The blockbuster as extended commercial

By Richard Morgan
November 28, 2011

Hollywood’s next financing trend will arrive with all the subtlety of a Michael Bay production.

That’s because it may well be a Michael Bay production — another blow-’em-up spectacle consistent with the oeuvre already containing such extravaganzas as “Armageddon,” “Pearl Harbor” and “Transformers.” But it’s also because, by the time the next trend gets here, everybody will have seen it coming.

All you have to do is think back to Reese’s Pieces in 1982’s “E.T.: The Extra-Terrestrial.” Then fast-forward to that FedEx-driven drama of 2000, “Cast Away.” And, finally, recall the decibel-defying clash between Autobots and Decepticons in last summer’s “Transformers: Dark of the Moon.”

Still confused? Then let’s hear what Los Angeles entertainment attorney Sky Moore has to say: “The next trend in Hollywood financing is going to be true equity from advertisers. We’re even going to see a major advertiser buy a studio.”

Moore isn’t just talking about product placement. Rather, he’s talking about entertainment that’s advertiser-created and advertiser-owned. He’s talking about studio slates chock-a-block with 90-minute commercials of the sort he considers “Cast Away” to be. (Moore considers “Cast Away” a commercial despite knowing that FedEx Corp. didn’t pay a cent for its representation. The point, in his view, is the brand-recognition boost FedEx received.)

What’s more, as a partner of Stroock & Stroock & Lavan LLP, Moore is unusually qualified to assess Hollywood financing trends. He’s in the thick of the current one — a wave of Asian capital crashing down on Tinseltown — having not only having represented India’s Reliance-ADA Group in its $850 million funding of DreamWorks SKG but having advised the Japanese and South Korean backers of Hemisphere Capital Management‘s recently announced fund to co-finance no fewer than 12 tentpole productions.

Moore’s a student of previous trends, too. In his film industry text, “The Biz,” he cites a German tax law from the late 1990s that permitted the immediate deduction of a film’s entire negative cost. That the law didn’t specify where the film had to be shot triggered, Moore writes, “an unintentional subsidy for worldwide production.” But once Germany’s location loophole was tightened, so too was Hollywood’s capital infusion.

“These waves come and go,” Moore says in a phone interview. Yet he regards the next one as almost too easy to call: “Advertisers are getting squeezed off TV by digital products that allow viewers to zap right past them. They can’t accept that anymore.” Nor should they, given the success that “Transformers” toy creator and film co-producer Hasbro Inc. has been having with what it calls “immersive entertainment experiences.”

During a recent investor day presentation, Hasbro noted that of “Transformers 3” ‘s total box office of $1.1 billion in 2011, its $766 million international component by itself eclipsed the $710 million recorded for all of “Transformers 1” in 2007. Moreover, as extended commercials, “Transformers” and other media in support of Hasbro properties have a remarkable halo effect. Those properties supported by a movie or TV show recorded a compound annual growth rate of 16% between 2006 and 2010, whereas those lacking that support limped along with a CAGR of 4%.

Small wonder Hasbro CEO Brian Goldner called it an “exciting time” for projects aimed at bringing additional properties — Risk, Clue, Micronauts and even Monopoly, to name a few — to the silver screen. And though he didn’t address studio ownership (aside from Hasbro Studios, which already produces shows for the company’s one-year-old joint venture called Hub TV), he did promise “continuous news” on the subject.

It scarcely matters to Moore which advertiser buys a studio first. Any Hasbro hesitancy, he says, could induce Mattel Inc. to step up. And if Mattel doesn’t do it, then Red Bull might simply extend its extreme-sports videos and commercials to movie length. Don’t rule out the automakers, either. “See the latest trailer for ‘Mission Impossible’?” a Hollywood source says of the defunct TV show’s fourth installment as a film. “Looks like an ad for BMWs, not a movie.”

Although this last observation highlights what hidebound cineastes see as an exercise in duplicity — selling while telling — Moore counters that “Cast Away” settled that issue more than a decade ago. “When a film really works for a brand,” he says, “then its placement goes right by you.”