counting their profits, and the majors were glumly watching the growth of a market from whose revenues they were excluded. Had life ever been so unfair for the industry's giants? As the rental market developed, the majors and the nation's retail outlets were in separate businesses. The studios packaged their tapes and sold them to national wholesaler-distributors, typically at discounts of 37 percent. For a title carrying a retail price of $99.95, for example, the studio would receive about $63 per unit. Because the studios sold to wholesaler-distributors, they were not involved in retail store transactions. The wholesaler-distributor then passed approximately 30 percent of its discounted price on to retailers (the $99.95 unit might be priced for retail at $70).²⁶ The distributor would thereby keep about $7 per unit. At the retail end, the hot rental period for major new studio releases lasts about ninety days. If the store can rent each unit of a new title for half of that period (forty-five times) at $3 per night, it will gross $135 per unit, turning a profit of $72. Of course, not all titles rent so successfully, and under the best of conditions, a video store has a rather narrow window of time in which to cover its costs and make a profit from its purchase of new studio pictures.

The studios, therefore, did not do business directly with video retailers, and this tended to intensify the estrangement and antagonism between the two groups that the First Sale problem had triggered. In response to this, the majors supported a legislative effort in Congress to repeal the first sale doctrine, and in 1981 and 1982 they experimented

* Provisions of the first sale doctrine, and litigation involving it, are reviewed by Steve Lauff, "Decompilation of Collective Works: When the First Sale Doctrine is a Mirage," Texas Law Review 76, no. 4 (March 1998): 869-904.

with several policies designed to give them better compensation from the rental market, although they risked considerable hostility from retailers in doing so. As a Warner executive explained, "We can't stand by and watch an ever-expanding universe in which rental revenues we do not participate in get larger and larger and continue to invest millions of dollars in films to fuel this market and not get any of it back."²⁷ Warner announced that it would no longer sell any video titles to retailers but would license them instead for a limited period of time. Retailers would pay a license fee, but because the tapes were not sold, Warner would retain ownership and would receive royalties. Twentieth Century-Fox and MGM announced similar policies.

Alternatively, Paramount, MCA, and Universal announced surcharge policies under which they would add a fixed amount to the base price of a cassette sold to retailers. The surcharge was intended to provide some royalty compensation for the rental revenues the studios would never see past the point of sale. Paramount's surcharge ranged from one to twenty-five dollars depending on the film's box-office performance. The disadvantage of this approach, and the reason that prompted Warners to go with a licensing policy, lay in its tendency to drive tape prices up to a level that affected retailers' abilities to achieve sufficient depth of copy, that is, stock enough copies of a popular title to meet customer demand. The higher the pricing per tape, the greater a retailer's capital outlay. Retailers facing this problem would respond by stocking fewer copies. Understandably, retailers were not happy with this policy, nor did they like the licensing approach. The objections of retailers, in fact, forced Warner to back off from its no-sell policy.

The efforts by the majors in 1981 and 1982 to increase income from the rental market by means of licensing and surcharge policies created a crisis for the infant home video industry because suppliers and retailers had assumed antagonistic positions. As far as the majors were concerned, the nation's video rental shops were in a different business altogether from their own, and the First Sale Doctrine helped to perpetuate this perception by severing video rental revenues from the other revenue streams the majors were accustomed to enjoying. Accordingly, the majors turned their attentions to another and potentially more profitable means of exploiting video. Viewing video rentals as an unwelcome intrusion upon their rightful business ventures, the majors went after the other video market: the "sell-through" market, that is, direct sales of video titles to customers.

The majors, though, were slow to perceive the viability of this market. Intent on recovering as much revenue from video as they could, they priced video titles far higher than most customers would support. Prices hovered around $80-90 per tape until Paramount, early in 1982, cut the nominal price of Star Trek II (1982) from $79.95 to $39.95 in an effort to encourage higher sales. The price reduction was enormously successful, generating sales of over 100,000 tapes. This was a home video sales record, and it demonstrated that the sell-through market to consumers existed, provided tapes were reasonably priced. The following year, Paramount cut its price for An Officer and a Gentleman (1982) to $3995, and Embassy, following Paramount's lead, reduced blade runner (1982) to $39.95. RCA/Columbia lowered tape prices even further with a $25 tag on its summer video release of He-Man and the Masters of the Universe. In July, Paramount moved more aggressively still, and antagonized exhibitors, by releasing the popular Flashdance (1983) on video a mere six months after its theatrical release. In eight months, Paramount sold 250,000 copies. In November 1983, Paramount's Raiders of the Lost Ark (1981) set new records by posting initial unit sales of 500,000, carrying a retail gross of $30 million.²⁸ Unit sales reached 1.4 million by 1987.

At this point it was clear, largely through Paramount's series of bold price reductions, that consumers would pay to own inexpensive copies of favorite movies and that video could work for the studios, despite the unresolved problems associated with the rental end of the business. But it was not yet apparent just how big the video gold mine could be. Paramount, again, showed the industry the revenue potential of home video sales. TOP GUN, the number one box-office film of 1986, generated stunning video revenues. Within one week of its 1987 video release as a $26.95 cassette, Paramount sold 2.5 million cassettes, garnering wholesale revenues of more than $40 million, nearly half of the film's $82 million domestic theatrical rentals.²⁹

Several factors were notable about these sales figures. For the first time, participation by video stores (rather than mass merchants) accounted for the majority of sales. Paramount found that most of its sales occurred in video rental stores, which the industry had been regarding as hopelessly lost sources of revenue. Rental outlets were participating in a sell-through program for the studios, signaling a rapprochement between these retailers and the majors after the contentious relations that prevailed earlier in the decade when the majors attempted their surcharge and licensing policies.

Second, Top Gun was the first blockbuster film in video release to carry commercial sponsorship. The tape began with an ad for Diet Pepsi that was a stylistic and thematic twin of the film. The ad shows a group of jet pilots returning to base after maneuvers. It is edited with quick, aggressive cutting and employs a rock music sound track like the film's. In the ad, "Mustang," (a thematic call-sign name, like the film's Navy pilot characters who are known as "Viper," "Iceman," and "Jester") has difficulty pouring his bottle of Diet Pepsi while flying, prompting one of the other pilots to ask, "Trouble with your refreshment system?" Mustang loops around, executing the kind of flashy stunts Maverick (Tom Cruise) does in the film, flying upside down, enabling the bottles contents to flow into his mug. Satisfied at last, Mustang and the other pilots streak home.

The ad achieves perfect synergy with the film, its style and thematic content blending seamlessly with the film's imagery and the cold war issues that fuel its narrative. In the ad, the paraphernalia of aerial combat as dramatized throughout the film—the high-tech aerial guidance and surveillance systems, the evasive maneuvering and macho bantering of the pilots—is deployed to open a bottle of Pepsi, and Pepsi, in turn, becomes a "refreshment system" in the automated cockpit of the plane. In its content and style, the ad is virtually indistinguishable from the film, creating a symbiosis of the two products (Pepsi and Top Gun). It was a remarkably shrewd maneuver. No one yet knew how well audiences would tolerate advertisements on their home videos (they didn't like them in theaters), and by blending ad and film so skillfully, Paramount and Pepsi were able to ease viewers into an acceptance of this new marriage between home video and product advertising. The Top Gun-Diet Pepsi campaign was but one of many striking new synergies prevailing between merchants in the ancillary markets, and I discuss these relationships more fully later in the chapter.

The spectacular success of Top Gun on video was overshadowed the following year by the long-awaited video release of E.T., which had been the top box-office film of 1982. MCA/Universal released the film as a $24.95 video that carried a $5 rebate offer from Pepsi. This price was a new low for a blockbuster release. MCA could barely keep the film stocked in video stores and other outlets. By year's end, MCA had sold over 15 million tapes and garnered over $175 million in revenue. As Top Gun and E.T. demonstrated, the video gold mine for the majors lay in sell-through, not rental. Because of the First Sale problem, the majors were locked out of the billion-dollar rental market.

However, while sell-through would be a gold mine for the majors, they kept trying to find ways to divert rental revenues to their own coffers. In 1988 and 1989, for example, the majors considered implementing pay-per-transaction policies under which retailers could lease tapes at rates greatly below what they would have to pay to purchase them. In return, retailers would split the rental revenue with the supplier. The low cost of leasing would enable retailers to stock more copies of a hit title during periods of peak demand. By decade's end, pay-per-transaction had not been implemented by the majors, but its consideration shows their continuing restlessness and their dissatisfaction with the rental market. (The ambitious Divx digital video plan, marketed by Circuit City, Disney, Universal, and Paramount in 1998, showed that the industry had never relinquished its dream of a successful pay-per-transaction scheme.)

Other signs of this dissatisfaction in the later 1980s could be found in sometimes hilarious attempts to market technological solutions to the dilemma. Simpleton Resources Ltd. licensed a counter system to monitor how often a videotape had been played. It would have worked as a means of auditing the pay-per-view transactions the majors would split with retailers. (The Divx plan required viewers to dial in via modem to a central data bank with their viewing request and payment.) Rank Video Services developed a self-destructing videocassette (poof! after x number of plays) that could set an upper limit on the rental income per title lost to studios. (Divx discs would be unplayable for repeat viewings, and viewers could discard them after one viewing.) But such approaches threatened a return to the supplier-retailer opposition of the early 1980s, and with the sell-through revenue bonanzas the studios were reaping by mid-decade, some of their earlier urgency and anxiety had dissipated.

By decade's end, in its sell-through capacity, home video had emerged as the most important of the ancillary markets. Pay-cable revenues were a major source of income, but home video was bigger. Wall Street's Shearson Lehman calculated Paramount s 1986 theatrical and ancillary revenues, and its analysis breaks out the proportion from each category, something rarely disclosed in the majors' financial reports. As calculated (chart 3.4) by Shearson Lehman, Paramount received $320 million from domestic theatrical rentals, $207 million from home video, $120 million from pay cable, $120 million from overseas theatrical rentals, and $96 million from network TV.³⁰ In 1988, MCA's combined revenues (chart 3.5) from home video and pay television ($531 million) easily outpaced film revenues from theatrical exhibition ($249 million).³¹ As we have seen, the majors initially believed that pay-per-view on cable television would bring them their biggest pot of ancillary gold, but by decade's end, this cable format failed to reach its anticipated maturity. In the meantime, licensing films for pay-cable presentation proved to be very lucrative, thank you.

Videodiscs

Videodiscs were another story altogether. In 1980—81, Warner, Paramount, Fox, Columbia, and MCA initiated videotape and disc operations. Disc and tape were seen

as joint components of the expanding home entertainment markets, and the majors commenced operations in both areas. Capable of producing better image quality than videotape, discs were introduced as a higher-end alternative to tape for the home market. Best of all from the standpoint of a copyright owner, videodiscs were a read-only medium (ROM, i.e., one could not record on a disc). Discs would therefore permit the studios to maintain better control over their product in the home markets, provided Universal won its lawsuit against Sony. In tracing the history of optical disc technology, David Robert Cellitti stresses the role played by MCA, in somewhat tense partnership with Phillips NV, in researching and pushing the format to market. MCA's involvement began in the 1960s, and MCA head Lew Wasserman believed that optical discs would the "jewel in the crown" of the company, permitting it to reap huge revenues from its library of films by licensing them for this format. Furthermore, Cellitti stresses that Wasserman felt it imperative to get the disc format to market before videotape could get a foothold. MCA's suit against Sony was, in this respect, about the competing formats. "MCA saw videotape as foe, not friend, to DiscoVision. It viewed the Betamax as a multifaceted monster that would gobble up copyrighted programming and cheat producers out of the millions coming to them in royalty fees."³²

By contrast with MCA's view, however, consumers judged discs' ROM status to be a distinct drawback. The great advantage of tape for consumers was its recordability. A consumer who bought a VCR could play movies and record them, while a consumer who bought a laserdisc player could only watch the discs. Compounding this disadvantage and hindering market acceptance was the competition between competing disc formats. In 1978, MCA debuted DiscoVision, its laser reflective optical system, which employed a laser beam to read information stored on the disc as a series of micropits and to translate this information into an NTSC television signal. Manufacturers and sellers of laser optical systems included MCA's DiscoVision, Magnavox, Phillips NV, Pioneer, and Sony. The laser optical system came in two formats. CLV (constant linear velocity) discs could hold up to one hour of programming per side but offered no interactive features. CAV (constant angular velocity) discs could hold only thirty minutes of material per side, but they offered freeze-frame, slow motion, and direct random frame access functions. These permitted viewers to break the linearity that celluloid film and videotape enforced upon a spectator's viewing habits. With a CAV disk, a viewer could instantly access any desired segment of a film and could resequence the viewing of multiple segments. CAV disks offered viewers new capabilities for reorganizing their viewing experience and the narrative structure of a film.

In 1982, RCA introduced a competing system, the capacitance electronic disc (which it called SelectaVision). This was a needle-groove system in which an electrode on a diamond stylus read signals from grooves on the disc surface. With its stylus and grooved discs, SelectaVision was reminiscent of phonograph records and thus seemed to consumers more like a carryover of an older technology than an exciting new one (and this at a time when audio CDs were challenging the primacy of grooved, vinyl audio discs). RCA had invested close to $600 million in its SelectaVision system, a huge financial gamble. Unfortunately for RCA, even though it had licensed films from most of the Hollywood majors for release on this format, the system failed to gain an adequate customer base, and in 1984 RCA phased out SelectaVision. RCA's president, Thornton Bradshaw, cited "the enormous growth in VCRs, and the rapid development of a rental market for tapes" as the core factors behind the failure of SelectaVision. He added, "Selectivision was a technological success but a commercial failure."³³

Optical reflectance disk systems remained on the market, but sales stayed low in comparison to videotape (chart 3.6). Faced with a market that failed to mature and with consumers' undeniable preference for the VCR, MCA abandoned its crown jewel. In the 1980s, it sold the patents and production plant to Japan's Pioneer Corp. It would be an error, however, to assume that the laserdisc market was simply a failure. It succeeded as a niche market by offering a specialty item to a limited but devoted segment of consumers. In comparison to tape, laserdiscs typically carried special features such as a film's theatrical trailer, outtakes, and commentary by filmmakers and film scholars. The image was sharper than tape and generally less noisy. Moreover, the video image on discs was frequently matted to preserve the film's proper aspect ratio, whereas viewers who saw films on videotape almost always saw them out of ratio (a matter discussed later in this chapter). Laserdiscs, therefore, became the medium of choice for videophiles and for serious film fans who cared about things like proper aspect ratio and good image quality. They retained this appeal and customer base through the remainder of the 1980s and well into the 1990s, at least until the advent in 1997 of DVD (digital

videodiscs), which offered the highest-quality home video yet marketed. Although laserdiscs never generated a viable threat to home videotape and never gained wide-spread customer acceptance, they nevertheless remained alive as a market niche whose customers were tenaciously devoted to the format.

As a sign of its importance to the industry, home video claimed the second tier on the release hierarchy, right after theatrical exhibition. Home video had transformed the industry's expectations about the sources of its film revenues and had greatly amplified expectations about the overall size of those revenues. In these ways, it had a tremendous impact on the business. But the effects of home video were multifaceted, and an understanding of the economic and business ramifications is only the beginning.

Effects of Video on Film Production, Exhibition, and Consumption

Video's effects on distribution, as discussed earlier in this chapter, are easily recognized because of the widespread availability of videotape copies of movies and the popularity of home viewing; by the mid-1980s, many viewers would elect to "wait for it on video" rather than paying the higher prices charged for a theatrical screening. But the alterations in production practices due to video were just as momentous, and it will be useful to consider these first before turning to a discussion of the aesthetic impact of home video. Although film and video people historically have been separate and suspicious of one another—"it's like two competing tribes," said the head of a video production house in 1981—a series of factors was converging to give video an increasing presence and role during the production and post-production phases of filmmaking.³⁴ In production, video assists diverted some of the light from the camera's viewfinder to a video monitor that enabled the director and other relevant crew members to view the real-time picture as the camera "saw" it. They could also instantly replay the scene on videotape. This gave filmmakers quicker access to a visual record of their scenes than provided by the usual procedure of waiting to screen lab dailies (footage printed from each day's shoot). Stanley Kubrick used a video assist on The Shining (1980), and Francis Coppola employed it extensively on his late-seventies and early-eighties productions. Because the video assist used a prism to divert some of the light from the camera's viewfinder, however, it produced a somewhat degraded video image. The loss of clarity, color, and contrast on the video assist required that the cinematographer understand the precise disparity between the light values of the scene, how the camera was reading those values, and what the video assist was reporting about how the camera was reading the scene.³⁵

The video assist also presented another problem: its use could slow a day's shooting as cast and crew members gathered about the monitor to watch the replay of their scenes. Clint Eastwood found that the presence of the assist seemed to invite actors to pass judgment on how a scene went or looked. "Everyone would have an opinion, but an opinion based on what they were supposed to do in the shot. They were only looking at themselves or their responsibility and it starts to become a decision by collective. There only needs to be one perspective and that's the director's.…So for me it's much more efficient to do without the assist."³⁶ Charles Harpole witnessed Robert Altman's use of a video assist on Streamers (1983) and has reported that Altman found it a mixed blessing. It slowed production as everyone gathered to watch video playback. "Further, he [Altman] was not sure he wanted actors to see themselves so soon after doing a scene and before they had shot all takes of the scene (perhaps diffusing their spontaneity). But Altman said he personally liked a small, live-feed monitor for himself because it was 'just like looking through the camera lens.'"³⁷

Video also exerted a large influence on post-production (i.e., those stages of moviemaking that follow shooting). Typically, these stages include the editing of picture and sound as well as the recording of a music track and effects, the re-recording of dialogue, and the mixing of all of a film's sound elements. Video was an increasingly viable option for companies seeking to hold down post-production costs. Companies found that they could save money with the efficiencies of time offered by off-line video editing and electronic video effects. On Star Trek—The Motion Picture (1979), The Nude Bomb (1980), and In God We Tru$t 35-mm footage was transferred to video-tape for the creation of electronic effects. In mid-1981, American Cinematographer headlined what it called "the emerging new film/video interface" in the industry.³⁸ While this interface was occurring in a multitude of ways, the most visible and provocative initial applications of video practices to feature film production were conducted by director Francis Ford Coppola on his ill-fated One from the Heart (1982).

Although Coppola had experimented with video editing on Apocalypse Now (1979), during production of One from the Heart he expanded the uses of video as a production tool. He hoped it would be a visionary application of new technology that would show the industry the road down which it might travel toward an all-electronic cinema.³⁹ Coppola used video and still photography to pre-visualize the picture using an electronic storyboard, that is, a videotape of sketches and photos of the planned production design. He supplemented this with videotape records of the cast's rehearsals, and during filming he used a video assist that fed an electronic signal to Coppola's "command center." This was a mobile trailer from which Coppola directed his movie, watching the video signal on the monitor and issuing instructions to his cast and crew by means of a PA system. In post-production, the film was edited in a traditional manner (on celluloid) and by Coppola on Betamax cassettes. Coppola explored editing changes and alternatives on video as a cost-saving measure, and the film was then conformed with his alterations.

Coppola continued many of these procedures on his next production, The Outsiders (1983), but the box-office failure of One from the Heart broke his power in the industry and made him into a journeyman director for the remainder of the decade. Furthermore, the evident failings of One from the Heart—its aloof tone, underdeveloped characters, and narrative insufficiencies—invited widespread criticism of Coppola's attempt to use electronic technologies to direct a picture by "remote control." He nevertheless continued to use video editing systems on his subsequent films. While he had been employing linear editing systems on One from the Heart and his next pictures, with The Godfather, Part III (1990), Coppola used a random-access, computer-based video system. Throughout the decade, Coppola retained his commitment to interfacing film and video, and he was not alone in shifting to video for postproduction editing. In the eighties, Oliver Stone, James Cameron, Carroll Ballard, Bernardo Bertolucci, and George Lucas joined him in this shift.⁴⁰

While Coppola's flamboyant experiments garnered the media's attention, the industry was quietly and steadily changing on its own. Transferring footage to videotape, editing on tape, and then conforming the film negative to the edited tape saved time and money, and a variety of video-based editing systems were on the market for film-makers in the early 1980s.⁴¹ Linear systems like the CMX 600 had been around since the 1970s but had not found much acceptance among filmmakers. With a linear system, the editor makes edits in a chronological fashion, one at a time, one shot after another in sequence. The editor accesses material by searching through preceding footage and frames until the desired segment is reached. Random access systems, like the CMX 6000 or the Spectra Image/Laser Edit System, enabled filmmakers to locate edit points without having to search in a linear way forward or backward through their material. Lucasfilm's EditDroid, for example, on line at mid-decade, used a computer interface to access video footage stored on laserdiscs. Computer-assisted editing systems facilitated recordkeeping, storing a database that contained information about footage locations, edge code numbers, and shot descriptions. The computer's automated search function enabled the editor to use this information to find desired footage rapidly. Random access systems also offered efficiencies of time and post-production dollars because they facilitated the quick execution of multiple editing commands. In the 1990s digital video-based editing systems would become the industry standard.

But recourse to video-based editing systems, whether linear or random access, posed problems. These were inherent in the different frame rates of the two media. While film ran at twenty-four frames per second, video operated at thirty frames per second, with each frame composed of two fields. Thus film and video frames did not correspond to one another, and the general method of making film-to-tape transfers lay in converting each successive film frame to, alternately, two, and then three, video fields (the "2-3 pulldown"). Some of the resulting video frames would therefore consist of two fields, each representing an adjacent film frame. The problem in moving to video for an edit of film material and then converting back to film lay in being able to make the complex calculations of the frame and field locations of each edit point necessary to keep the two formats in synch with one another. By 1982, however, several companies were marketing devices to address this problem. These included video that operated at twenty-four frames per second and computer programs that could correlate SMPTE (Standardized by the Society of Motion Picture and Television Engineers, time code facilitates video editing by recording information about hours, minutes, seconds, and frames) with film key and edge numbers. By mid-decade, Eastman Kodak offered film coated with a thin layer of magnetic oxide that enabled the recording of machine-readable SMPTE time code and facilitated the automation of many film-handling operations that had been connected with the film-to-tape transfers.⁴² The frame rate problem remained a persistent one, though, bedeviling even the digital editing systems (Avid, Lightworks) that succeeded the computer-assisted video systems. Digital systems operated at a film speed of twenty-four frames per second, but films were often converted first to videotape (using a 2-3 pulldown) and then digitized from tape, thereby introducing a small loss of synch between the source film and its digital counterpart, greatly complicating the editing of sound.

Whether editing was done on film or tape, by mid-decade computer assistance was becoming invaluable. The assistant editor on The Right Stuff (1983), for example, used a computer program to keep track of the picture's 2,750 edits and its quarter million feet of footage.⁴³ By the latter half of the decade, the industry was increasingly look ing toward nonlinear editing methods.⁴⁴ Computer-based systems offered a powerful solution to the enduring problem of minimizing expensive post-production time, and these systems may also have played a role in helping establish the ferociously fast-paced tempos of American film in the nineties. The computer-based systems ranged from those that used the computer as an interface to facilitate editing on a nondigital video source (e.g., the Montage Processor) to those which stored footage digitally on disk (e.g., Avid, Lightworks).

A major problem involved the low resolution of the monitors on electronic editing systems. Because details did not show up well in long shots, the systems threatened to bias editors toward the use of shots with closer framings, an aesthetic shift that may or may not have been suited to the demands of a particular film. In the same way, the use of a video assist during cinematography threatened to substitute low-resolution video aesthetics for film's complex and sophisticated resolving powers.

Furthermore, as editor Walter Murch pointed out, an editor using a traditional Moviola or Kem (that is, editing on film) may actually come to know the footage better than one who has quicker access to it electronically. The random access features force an editor to rely on his or her notes: "The clearer you are about what you want, the faster they are." But the real issue, Murch suggests, is not how fast one can go but where one wants to go. As the edited structure of a sequence changes, the creative needs of the editor change as well, and the downside of random access systems is that much footage, labeled unusable, will remain unexamined because the notes have excluded it. By contrast, a traditional linear system forces the editor to scan a wealth of material in search of what is wanted. "Frequently—invariably in my experience—you find what you need instead: some shot that captures a moment better than the one you were after, but which you could not have described in advance of seeing it. You also get to know the material better, because you are constantly browsing through it, looking for different things, in different states of mind."⁴⁵ Accordingly, Murch recommended that a degree of linearity be built into digital editing systems.

In addition to the speed at which a feature could be edited, electronic editing facilitated the integration of electronic special effects, and these acquired a huge presence in nineties filmmaking. Effects once created on an optical printer would be created in the 1990s more convincingly through digital compositing. Though it took off in the nineties, the digital effects revolution began to appear (slowly) in the 1980s as increasingly complex programs became available for rendering light, texture, and motion on computer. Sixty seconds of sensational computer graphics in Star Trek II—The Wrath of Khan (1982), simulating a planet's transformation from lifeless rock to a lush, verdant world, generated tremendous interest throughout the industry. But the initial applications of digital effects produced disappointing box-office results. Tron (1982) and The Last Starfighter (1984) were greeted with a lukewarm public response. It was not until the next decade that digital effects work became an essential part of electronic post-production and a gold-mine for the industry in films like Terminator 2 (1991), Jurassic Park (1993), and Forrest Gump (1994).

By decade's end, then, post-production practices were undergoing major redesign. The traditional approaches to film editing vested in the physical acts of cutting, splicing, and searching through trim bins had given way to the "cleaner" and more powerful use of electronic and then digital technology to offer quicker and more flexible approaches. Editing and special effects work bonded intimately as related parts of a unified phase of electronic post-production. Thus, though it was not the ultimate beneficiary of these changes (digital would be the heir), videotape and videodisc helped spearhead the industry's electronic transformation of post-production.

Additional Effects on Production

Reinforcing Blockbuster Filmmaking

The rise of the home video market reinforced existing economic imperatives in the industry, namely, the emphasis on blockbuster production. Each year, one or more films generated extraordinary box-office rentals and helped give their major distributor a commanding share of the theatrical market. This market was hit-driven, and each major aimed to distribute a top-renting blockbuster every few years. Paramount was the most successful such major during the 1980s. It had three number one films during the decade, more than any other studio. Columbia's slide during David Puttnam's tenure as CEO was tied to his failure to initiate any productions that had blockbuster potential and to his neglect of existing blockbuster franchises (e.g., his unwillingness to produce sequels to Ghostbusters, Jagged Edge, and The Karate Kid). Home video reinforced the emphasis on hits and blockbusters because of the substantial revenue this ancillary market could produce and because home video customers tended to rent and buy the same films that were hits in theatrical release. The top-renting videos of 1989, for example, included such prominent theatrical hits as Die Hard, Rain Man, Coming to America, Big, Batman, Ghostbusters II.⁴⁶ The video-retailing industry offered special awards to recognize and honor the most popular rental and sales titles, and, no surprise, these were also the big theatrical hits. The American Video Association named Top Gun video of the decade, and its choice of top videos by category for 1989 included BIG (best comedy), Rain Man (best drama), Die Hard action-adventure) and Who Framed Roger Rabbit (best family-children's). In 1990, the Video Software Dealers Association named Arnold Schwarzenegger video star of the year and cited Honey, I Shrunk the Kids as best family film, Lethal Weapon II as best action-adventure, and Look Who's Talking as best comedy. All were major box-office hits.⁴⁷

While the thousands of titles available on video might promise to create more friends of old films among viewers, in practice this rarely occurred outside of specialty stores in major urban areas. The typical video shop emphasized new releases. The most depth of copy is found there, with a smattering of older titles elsewhere in the store. "Old", though, is a relative term. An old film on the video market might include (as I write this) the first Die Hard film (1988), while any title twenty years or older qualifies for the "classics" section, the most moribund category in a video store. While home video, then, has kept more titles in active distribution from different periods in film history than ever before, the predominant trend has been a replication of the existing hit categories of the theatrical market and, because of this spillover, a consequent intensification of the need to be successful in that market.

Stimulus for Independent Filmmaking

At the same time, however, home video exerted another, and somewhat countervailing, influence on production. Because of the sheer voraciousness of the public's appetite for movies, the need for product in this ancillary market helped produce a boom in the production and distribution of independent film. Downstream distribution outlets (the ancillaries) affected production and distribution upstream. The president of Fine Line Features and cofounder of Cinecom, important independents, pointed to the role of home video in creating opportunities for independent filmmakers:

Perhaps the biggest boon that has ever occurred in the independent sector was the explosion of home video in the early eighties. It was a voracious market for anything with sprocket holes, and even the major studios couldn't provide enough product to satisfy the demand. All of a sudden there was enormous capital available to independent theatrical distributors as advances against the home video rights. Not only was all this money being used to acquire films, it also fueled the entrance of many independents into production.⁴⁸

Releases by the majors were insufficient to meet demand, despite their willingness to pick up independent productions for distribution. From 1983 to 1987 independent productions distributed by the majors remained relatively constant, fluctuating between 49 and 64 pictures per year (see chart 3.7). By contrast, pictures distributed independently of the majors rose from 125 in 1983 to 242 in 1986 and 203 in 1987.⁴⁹ This constituted a major expansion of opportunities for independent filmmakers, and the eighties proved to be an important decade for such filmmaking. A host of independent distributors provided these filmmakers with access to markets and promoted their work. Among the most important of these distributors were Cinecom, Island, Miramax, New Line, Vestron, New World, Hemdale, and FilmDallas. Even the majors had distributor subsidiaries handling alternative films (e.g., Fox Classics, Orion Classics).

As a result of this bubble of opportunity, a wide array of significant directors and films became an enduring part of eighties film culture, offering alternative styles and visions to the more traditional product handled by the majors. Jim Jarmusch's minimalist Stranger than Paradise (1984, dist. Goldwyn) exerted tremendous influence and inspiration for aspiring independent filmmakers. The Coen brothers' Blood Simple (1984, Circle Releasing) announced their audacious new talents and penchant for stylistic unpredictability. John Sayles's The Brother from Another Planet (1984,

Cinecom), and Alan Rudolph's Choose Me (1984, Island) were among the most engaging of the decade's independent pictures. Important new talents with original pictures included Wayne Wang (Dim Sum, 1984, Orion Classics), Joyce Chopra (Smooth Talk, 1986, Spectrafilm), Gus Van Sant (Mala Noche, 1986, self/Frameline), Spike Lee (She's Gotta Have It, 1986, Island), David Byrne (True Stories, Warners), Robert Townsend (Hollywood Shuffle, 1987, Goldwyn), Tim Hunter (River's Edge, 1987, Island), Abel Ferrara (China Girl, Vestron), David Burton Morris (Patti Rocks, 1988, FilmDallas), Fran Kuzui (Tokyo Pop, Spectrafilm), Kenneth Bowser (In a Shallow Grave, 1988, Skouras), Gary Sinise (Miles from Home, 1988, Cinecom), Bob Balaban (Parents, 1989, Vestron), Michael Lehman (Heathers, 1989, New World), Patrick Duncan (84 Charlie Mopic, New Century Vista), Steven Soderbergh (Sex, Lies, and Videotape, 1989, Miramax), and Nanacy Savoca (True Love, 1989, MGM). In addition, established directors found that the independent circuit enabled them to continue working steadily or found that independent distribution enabled them to realize a special kind of picture the majors would not touch. These filmmakers included Henry Jaglom (Always, 1986, Goldwyn; Someone to Love, 1988, Castle Hill), John Sayles, Alan Rudolph, Paul Newman (The Glass Menagerie, 1987, Cineplex), and John Huston (The Dead, Vestron).

The ancillary markets provided a historic economic boost for this filmmaking wave. Distributors were able to acquire lines of credit against ancillary revenues, and this influx of capital helped bring a variety of new distribution firms, and new investors, into the business. Sam Grogg, a managing partner of FilmDallas, one of the most innovative of the new distributors, stressed that the ancillaries created new investment opportunities for venture capital and thereby permitted the growth of alternate centers of production and distribution, like the one his firm serviced around Dallas, Texas:

The newly developing production centers acted as beacons during the 1980s to draw entrepreneurs from across the country to consider involvement in the upswing of the booming film industry—cable had matured, new superchannels were leading new markets for movie sales, videocassette rentals were growing at phenomenal rates and the international market was on the rebound. This was new information to attract new investors, and soon the motion picture industry became a viable, albeit minor, facet of the standard investment portfolio.⁵⁰

During its three and one-half years of operation, FilmDallas raised over $20 million for its film production, acquisition and distribution operations.⁵¹ The firm innovated by offering a mutual fund-type structure for investors, who could purchase limited-partnership units ($50,000 per unit). Under this arrangement, investors did not have to make the choice to back a specific film (a dicey decision that many did not wish to make or feel qualified to make). Instead, their funds were administered by a money manager who evaluated production and distribution opportunities and allocated capital among these opportunities according to three criteria. The fund restricted its investments in any one film project to $500,000, and the projects carried a budget ceiling of $2 million. FilmDallas thereby limited its investments to 25-50 percent of a film's budget, enough to ensure a corporate voice in shaping production while being protected by sharing the risk with other investment firms. Furthermore, FilmDallas limited half of its investments to films produced near Dallas, a policy pleasing to local investors.

Most canny of all, FilmDallas weighted revenue returns to favor investors, who received 99 percent of the returns until they had recovered their investment, with a 50-50 split thereafter. The intent here was to instill investor confidence in the decisions of the production fund managers. Following these principles, FilmDallas backed three of the decade's most prestigious and endearing independent films. Alan Rudolph's Choose Me (1984) carried a $500,000 FilmDallas investment in equity and distribution. For $500,000 FilmDallas acquired North American distribution rights to Hector Babenco's Kiss of the Spider Woman (1985), starring William Hurt and Raul Julia. FilmDallas invested a similar amount in the production and distribution of The Trip to Bountiful (1985), which earned Geraldine Page a best actress Oscar for her poignant portrait of an aging woman who wants a last look at her childhood home. While FilmDallas saw only a 60 percent return on investment from Choose Me, the other two productions generated a 175-200 percent return on investment.

Typical of the life span of many independent distributors, FilmDallas operated for only a few years, but its innovative strategies for creating investment opportunities point to the energies unleashed in the industry by the explosion of ancillary markets and the demand for product that they established. By decades end, FilmDallas was gone, and Cinecom, New World, Alive, and Vestron had folded or were in decline. The market forces that they confronted were harsh. Independent films at best were small moneymakers. They lacked the production budgets and stars that were strong predictors of success in theatrical and ancillary markets, and the industry was consolidating to give the majors more control over exhibition and ancillary distribution. Furthermore, independent distribution was subject to the same vagaries that plagued the majors' product. Many pictures died in the pipeline and never received a theatrical release. In 1986 and 1987, 382 independent films failed to receive distribution. Approximately 25 percent of these unreleased titles went directly to video.⁵² For such films, lacking stars and glitzy production values, video could be an instant graveyard.

Furthermore, while the home video market helped create opportunities for independent film, the independent market was just as hit-driven as the market for the majors' products. In 1987, Hollywood Shuffle and River's Edge accounted for more than 40 percent of rentals among the eighty-two pictures with budgets under $2 million. Hellraiser and Witchboard generated more than 40 percent of rentals among the sixty pictures with budgets of $2-4 million. and Dirty Dancing Nightmare on Elm Street 3 produced 50 percent of the rentals among the forty-three pictures with budgets of $4-6 million. None of the remaining twenty titles with budgets over $6 million fared well at the box office.⁵³

Independent distribution was a precarious undertaking, with no promise of big revenues, and the executives who ran these firms were often driven by their sheer love of moviemaking and the excitement they felt in helping a Return of the Secaucus Seven (1980) or a She's Gotta Have It (1986) find a niche audience. Thus, while home video offered an important outlet and stimulus for independent production, the independents were constrained by the same market dynamics that had traditionally operated to marginalize their product relative to that handled by the majors. By the middle of the decade, the odds that an independent filmmaker could get funding and some distribution for a picture were much better than they had ever been, but overall market share remained extremely small, and many of these productions were forced to assume the second-string status of a direct-to-video release.

Stimulus for adult (pornographic) filmmaking

The home video revolution boosted film production in yet another area. The adult film industry enjoyed a decade-long, striking expansion in the production and distribution of sex films. Because of home video, porn films moved out of dingy theaters in seedy urban areas and into the living rooms and bedrooms of private homes nationwide. This shift and spread of adult filmmaking alarmed social watchdog groups and helped trigger a series of hotly contested battles between the industry and various citizen groups allied with federal and state prosecutors. I examine these battles and controversies in chapter 8. At this point, it is sufficient to note the extraordinary impact that the video revolution had on adult filmmaking and thereby on the culture at large. Home video gave adult films the cultural prominence and visibility they had never possessed in previous decades (especially prior to the 1970s, when they came aboveground on the theatrical exhibition circuit in the form of Deep Throat, The Devil in Miss Jones, and Behind the Green Door). In the early 1980s, the production of pornographic feature films shifted from film and theatrical exhibition to videotape, with a resulting decrease in production costs.

As a result of this shift, adult video releases skyrocketed in the first half of the decade, climbing from four hundred titles in 1983 to sixteen hundred in 1985 before falling back to around thirteen hundred per year for the rest of the decade (chart 3.8). Revenues from tape sales (chart 3.9) expanded from $225 million in 1983 to $425 million in 1986.⁵⁴ Adult filmmaking had become a major economic force in the American film trade, and the adult industry modeled itself on Hollywood, promoting its films with name directors and celebrity stars and holding an annual awards ceremony, like the Oscars, to recognize the industry's best pictures and talents. Admittedly, it was a microcosmic community, but within its boundaries, like that of Hollywood, filmmaking and distribution were name-driven. Prominent directors included Henri Pachard, Paul Vatelli, Fred J. Lincoln, Chuck Vincent, and Anthony Spinelli. Male stars included Eric Edwards, John Leslie, Richard Pacheco, Tom Byron, Ron Jeremy, Paul Thomas, Jaime Gillis, and Mike Horner. Female stars included Keisha, Annette Haven, Vanessa Del Rio, Ginger Lynn, Seka, Marilyn Chambers, Barbara Dare, Lisa DeLeeuw, and Bridget Monet. (One of the biggest female stars of the eighties was Traci Lords, and her fame quickly turned to scandal when it transpired that she was under legal age when she began making porn films.) These stars attained their (often brief) fame in the video market. Packaging of videotapes called prominent attention to stars and directors, and cheapie compilation tapes were common. These were composed of sex scenes excerpted from the many films in which a popular performer such as Annette Haven, Seka, or Vanessa Del Rio had appeared.

Home video helped kill porn moviehouses throughout the nation, but it offered a much more lucrative venue for production and distribution, and in so doing, it placed porn on the cultural landscape in hitherto unprecedented ways. While some of the nation s biggest video retailers, such as Blockbuster Video, refused to stock adult films, many smaller outlets reserved a back room for the videos or placed them under the counter and made them accessible to patrons consulting a printed list of titles. In this way, adult films achieved a pervasiveness they had not previously enjoyed. Their accessibility

generated staunch opposition among some citizen groups, while it reinforced the conviction of others that their First Amendment rights permitted them to read and view legal material of their own choosing in the privacy of their homes.

While this conflict of outlook was explosive and not amenable to compromise, the adult video industry prospered during the decade and exerted two kinds of major influences on filmmaking outside its purview. It stimulated mainstream filmmakers to adopt more explicit portrayals of sexuality in such pictures as 91/2 Weeks (1986), Wild at Heart (1990), and Henry and June it gave birth to a spinoff subgenre, the so-called R-rated, or unrated, softcore film that is readily available above counter in most video stores (e.g., Mirror Images [1991], Animal Instincts [1992], Secret Games [1992]).⁵⁵

Effects on Viewing and Film Aesthetics

As discussed thus far, the effects of home video reconfigured existing film formats and modes of production. It destroyed 8-mm and Super 8 as amateur formats when families turned to camcorders to preserve memorable moments of family history. Home movies shifted to video, and retailers helped accelerate the changeover by advertising special deals on the conversion of existing 8-mm home movies to videotape. The irony in this was that video is a much poorer archival medium than film. It wears out faster from frequent use, and it has a shorter shelf life than film. While video boosted the production of independent films and adult films, it closed moviehouses across the nation that specialized in art and repertory films. It also crippled the 16-mm nontheatrical market, which had serviced schools and universities, airlines, and television stations. In comparison to 16-mm, video copies of movies were much easier to transport and much less cumbersome to present.

Home video made movies far more accessible to viewers and has greatly affected their viewing habits. These developments may be difficult to appreciate now when so many movies are available in a host of nontheatrical formats and so much viewing occurs in these contexts. Before the advent of video, one either saw movies in current release at local theaters or on broadcast television. Neither outlet, though, offered viewers systematic access to films of different periods, styles, or countries. In the 1980s, by contrast, one needed only to walk into a reasonably well stocked video store to be confronted with a dizzying array of home viewing choices, including a wide range of genres, stars, directors, and classic and foreign films. This abundance gave viewers immediate access to film history, an unprecedented universe of films, and it gave these films greater and more sustained cultural visibility than ever before (even if, in practice, most viewers chose to rent new releases).

This phenomenon had a down side: film became devalued as a consumer item. Before video, when access to individual films was more restricted, the opportunities to see or screen them were more privileged. A chance to see Citizen Kane (1941) or Seven Samurai (1954) or A Star Is Born was special because it was rare, and value was based in scarcity. By contrast, with access to nearly any film on video, one's encounter with an individual title, no matter how fine or special that title, grew more unremarkable. The home video experience meant movies on a small television in a room undesigned for good image or sound. (In the latter 1990s "home theater" systems revolutionized home viewing. Digital video, six-channel sound, and a large, widescreen projection monitor restored "cinema" back into video by producing a high-caliber viewing environment with sound quality superior to that offered in many theaters.) Videotape was a low-grade medium designed for transient viewing. The low-priced, mass-produced vieocassette tended to trivialize the medium because cassettes were so plentiful, so small, and so disposable, and because they were viewed on television sets. In this way, until the advent of home theater systems, video subjected film to the television experience.

Videotape and film were, and are, quite dissimilar. Tape had virtually nothing in common with celluloid, which contains on its surface the actual still images that come to life in the cinema. These images hold traces of the light that was originally in the scene before the cameras. One can hold a strip of film and see these pictures, can reactivate these traces. By contrast, the videocassette itself, as object, is uninteresting. Lightweight, encased in cheap plastic, it contains no pictures, merely a magnetic signal that requires decoding. The excitement that comes from holding the actual film image in one's hands cannot be replicated with video. Film is now more abundant on videotape, but it is not the same medium and does not have the same emotional charge. This is due to the very different aesthetic experiences induced by film and video imagery.

Aesthetic Problems of Film-to-Video Transfers

Because the video and cable markets proved to be so important, the majors quickly moved to upgrade the quality of their video product. Their willingness by mid-decade to permit transfers from invaluable first-generation negative or interpositive materials facilitated a quantum improvement in the sharpness, clarity, and color rendition of video versions of movies, as compared to transfers made in the initial years from release print (positive film) materials. Rank-Cintel color telecines, used to make transfers, featured a capstan drive mechanism that was much gentler on film than a sprocket system could be, and this helped persuade the majors to make first-generation material available.⁵⁶ Ironically, as a result, video taught viewers that films, irrespective of their period, should look good. Murky, scratched 16-mm prints, which used to suffice for films out of theatrical distribution, quickly became unacceptable. This was an undeniable blessing, and it accelerated the cause of film preservation and restoration. Old films became commercially valuable again as programming for the home video market. On the other hand, the "videoization" of film has imposed an alternate set of conditions on the medium.

The process of converting film to video is called a transfer, and it was carried out using a flying spot scanner. Each film frame was scanned by a beam of light, moving one scan line at a time. The quality of the light was affected by the densities of the film frame through which it passed, and the scanner converted these changes into an analog electronic signal that was recorded on videotape. The telecine operator became, in effect, a co-director, co-cinematographer, and co-editor of the film because he or she made a variety of decisions regarding how the celluloid image was to be reformatted for video. The telecine permitted the operator to zoom or cut in to a portion of the film frame and to make adjustments for brightness, contrast, and color levels.⁵⁷ Color film, for example, could handle brightness ratios of 130:1, whereas videotape could manage a ratio of 40:1. This is a sizable disparity, and it was up to the telecine operator to negotiate this difference.

Because film and video handle brightness, contrast, and color so differently, it would be more accurate to call the conversion process a translation. Charles Shiro Tashiro writes, "While film and video share common technical concerns (contrast, color, density, audio frequency response, etc.), their means of addressing those concerns differ. The conscientious film-to-video transfer is designed to accentuate the similarities and minimize the differences, but the differences end up shaping the video text."⁵⁸ Video lacks the resolving power of film and is subject to more distortion (evident in the shimmering that densely textured patterns produce). Its abilities to handle contrast and color are also inferior. Chroma noise is common; highly saturated reds, for example, create noise or bleeding in the video signal, even in a digital video signal. The brightness range of video is also more reduced, in part because the television screen is usually viewed in an illuminated environment, unlike the darkened movie theater. These differences mandated alterations in the film original when it was transferred, or translated, to video.

High-contrast cinematography, with a lot of shadow definition, translated poorly to video because of its reduced contrast range. The transfer engineer would have to flatten the tonal range by boosting midtones and brightening shadows and dark areas. This produced a grayer image but one that looked cleaner and brighter on video. What was acceptable and judged a good look by the video engineer, according to the standards of the video signal, however, often did an injustice to the cinematographer's lighting design and compositional principles. Viewers confronted with transfers in which the dynamic contrast range of a film original was flattened for video might erroneously attribute the blandness of the imagery to the film rather than to its video surrogate.

The videotape transfer of Michael Mann's The Last of the Mohicans (1992), for example, rendered the forest locations a murky blur. The tape could not capture the impressive contrast range or resolution of Dante Spinotti's cinematography. In effect, the film (on video) looked washed out. Writing about the issues involved in making video transfers, Dominic Case points out, "It is common, when faced with difficulties in telecine, to blame the original photography. A typical comment might be that the negative is underexposed; to see into the shadows there must be more density in the negative. But exposing for the shadows is not the answer. … A properly graded print will show more detail in the shadows in the cinema … but on telecine, the shadows become a murky black instead of a murky gray."⁵⁹ Because of video's more restricted contrast range, murky blacks will obliterate detail. They are deemed unacceptable, and the telecine operator must adjust brightness and contrast levels to eliminate them. (Digital video has a better contrast range, and the blacks really look black on high-end digital home theater systems.)

Other problems in going from film to video involve issues of aspect ratio or the different configurations of cinema screen and television screen. These are particularly problematic when some form of widescreen cinematography has been employed in the film original. The transfer engineer may pan-and-scan the film, reproducing only a portion of the original frame and introducing electronic cuts and camera movements that were never in the film. The telecine facilitates this by enabling the operator to select or enlarge portions of the film frame. Pan-and-scan fills the viewers TV screen with a picture, but it destroys the cinematographers compositions by reproducing only part of the widescreen frame. The unitary space of an extended framing is replaced by alternating close-ups joined by electronic edits. The movie thereby is made to serve the video medium. It is converted into television. As Tashiro points out, "It is more important to fill the TV frame than it is to maintain cinematic composition."⁶⁰

Photos 3.12 and 3.13 illustrate the problems inherent in converting widescreen aspect ratios for television. The two images from Martin Scorsese's Raging Bull demonstrate the differences between framing for a theatrical ratio of 1.85:1 and the 4:3 framing used for video and television. A 1.85:1 ratio is produced by masking the top and bottom portions of the image. During production, the cinematographers viewfinder is marked so that the compositions and dramatic action can be reliably contained within the 1.85:1 area. During exhibition, the film is projected as a matted image to produce the widescreen ratio. Note how the 4:3 image of Raging Bull includes additional information at the top and bottom of the image, information blocked by the matte in the 1.85 framing. The resulting 4:3 composition might be judged an acceptable one, and it would necessitate no panning and scanning during telecine conversion. Thus, one justification for shooting 1.85 is that it can protect a film from having to be panned and scanned when being prepped for the home video market. On the other hand, the 4:3 ratio introduces subtle differences into the composition. Note how the space between the brothers (Jake and Joey La Motta) is more pronounced in the 1.85 framing. As the theme of the film is Jake's isolation from family and friends, the 1.85 framing produces a better visual statement of this theme.

The problems of converting between different aspect ratios grow more pronounced when the theatrical ratio is a wider frame, such as 2.35:1. The photos from 10, placed in video release by Warners in 1980, demonstrate these problems. Photos 3.14 and 3.15 show how a 4:3 framing may include both characters on screen, but doing so necessitates a more severe alteration of the composition than in the case of a 1.85:1 framing. The widescreen framing of Dudley Moore and Julie Andrews is quite relaxed, with ample space on either side. The 4:3 framing produces a tight, cramped composition that looks like television. When character positioning is more dispersed across the 2.35:1 frame, as in photo 3.16, the 4:3 conversion can reproduce only a portion of the dramatic action. The two-shot of Dudley Moore and Robert Webber becomes, for video, a closeup of Moore (photo 3.17). If a filmmaker shoots 2.35:1, as the director of 10, Blake Edwards, usually did, it almost always involves a deliberate choice to work in a purely theatrical aspect ratio. Put differently, it means the director is making movies for the "big screen," not the home screen. To get such a film to the home screen requires that it be mutilated by pan-and-scan or that it be letterboxed.

Letterboxing, which masks the top and bottom of the video frame to produce a widescreen ratio in the center, is the alternative to pan-and-scan. Letterboxing was a distinctly unpopular format throughout most of the 1980s, when the huge majority of videotape transfers were done as pan-and-scan. Letterboxing was more commonly used on videodiscs because manufacturers and suppliers conceived of the video market as having two tiers. Videotape appealed to casual viewers who preferred to have their TV screens filled with a picture and were less concerned about composition or arcana like aspect ratio. Videodisc users, supporting a higher-end format, tended to value their ability to see the original film compositions. This was probably always a false dichotomy, and toward the end of the decade letterboxing began appearing in the tape market as a viable format (though still used less widely than pan-and-scan). The advent of big-screen televisions in the 1990s facilitated more widespread use of letterboxing because the matted image did not look so shrunken on a larger screen. Widescreen, 16 × 9 (screen ratio) televisions offer the best pre-HDTV replication of the cinema image.

The trade-off with letterboxing (on normal-sized direct-view televisions, which are what most viewers in the 1980s possessed) is a shrunken picture that sits as a thin band across the center of the TV screen. Thus, this format also subjects cinema to television. "If film is usually considered larger and grander than TV, widescreen film letterboxed in a 1.33 TV frame subjects film to television aesthetics by forcing the film image to become smaller than the TV image. Thus, in the act of privileging film over video, video ends up dominant."⁶¹

This is particularly damaging to films that have an epic scope and sweep. In 1989, the restored Lawrence of Arabia (1962) was released in 70-mm widescreen and subsequently transferred to letterbox video. The 70-mm image engaged the viewer's peripheral vision, intensifying the perception of depth and the experience of three dimensions on screen. Because of its shrunken size, the image appears much flatter on letterboxed video, and all scale is lost.⁶² In the magnificent long-shots of Lawrence crossing the desert by camel, he appears on video as a black speck moving across the TV screen. But at least Lawrence of Arabia was letterboxed, a video format that, for all its flaws, remained preferable to pan-and-scan. Another prominent restoration, 1983's A Star Is

Born, a 1954 picture filmed in Cinemascope, featured newly struck prints with additional footage long believed lost. However, the restoration was promptly unrestored when it was transferred to video as a pan-and-scan. Major characters in Cinemascope two-shots disappeared from the video version. The George Cukor-Judy Garland musical, badly cut for studio release in 1954, had been cut yet again—this time compositionally—even though the video was advertised as the restored, uncut version.

The differences between film and video discussed thus far involve image attributes that were sufficiently subtle that many viewers in the 1980s did not perceive or care about them. One area of video alteration, by contrast, was so explicit that it aroused a ringing chorus of condemnation from members of the film community, politicians, and the public. This was the colorization of black-and-white movies. Following his 1986 purchase of the MGM library, Ted Turner arranged for one hundred of these films to be colorized by Color Systems Technology. Included in the package were such popular favorites as Casablanca (1942) and The Maltese Falcon (1941). At the same time, the Hal Roach Studios began its own program of colorization, adding hues most notoriously to the public-domain and beloved It's a Wonderful Life (1946). While colorized tapes of It's a Wonderful Life sold briskly, the Hollywood community was outraged. Prominent directors, including John Huston, Woody Allen, and Martin Scorsese, testified before Congress that colorizing desecrated the artistry of older films and violated the rights of the artists who worked on those pictures.

As a result of this outcry, in September 1988 Congress passed the National Film Preservation Act, and President Reagan signed legislation creating a National Film Preservation Board with authority to designate twenty-five films per year as national treasures. (The first batch of twenty-five films, selected in 1989, are listed in appendix 4.) Recommendations from industry groups like the Directors Guild, the American Film Institute, and the National Society of Film Critics helped determine the selections. Archival copies of these films were preserved and deposited in the Library of Congress. Colorized versions of existing films (or other alterations of the original for video release) now must carry a disclaimer informing viewers of the changes. For colorization, the proposed disclaimer read, "This is a colorized version of a film originally marketed and distributed to the public in black and white. It has been altered without the participation of the principal director, screenwriter and other creators of the original film." Films altered by editing for television or through the reformatting of their aspect ratios carry similar announcements. The board could not prohibit films from being substantially altered for distribution across the ancillary markets, but at least viewers would be informed about the changes that were made.

The issue of colorization resonated especially strongly, and with some irony, at a time when color films were losing their hues. It seemed perverse for the industry to turn black-and-white films to color while color films turned to mud. During the early and mid-1980s, a crisis of color fading beset the industry and was exacerbated by the value the ancillary markets now placed on older films. The term "fading" actually represents only a part of what happens in the process of color film decay. As dyes fade, their loss affects the apparent intensities of remaining colors, which then appear to deepen. Thus, faded prints typically take on an intensely monochromatic quality, looking very brown, pink, or red.

Galvanized by director Martin Scorsese's 1980 campaign to persuade Kodak to develop film stocks with greater dye stability, filmmakers throughout the industry voiced outrage over the muddy browns and garish pinks that had become the fate of aging color film. Cinematographer Nestor Almendros said, "In ten years, the films I've made I'm sure will have vanished." Jack Tillmany of San Francisco's Gateway Cinema remarked of the existing print of Tony Richardson's Tom Jones (1963) screened by his cinema, "The vivid greens that were so vital to the marvelous photography of the film are now just a memory. The whole damn thing has turned fire engine red. Tom Jones is now romping across a red countryside under pink skies. Thank you, Eastman Kodak." Steven Spielberg remarked, "After only five years the blue is leaving the waters of Jaws, while the blood spurting from Robert Shaw's mouth gets redder and redder."⁶³ In his own filmmaking, Scorsese took steps to insulate his work from the ravages of color loss. He made black-and-white separations from New York, New York (1977) that could be used, if necessary, to reconstitute the film's colors, and he shot Raging Bull (1980) in black and white. (Ironically, 16-mm copies of this film were printed on color stock. These were badly timed, introducing color distortions into the film!)

The film stocks manufactured by Eastman Kodak, which began in the 1950s to supplant the Technicolor imbibition (IB) process, proved to have unreliable dyes. Under the Tech IB system, color was applied in a dye transfer process using relief matrices, whereas the Eastman stocks placed dye-forming compounds in a multilayer film stock that required only basic lab processing to achieve full color reproduction.⁶⁴ Technicolor closed its Hollywood dye transfer plant in 1974, and during the 1980s an operating dye transfer plant remained in China at the Beijing Film Lab. At the time of the Hollywood lab shutdown, Technicolor scrapped and destroyed its priceless black-and-white matrices (which could have been used to print restored Tech IB copies of old movies) and existing 16-mm answer prints.

Eastmancolor, introduced by Kodak in 1949, gained widespread industry acceptance in the early 1950s because it could be processed with greatly simplified lab work relative to Technicolor. Cost and time advantages followed from this. Color prints could be made directly from camera negative by means of contact printing (passing light through the negative onto the positive stock), whereas the imbibition process required the expensive production of the relief matrices used for dye transfer. The Eastman prints looked sharper than Tech IB prints. The Tech process required that the dyes be transferred separately from three matrices onto the release print, introducing registration problems; that is, the alignment of the matrices was not always exact. The resulting clarity and sharpness of Eastman prints, coupled with their economy of production, quickly won the industry's enthusiasm.

But there was a terrible flaw. The dyes used in Eastman's multilayer film did not last, particularly the cyan and yellow layers, which were the first to fade, depending on the particular stock. Many factors contributed to fading, including oxidation from the air, moisture contained in the gelatin in film emulsion, and reactions from the chemicals in the film. As dyes fade, contrast also diminishes because the density of the film image is changing. Thus, faded prints have a washed-out look that reflects the alterations in both color and contrast. Worse yet, in the late 1960s Eastman Kodak introduced a method of making release prints from reversal color negative (Color Reversal Internegative, or CRI) and marketed it at a lower price than the Technicolor alternative. This was a classic instance of economizing on mass production at the expense of long-term quality. CRI films had especially unstable color, worsening an already bad situation, and Kodak phased out the process by 1988.

For many years, neither Kodak nor the film studios much cared about faded color in motion pictures because little to no fading occurred during the limited life of a release print, which was generally as short as six months. The industry-wide disregard for issues of color longevity could be defended as a business policy only when the theatrical market was the primary venue for film consumption and little ancillary revenues were to be derived from other avenues of film distribution. But by the early 1980s, this was a patently outmoded policy and a very costly one. The American color film heritage of the 1950S-1970S had by then faded into monochromatic pinks, browns, and reds, making these prints and negatives unfit for exploitation in the nontheatrical markets. Under any circumstances, this was a horrifying development, but for the majors who could now reap millions from their libraries in ancillary distribution, color fading was a monumental disaster.

At the prompting of director Martin Scorsese and other industry figures, Kodak in 1982 issued new low-fade film stock (color print film 5384/7384) with much better dye stability.⁶⁵ Dyes in this film were projected to last ten times as long as Kodak's previous low-fade stocks (SP 5383/7383, LFSP 7379, and LF 7378), the worst of which experienced a 20 percent loss of color density in as short a period as ten years under storage at 75°F. Because cold storage can prolong the color life of motion picture film, the studios actively investigated controlled, long-term storage of valuable negatives, and some, like Disney, also made black-and-white separations of films deemed especially valuable.⁶⁶ But these were stopgap measures. As a photomechanical process, color film is subject to inherent decay, and it may be that the digital encoding and storage of color information will offer the best solution to the problem. (Digital methods, though, create a new set of problems, involving the retrieval and playback of information on platforms whose designs quickly become obsolete.) Thus, during the 1980s, the crisis of color fading in motion pictures stabilized with the introduction of the new Kokak stocks but not before alarms sounded throughout the industry over the essential fragility of the celluloid upon which so much revenue depended and on which so much of the industry's history was encased.

Marketing Synergies

The ancillary markets changed film production, exhibition, and aesthetics. They also had an enormous impact upon the marketing of motion pictures. Pursuing policies of synergy, the majors found ways of using theatrical exhibition and ancillary distribution to reinforce the performance of film across these areas. The revenue potential of the ancillaries was thus multiplicative rather than additive.

Two marketing practices achieving maturity in the 1980s illustrate these synergies especially well. These were (1) the cross-promotion of film in either multiple ancillaries or in exhibition coupled with ancillary on a simultaneous basis, and (2) the licensing of film-related product placement and merchandising. Just as it led the industry in pricing videos of popular films to stimulate the sell-through market, Paramount innovated cross-links between theatrical and ancillary distribution. Paramount's Flashdance (1983) was released on video while the film was still in theatrical release, albeit near the end of that release. The film's box office, which had begun to dip after the film had been in release for several months, climbed 14 percent following the announcement of its videocassette debut.⁶⁷ This uptick was apparently due to a decision by consumers who were contemplating a video purchase to watch the film on the big screen before buying.

Struck by the phenomenon, Paramount scheduled a theatrical re-release of Footloose (1984) to coincide with the film's debut on home video. For its release of Indiana Jones and the Temple of Doom (1984), Paramount again looked to home video to boost theatrical receipts, though this time across two different Indiana Jones films. Every videocassette of Raiders of the Lost Ark (1981), released for sell-through at $39.95, carried a trailer for Temple of Doom, and all promotional material for Raiders carried ads for Temple of Doom. Anticipating huge sales for the Raiders videocassettes, Paramount used the video release to give its sequel a major push.

In addition to this upstream influence on theatrical, the ancillaries offered tremendous potential for downstream cross-promotions. As we saw in previous chapters, the majors and their parent corporations had recorded-music operations in addition to their film activities, and they built enormously lucrative linkages between these areas. During the eighties, the majors targeted a core audience that could be reached simultaneously through film and pop music. This was an audience that could be counted on to see pictures like Flashdance, Risky Business (1983), Top Gun (1986), and Batman (1989), an audience that purchased huge amounts of recorded music and regularly watched MTV. It didn't take a fortuneteller to see the obvious connections, considering that the youth audience had been a vital demographic for Hollywood film for decades. The music director for Columbia Pictures noted, "The target audience for MTV is the same target for pictures. You need the 12 to 25 demographic."⁶⁸

In 1983, Flashdance, a glib but stylish movie about a woman who welds steel by day and disco dances by night, demonstrated the wad of cash that such cross-promotion could generate, and it established the trend of using music and music videos to promote movies, and vice versa. Flashdance featured several aggressively staged and edited musical numbers. These were issued on a highly popular sound-track album, which was also marketed as a disco/pop album. In its first twenty-four days of national release, Flashdance (the film) grossed over $20 million, and the album attained platinum status with sales of 1 million copies. Singer Irene Cara performed the film's title track. Released early, it was already a hit single when the film opened, and Cara's song was featured on all the radio and television advertising for the picture. Paramount's senior vice president of worldwide marketing noted, "If you have a single playing on the radio, the spots are like cross-pollination."⁶⁹

To extend the promotional cross-marketing, Flashdance director Adrian Lyne edited four music videos ("What a Feeling," Imagination," "Maniac," and "Romeo") using footage from the film, and these ran extensively on MTV before and during the film's release. "Maniac," for example, featuring Michael Sembello's music, was released to MTV four weeks before the film's opening. The tune was also issued as a single. The Flashdance singles, music videos, sound-track album, and movie all functioned as commercials for one another, reinforcing a consumer's perceived need to have or to see them all.

Following the success of Flashdance (the sixth-biggest film of its year), the majors rushed into the production of music videos for MTV because this was such an effective way of enhancing film and recorded-music revenues. For production of the Phil Collins music video of "Against All Odds," from the 1984 film of the same title, Columbia Pictures built a completely new set to match the film's imagery. Production cost for the video was forty-five thousand dollars, and MTV was comfortable running the video because it did not look overtly like a film trailer. MTV was reluctant to carry videos that were clear film promos, even though all film-culled music videos were obviously publicity material. The studios could produce inexpensive music videos by simply re-editing scenes from a film and laying a pop singer's music over the footage, but MTV balked at carrying such blatantly promotional pieces. The tie-ins needed to be more subtle to satisfy the giant cable programmer. Warners produced a Bob Seger video, "Old Time Rock and Roll" (from Risky Business), which MTV rejected because the film footage was too prominent. The video was dismissed by an MTV executive as "a trailer set to a Bob Seger song."⁷⁰ Warners recut the video to include and emphasize Seger concert footage (obtained from Capital Records, Seger's label), at which point MTV accepted the video.

In 1984, Paramount scored another big success with its sound track for Footloose, a quasi-musical starring Kevin Bacon as a dancer in a repressive, small Midwest town. Production of the sound track illustrated the close corporate partnerships that successful ancillary promotion entailed.⁷¹ Footloose started as a Fox production directed by Michael Cimino (who was still finding employment post-Heaven's Gate), but Cimino was fired from the production, which then passed to Paramount and director Herbert Ross. To ease its production costs, Paramount wished to cofinance the sound track (scores featuring performances by popular musicians could be very expensive because their fees were on top of those paid to a composer to produce an original score for the picture). CBS Records (a subsidiary of Columbia Pictures) offered a $250,000 advance and agreed to permit singer Kenny Loggins, whom it had under contract, to record one song for the picture. Paramount felt Loggins's participation was essential to establish the film's tone of Americana. CBS, however, required that Paramount also sign two non-CBS artists whose albums had gone gold (sales of 500,000 copies). From Geffen Records (financed by Warner Bros.), Paramount signed rock singer Sammy Hagar and got the rhythm-and-blues group Shalamar from Solar/Elektra (also a Warner label). Thus, several majors effectively split the revenues from this ancillary promotion. Warner's artists received royalties for their participation. Paramount retained financial control of the Loggins video, and Columbia-CBS got the sound track and planned to make its own video from another track on the album.⁷²

These somewhat byzantine relations proved to be very profitable as Footloose earned $34 million in rentals (putting the film in eleventh place on the 1984 box office), and the sound track sold very well. Like Paramount, Warner Bros. scored a major cross-promotional hit that year with Purple Rain. The film, starring rock musician Prince, had an opening three-day, $7 million box office. Warner's strategic prerelease of music from the picture in advance of the film's opening helped drive the picture's box-office performance. The film opened 27 June 1984, but Warner released the Prince single "When Doves Cry" on 16 May. This was also far in advance of the sound-track recording's release, which occurred 25 June, just before the film's national break. The Purple Rain sound track sold over 2 million copies by the end of July; 205,000 of them were sold on the film's opening day.⁷³

The tie-ins between films and music videos often aimed to fuse production design, theme and characters in the two media. This fusion would operate like a brand label, unifying as products with a common corporate identity the film and its music and music video spin-offs. Each product would thereby reinforce in the consumer's mind the arch-image and identity of the franchise. Footloose, Purple Rain, and other cross-promoted entities were therefore greater than their incarnation in any single product, whether it was film, video, or recorded music. If the synergies worked, consumers would be stimulated to desire all incarnations of the multiplicative product. The lighting and color design of Kenny Loggins "Danger Zone" videos, from Top Gun, resembled those used in the film. The main characters from The Jewel of the Nile (1985) and Jumpin' Jack Flash (1986), and the stars who play them, appear inside (i.e., not as clips) the music videos from those films.

On occasion, a major studio might issue an alternate sound-track album for a film to showcase a popular performer whose music was used in the picture. Warners issued an instrumental sound track for Batman, featuring the Danny Elfman score, as well as an album of songs by Prince, who had two songs in the picture, with liner notes tying the vocals to scenes in the film and to particular characters. This, in effect, was a musical reorganization of the picture, a vocal reinterpretation of the film by Prince. As Justin Wyatt has written, "The effect of these songs is to resituate the original narrative of the film from the perspective of Prince's pop persona, emphasizing the style and sexuality of the characters, rather than focusing on the adventure and action in the filmic narrative. Similar to the promotional music video, this restitution possesses a strong economic motive based on multiplying possible points of connection with the film."⁷⁴ Because of the way Prince reworked and reinterpreted the movie, Batman director Tim Burton was unhappy with Warner's decision to release the album, but he felt helpless in the stratosphere of blockbuster economics to influence the studio's marketing decisions. Describing his unhappiness, Burton said, "They're saying to me, these record guys, it [the film] needs this and that, and they give you this whole thing about it's an expensive movie so you need it [an album by a superstar]. And what happens is, you get engaged in this world, and then there's no way out. There's too much money."⁷⁵

The effect of these ancillary promotions is to multiply different versions of a given film such that one can no longer reliably identify its singular or truest incarnation. Top Gun exists simultaneously as a hit feature film, a stylish Pepsi commercial, a group of popular songs, and a Kenny Loggins video, with common thematics and stylistics dispersed across these media. Batman exists as two very different record albums, a movie, and several varieties of comic strip. As software, these can be marketed to a variety of "platforms": movies, television, recorded music, and publishing. In such a situation, notions about an original text or format become problematic. Batman (or Purple Rain or Footloose) is more than a film. It is a huge interconnected series of media formats, marketing strategies, and ancillary outlets designed to return revenue to multiple Warner operating divisions.

The ancillary markets have made more relevant than ever Walter Benjamin's old remarks about how works of art in an era of mechanical reproduction lose the aura associated with an original version. "To an ever greater degree the work of art reproduced becomes the work of art designed for reproducibility," Benjamin noted.⁷⁶ This is an exact description of the conditions underlying blockbuster production and its promotion in the ancillary markets, where the replication of product identity provides the means of revenue return. Thus, the majors were most enthusiastic about backing those pictures projected to perform well across theatrical and ancillary markets and from which they could reap the revenues accruing from cross-promotional and spin-off activities. To accomplish this, the product had to be capable of mass production in a variety of formats unified by a common label, style, and corporate identity. As Paramount head Michael Eisner stressed in 1981, a film might give rise to many different marketing and licensing activities, but the revenues needed to be huge and all revenue streams had to stay in-house. An entertainment industry executive at Wells Fargo Bank pointed out that the reproducibility of a film was the key to obtaining bank financing: "Whenever a producer can show his financial backers that he has spin-off products to promote—such as a record album or a television series, or an eye-catching product—he is apt to get a more interested hearing. In fact, motion picture projects have been financed largely on the basis of their downstream sales potential."⁷⁷

Helping to disperse and disintegrate a unitary identity for a given film, adding to its replicative value, and functioning as a vital source of ancillary income are the product tie-ins. These are streams of merchandise featuring characters or logos from popular films, which the studios control through their licensing divisions. Batman or Gremlins (1984), big merchandising bonanzas, assumed a myriad of forms as their imagery and characters showed up in the wares of national retailers. Product tie-ins are not a phenomenon of the 1980s. In the mid-1970s, Jaws (1975) and Star Wars 1977) showed how lucrative spun-off merchandise could be. In the eighties, product tie-in revenue became part of the booming ancillary mix and helped supplement the general nontheatrical gold mine. Warner's Licensing Corp. of America made deals with fifty manufacturers to put the likenesses of Gizmo and other gremlins on their merchandise.⁷⁸ These included Hallmark Cards, Hasbro Toys, Avon Books, Disney's Buena Vista Records (for children's recordings), as well as makers of clothing, watches, beach towels, and video games. Warner couldn't lose money from sluggish retail sales because the Licensing Corp. took cash in advance from suppliers plus a portion of their revenue from wholesale.

Other prominent product tie-ins of the period included the campaigns to cross-promote Paramount's Days of Thunder (1990), a Tom Cruise vehicle about a race car driver, and Chevrolet (the tie-in being the Chevy Lumina that Cruise drives in the movie), Exxon Corp. (Superflo motor oil), Coca-Cola (Mello-Yello soft drink), and Hardee's (hamburger purchases in exchange for the toy race cars). Because advertising and print costs could consume as much as an additional 40 percent of a picture's budget, studios found product tie-ins to be a sigificant means of defraying marketing costs. Disney's promotional campaign for Who Framed Roger Rabbit (1988) got a big boost from an additional $12 million in advertising by McDonald's and $10 million in ads placed by Coca-Cola. These ads featured the animated characters from the movie, thereby serving as promos for the film as well as for fast food and soft drinks.

If the product tie-in was not a unique eighties phenomenon, despite its vital economic importance for the industry during the decade, the placement of product advertising inside films was a singular and remarkable development during the period. In the old days, Hollywood's Production Code and Advertising Code forbid on-screen advertising, enjoining filmmakers to avoid shots of brand name labels or logos on products. Writing in 1947, Ruth Inglis observed, "Although occasionally high-pressure publicists for national products try to inject their sponsors' wares into films and at times bribe studio employees to achieve their ends, every effort is made to avoid unnecessary close-ups of radios and other items showing the name of the product, outdoor scenes showing advertising signs or billboards, and dialogue mentioning trade names."⁷⁹

In the 1980s, by contrast, films explicitly showcased the wares of advertisers. If a character drank a beer or ate a bowl of cereal on screen, the item would carry a recognizable brand name. This practice became known as product placement. Prior to production, the studio would make a deal with a product placement agency (e.g., Associated Film Promotions) to present a clients' goods on screen in exchange for a fee or, in some cases, hard-to-find props required by the story. Pepsi, for example, supplied rare items needed for a 1950s soda fountain in Back to the Future (1985) and received prominent on-screen visibility in return. A senior vice president of publicity for Columbia Pictures noted that "product placement can help cut a budget—maybe not in terms of using a tube of toothpaste, but if you have an action picture that needs cars or a sports film that requires sporting goods, it can certainly help."⁸⁰ Most commonly, studios charged fees for placements. The California Raisin Board paid twenty-five thousand dollars for a billboard in Back to the Future advertising its product. Associated Film Promotions, the largest placement agency in the industry, had over one hundred major corporate clients seeking screen time for their products. These firms included General Motors, Cadillac, Proctor and Gamble, Anheuser-Busch, Burger King, and Kodak.

Executives with the studios and product placement agencies extolled the practice for two reasons. First, it netted the studios funds needed for production, and for merchants it was a cost-efficient form of advertising. One product placement executive noted, "The average film can realize $200,000 in product placements…. If [the film earns] $20 million, which is average, you've reached 5.5 million people, and more importantly, when it is seen around the world—on video, HBO, maybe primetime TV—it's incredibly cost efficient. When you're talking $10,000 to $50,000 [for a product placement], the cpms are pennies…. People feel good when they see impressions in movies. It pays to have Tom Hanks driving a Subaru."⁸¹

Proponents also claim that product placement helps create a greater sense of realism in a film. Al Ruddy, who produced The Godfather (1974), explained why it was so important for the Teenage Mutant Ninja Turtles to eat Domino's Pizza on screen: "That scene is funny because kids know Domino's Pizza, and they know you get money off when it's late. Also, when you have fantasy characters and can ground them in reality like that, it's great for the movie…. You can't have Mel Gibson picking up a pack of Ajax cigarettes and drinking Aqua beer, because people won't believe it."⁸²

In the 1980s, the boundaries between film and advertising were blurring. This was an inevitable result of the growth of interlocking media markets and the corporate superpowers who owned them. The CEO of Associated Film Promotions remarked, "Life in the 20th century is a life of commercialism. Films are becoming more real. Face it, doesn't life look like a commercial?"⁸³ In some cases, product merchandising might drastically influence the box-office success of a film. Hugely popular in the United States, Teenage Mutant Ninja Turtles (1990) bombed on its release in Japan, apparently because there were no product tie-ins on toy store shelves to support the film. Despite lots of publicity, theater attendance was sparse. The Japanese distributor claimed that American copyright holders would not sell the Japanese rights to merchandise based on the film's characters at a reasonable sum, attributing the movie's failure to a lack of merchandise support.⁸⁴

Because film-related merchandising furnished a vital source of ancillary revenue for Hollywood, the biggest films were increasingly shaped by the imperatives of this marketing venue. Again, as Walter Benjamin noted, those works reproduced are those designed for replication. Thus, major films of the era featured cartoon or mechanical characters: Dick Tracy, Batman, Superman, E.T., the Star Wars heroes, the Ninja Turtles. With their stylized appearances, these characters lent themselves easily to reproduction as a myriad of product lines, more easily than do ordinary human beings. The economic imperative behind the proliferation of eighties film fantasies about non-human characters is the need to feed ancillary merchandising. The ancillaries drove blockbuster production, which in turn, seeded the ancillaries. Anticipating a huge merchandising boom in Gremlins-related products, the licensing director for Amblin Entertainment noted, "Whenever you have a non-human type of character, it lends itself to merchandising."⁸⁵ The extraordinary success of Batman, Roger Rabbit, and the Ninja Turtles stimulated a rush of development deals to bring to the screen such eminently merchandisable characters as Barbie, the Flintstones, Captain America, Dr. Strange, Iron Man, the Fantastic Four, and others.⁸⁶

The use of popular film characters as advertisements for product lines functioned globally as a vital part of multinational economics. The majors derived significant film rentals from overseas markets. In 1984, for example, overseas rentals totaled $935 million as compared with $1.2 billion domestic. Table 3.5 shows earnings derived from the top ten overseas markets. Film-related product merchandising stimulated overseas markets because of the international popularity of Hollywood movies. In 1993, MCA/Universal anticipated greater revenues from international sales of Jurassic Park-licensed products than from domestic sales. Describing how its film, video, and recorded-music products were used in countries ranging from England and Germany to Taiwan, Kenya, New Guinea, and Thailand, Warner Communications, Inc., proudly announced its role in helping to create a global web of interlinked cultural and commodity consumption: "There is a natural demand for entertainment the world over, and WCI's products have become an integral part of many different cultures in a variety of ways…. One reason for the success of Warner Communications internationally is the fact that its product knows no geographical boundaries."⁸⁷

Herein lay the connection between film production by the majors, the ancillary markets, and the consolidation of multinational corporate influence. Despite a film's initial theatrical release, production occurred to service the ancillaries, and blockbuster films

stimulated a huge array of marketing and merchandising throughout the world's restaurants, toy stores, and other retail outlets. Since the appeal of film characters (especially cartoon or mechanical characters) crossed media classes and product lines, it was essential for the majors and their parent corporations to maintain control over these markets and distribution channels. Lauding the advantages of its vertically integrated, multinational structure, Time Warner asserted, "No competitor can match our lineup of quality products. But just as impressive is how we distribute them. We are the only company of its kind that owns and controls 100 percent of its worldwide distribution networks. We can control the flow of our products to market and aren't required to share our distribution profits in the process."⁸⁸ Understood strict economic terms, production by the majors was about the manufacture and distribution of commodities (not films) on a national and global scale. The rise of new distribution technologies in the 1980s reestablished the primacy of the American industry as the global leader in filmed entertainment and enabled the majors to solidify their hold on domestic and overseas entertainment markets.

Without the ancillary markets and the new distribution technologies, film production could not have attained the economic centrality it now possesses. But did the ancillaries enhance the profits to be derived from film production? Did they give the industry greater security by enhancing its rate of return from production? They augmented theatrical exhibition with a host of additional revenue sources, and the amount of revenue derived from these sources shifted during the eighties to the detriment of theatrical. But a compelling case can be made that these sources operated in a substitutional manner; that is, home video revenues replaced those lost to theatrical as the preferred venue of film viewing shifted from theaters to the home, as pay-cable revenues replaced those lost from broadcast. In the meantime, the costs of film production escalated, and only a handful of films released in a given year generated sufficient distributor rentals to break even on print and publicity costs.

Furthermore, major film flops could not be saved in the ancillaries. The belief that home video or cable could rescue a production from landing in the red, if its theatrical release failed to close in on the negative cost break-even point, remained a myth. Most films failed to recoup enough from theatrical, and home video, like theatrical, was hit-driven. Only a few films generated the big revenues. Big-budget films that failed theatrically could, at best and in a few cases (e.g., Dune [1984], The Cotton Club [1984], Rhinestone [1984]), generate enough revenues from home video to cover some of the theatrical marketing costs.⁸⁹ Unless a film was very low budget, though, home video could not recoup a big theatrical loss. As Variety pointed out,

There is little homevideo revenue left over to pay back the substantial negative cost still on the books from a theatrical flop. Homevideo success in such a case is significant for the company's cash flow and especially for its homevideo profit center, but profit participants due a percentage on the theatrical flop are unlikely to be close to paydirt.⁹⁰

Harold L. Vogel, vice president of Merrill Lynch Capital Markets, has pointed out that aggregate industry profits from 1984 to 1988 increased by only 14 percent, and operating margins remained well below those prevailing in 1974-79. Vogel suggests, "What is gained in one market may be at least partially lost in another; that is, in the aggregate, ancillary-market cash flow is often largely substitutional and thus does not necessarily lead to net increments in total revenues."⁹¹ Film production has always been a difficult enterprise from which to secure net profits, and this axiom retained its relevance in the age of the ancillaries. By extending the release cycle of a film and increasing the number of gross and net profit participants in revenues deriving from the multitude of distribution venues in which a film is marketed during its life cycle, the ancillaries have greatly complicated assessments of profitability. The target is always in motion, break-even points are floating, and net profits remain as elusive as ever.

Aside from this paradox, perhaps the most striking fact about the ancillaries is that film vanished from them. Film as film, that is, on celluloid, no longer existed beyond its theatrical venue. After that point, the electronic formats took over. Film became video for its distribution in pay-per-view, pay-cable, tape, disc, and broadcast television markets. Hollywood film in the 1980s became the engine driving the interlinked global entertainment markets. The majors needed films, but they needed celluloid only to supply theaters with product as the launching pad for the new array of electronic formats. As soon as high-resolution digital video delivery systems became viable for large auditoriums, film would vanish from those, too. Though it still held a place at the table, film now was history. The ancillaries had seen to that.