Investigative reporter Edward Jay Epstein has written 14 books on subjects as diverse as the Warren Commission and Wall Street, including a 2005 book called The Hollywood Economist, in which Epstein exposes Hollywood’s “invisible money machine” to determine how the studios make their money. In The Hollywood Economist 2.0 (Melville House), Epstein considers the new dynamics of movie-making, including the rise of Netflix, how Hollywood managed to put one over on Wall Street, and the declining quality of Hollywood product. In time for the Oscars, we spoke with Epstein on the state of the industry.

What major changes have taken place since the original 2005 release of The Hollywood Economist?

The main thing that changed was the extension of the digital revolution, so that Hollywood no longer could no longer rely on DVDs to delvier its product to audiences, which makes up a huge amount of its profits. In 2005, DVDs were producing $21 billion a year for the six major studios. Because of Netflix, Redbox, and the online streaming of films, that number has now fallen to about $14 billion. That’s a $7 billion difference, enough to change the entire business of Hollywood studios.

What are the studios’ strategies for making up that lost revenue?

First of all, they’ve actually tried to find ways to profit from digital distribution, they now license movies on a fairly large scale to Netflix and Hulu. Pay channels including HBO, Comcast, and Fios have created services so people can receive product on mobile digital devices, and right now they’re in the throws of trying to adapt to these changes. The recent SOPA bill, which they failed on, was an attempt to force search engines—Google, mainly—not to be able to search out their online material. They failed on that so this is not something they’ve settled, and they can’t work in concert because of anti-trust laws. It’s a very slow process, there’s no unity. I would say there’s a chaos now.

How do the Oscars fit into Hollywood’s scheme to reclaim their profits?


The Oscars have less and less to do with Hollywood every year, and that’s been going on for the last decade. It’s more like the Independent Spirit Awards—the movies being nominated aren’t the studios’ movies, because you can’t nominate Harry Potter or a comic book sequel except for best effects or makeup, which doesn’t matter. The Oscars are not what Hollywood does, the Oscars are what Hollywood pretends it does. Back in 1950, Hollywood really did make those movies, movies for adults, those based on books.

Extremely Loud and Incredibly Close is a perfect example: the book is doing fantastically, but the movie will make no money whatsoever. It’s good for the book industry, good for the authors, good for the directors and actors, but it has nothing to do with the business of Hollywood. Harvey Weinstein could win five awards, and next week his company could go bankrupt, because there’s no connection between the money flow and the honors.

So Hollywood releases Extremely Loud in October with minimum audiences—the major audiences are in the summer, that’s where you get your $100 million opening weekends. If you bring out a Batman or a Spiderman or a Harry Potter, there’s enormous audience awareness. But if you bring out a movie like Ides of March, it isn’t a sequel and you won’t have the audience to open it on thousands of screens. As theaters move toward digital distribution, which will allow movies to open on as many as 30,000 screens at a fraction of the cost, it means studios will move even further toward comic books and sequels.

So what’s the continuing appeal of the Oscars?

It’s debatable—the [TV viewing] audience has shrunk over the years, I think the Grammys audience is bigger than the Oscars audience now. People want to see the outfits, what the women wear on the red carpet, they want to see the celebrities and the host’s opening routine, but most moviegoers haven’t seen any of these [nominated] movies. That’s why they expanded the Best Picture field from five to 10 movies. But almost no one in the U.S. has seen the foreign films—they don’t even have to be shown in the U.S. to be nominated—and no one in the world has seen any of the short films—I don’t think anyone in the world would know where to find them. Then you have these 10 Best Picture nominees, and 95 percent of the country hasn’t seen them, except maybe for the Steven Spielberg picture.