Both obituaries mentioned her fascination with Far Eastern-based spiritual traditions such as meditation and what now has morphed into the idea of “mindfulness” in psychology. Properly understood, “mindfulness” really is an outgrowth of the human potential movement of the mid-1960s to mid-1970s. It will come as no surprise that Ms. Jones was highly involved with it. For example in the book Please Touch – A Guided Tour of the Human Potential Movement (1970), the author Jane Howard states at p. 44: “One enthusiast who has thought of leading workshops herself is a veteran member of many encounter groups: the actress Jennifer Jones Selznick. Her guest house in Los Angeles is often used for groups and marathons and informal human potential meetings. Once when I was at Esalen for a workshop (the ‘Quest for Love’), she was there, too. At first I didn’t recognize her, and could only think ‘Gee, whoever she is she looks so clean; she’s so much more well-groomed than the rest of us.’

Jones’ involvement in the human potential movement is not particularly unusual.  Many other actors, actresses, singers and artistes of similar ilk also were in its thrall.  She must have been more so than others; there are a plethora of other then-celebrities whom Howard could have mentioned, but she doesn’t. I suspect most of them now are vaguely embarrassed at the association.

Jennifer Jones

Knott’s has undergone tumultuous upheaval since its origin as a roadside tourist stop in the 1940’s. In the process it became an iconic Southern California institution and a repository for its symbols and semiotics. As a child growing up in La Jolla, every year or so we would make a two-day pilgrimage to Disneyland, with a one-day stopover at Knott’s. Knott’s always seemed realer, a more authentic invocation of a mythical past.

There came a time when we stopped going and then I lost track of it until a few years ago, when we went there for somebody’s holiday party. I was shocked at how much it had changed. Even though their construction probably was dictated by economics, the giant large-scale, roller-coaster type rides were utterly incongruous. One of my favorite exhibits always had been something called “Death Valley Days.” It was no more than a diorama, really. One would walk into a small room and see miniature figurines of a mule-driven wagon crossing the desert. A plaintive tape-recording played in the background.  A small girl asked her mother, “is there any more water?” The mother tried to comfort her, but one knew in one’s mind they both were goners. An aged lady attendant sat next to railing separating the attendees from the set. The scene was poignant and even at 10 years old it affected me deeply. In fact I still think about it. I asked her, “I hope you keep this open as a reminder of California’s past.” She replied, with a combination of optimism and wisdom, “It always will be here.”

Another set-piece I remember clearly was a circular pathway around a park-like parcel, with dioramas of all of California’s missions. Having been to most of them I could discern the murals had been constructed with a high degree of versimilitude. Walking around the enclosure that last day I was astonished and shocked to see the park and the walkway were being demolished for yet another massive theme-park ride. The mission dioramas had fallen into a state of abject decrepitude. With a few inquiries I found the construction crew’s foreman. “Take them away,” he said, “you can have them.” I would have, too, if I had anywhere to store (and restore) them. I don’t know what happened to them in the end, but I suspect they were demolished on the spot.

I look back on that earlier version of Knott’s with a wistful melancholy. It is redolent with association. It is reminiscent not only of my youth but also of an earlier time in Southern California history. It also is a metaphor for the passage of time, the lack of any cultural or institutional memory, and (ultimately) the transience and impermanence of culture and the institutions that support it.

Mr. Woods and his handlers evidently do not completely understand this dynamic.  He has been slow to book time on talk shows with a view towards expurgating his sins.  The well-worn path lade down by other sex-maniac pop celebrities such as Kobe Bryant and (more recently) David Letterman provides a better template.  They were able to get out in front of the controversy rather than lag behind it.  On the other hand this tended to truncate media coverage of their peccadilloes, not prolong it, so perhaps Mr. Woods has the better strategy after all.

The Tiger Woods story conceals a deeper implication, which is the transitory nature of pop culture celebrity status to begin with.  Whither art thou Paris Hilton, Britney Spears, Jessica Simpson and Lindsey Lohan?  They seem to have vanished.  In their place are people like Tareq and Michaele Salahi, the Virginia socialites-White House gate crashers and Richard and Mayumi Heene, who alleged their son Falcon flew off in a balloon.  The aspirations of these dynamic duos are no more ambitious than appearing on reality-TV shows.  In the meanwhile there is the astonishing case of Lady Gaga, a piano virtuoso who learned how to dance and now has captivated the pop music scene (I have been meaning to listen to one of her tracks, hopefully I’ll get around to doing so, soon).  A recent column in the Los Angeles Times by Dan Neil deconstructed one of her music videos and proclaimed it the most successful product placement advertising of the year.

The media depend as much on celebrity cannon-fodder as actual and would-be celebrities do on the media.  It is hilarious when celebrities complain about paparazzi and adverse media coverage because the simple fact of the matter is they revel in it.  They depend on it for their very existence, both mercantile and existential.  It makes one wonder whom will be carrying the crucible for pop culture this time next year.

Tiger Woods

At one time EMI was the world’s greatest record company. Its history dates back to the earliest days of the gramophone record. See Martland, P. (1997). EMI – The First 100 Years. London: B.T. Batsford Ltd. For some years Bhaskar Menon was head of EMI Music world-wide. Ever since the end of the Menon regime, though, EMI has gone downhill. I was an executive at EMI Music during 1981 – 1991 so it has been a source of personal sadness for me to witness these transitions. Here is a brief chronology of its subsequent CEO’s:

1. 1989 – 1998: James Fifield, formerly a General Mills food company executive. Fifield presided over a series of disastrous acquisitions such as that of SBK Entertainment World in 1989 for $337 million and that of Virgin Music Group in 1992 for $960 million. SBK vanished almost immediately. Initially Virgin functioned as a stand-alone, independently-viable company within EMI. There came a time though when it became just another imprint. After leaving EMI Fifield went on to become CEO of the clothing company North Face. In 1999 he tried to take it private in a leveraged buy-out, which precipitated a shareholder lawsuit alleging accounting fraud. He was fired from the company in 2000 as it was on the verge of bankruptcy.

2. 1998 – 2001: Ken Berry, formerly head of Virgin Records. Mr. Berry’s most notable accomplishment was signing the performing artist Mariah Carey. Following Mr. Berry’s departure, EMI paid a reported $50 million to Ms. Carey in exchange for her peaceably leaving the label following the disastrous flop of her “Glitter” album. During Mr. Berry’s regime, EMI’s market share and profits decreased dramatically. [In fairness to Mr. Berry, the record industry as a whole just had begun its tumultuous decline; EMI however declined at a faster pace than the rest of the field.]

3. 2001 – 2007: Alain Levy, a former head of PolyGram Records (and his Vice-Chairman David Munns). During this period EMI’s market share and profitability were eviscerated. EMI responded by repeatedly packaging itself for sale. In 2000 a proposed merger between EMI and the Warner Music Group was thwarted following its rejection by the EU antitrust authorities. In 2001 EMI attempted to merge with Bertlesmann (BMG), then run by Thomas Middelhoff. This merger also failed. In 2003 EMI tried to buy the Warner Music Group, but Time Warner sold it to a private equity group managed by Edgar Bronfman, Jr. instead. In 2006 EMI tried again to take over the Warner Music Group (WMG), precipitating a pre-emptive bid by WMG to take over EMI. Both EMI and WMG are dysfunctional companies. In 1999 Polygram merged with MCA to form the Universal Music Group. In 2008 Sony merged with BMG. There no longer is room in the marketplace for two failing companies like EMI and WMG. It is inevitable they will merge (possibly in bankruptcy court) so they might as well get on with it.

4. 2007: Eric Nicoli, formerly head of United Biscuits, a maker of cookies and snacks. At the time Nicoli was EMI Group’s chairman, which he had been since 1999. It never was clear why EMI needed both a corporate chairman and a chairman of music, seeing as how EMI’s only business has been music since its demerger from Thorn EMI in 1996. EMI’s attraction to former food company executives also is inexplicable, seeing as how the nature of the music business is considerably different than selling groceries.

5. Guy Hands. Terra Firma has been in material default of its loan covenants (the promises it made when it borrowed the money from Citigroup to buy EMI) for some time. In fact it seems likely that the only reason why Citigroup has kept the Guy Hands administration in charge of the company is because nobody else wants to do it.

The theory that a lender is liable to a borrower for making an infelicitous loan has been around since the late 1970s. Like many new legal theories it enjoyed a spate of popularity, only to wane as courts became more aware of its potential for abuse. Other examples are civil liability under the U.S. Racketeer-Influenced Corrupt Organizations (RICO) Act, and lawsuits alleging civil liability against companies (and their management) for alleged non-disclosure of material facts under U.S. securities laws. Here, EMI was represented by sophisticated lawyers, accountants and investment bankers. The theory of its lawsuit essentially is, “we are stupid, we were duped.” This is a non-starter and there is little question in my mind but that the lawsuit will be thrown out of court. In this respect a legal action alleging lender liability really is a company’s last recourse before a more dramatic corporate reorganization, such as a Chapter 11 bankruptcy reorganization proceeding. I am thinking myself of buying it out of bankruptcy court if and when this occurs.

Mr. Cohn had released three records on Atlantic Records. He had a moderate hit in 1991, “Walking in Memphis.”  That year he also was awarded a Grammy citation for “Best New Artist.”  There came a time, though, when he was dropped by Atlantic. No doubt he was massively unrecouped. This means the amount of money Atlantic had advanced to Mr. Cohn for recording costs, tour support, music videos etc. was far less than the amount of royalties Mr. Cohn would have earned at whatever royalty rate was specified in his contract. There was also regime change at Atlantic after the Doug Morris – Mel Lewinter – Danny Goldberg axis got fired, and new management came in.

To a large extent this process is inevitable and adversely affects many recording artists. The first thing new management of a record (or film) company does is triage its artist roster, dropping everyone whose commercial prospects are dim, or even just uncertain. According to record company accounting principles, the record company then can write off the entire unrecouped balance as a capital loss in the year the artist is dropped, rather than continuing to amortize it into the future. Needless to say the record company also gets to stop spending money supporting the artist. This frees up economic resources for the new regime to market and promote the few remaining artists it has retained on the label, and the new artists it acquires that correspond more to its tastes and preferences.

This is where I got involved, circa 2000. Mr. Cohn’s representatives approached a label I was consulting – Gold Circle Records – with a proposal to enter into a new recording contract. Mr. Cohn was introduced by David Crosby, who also had released (or was about to release) a record on Gold Circle under the auspices of his new band, CPR. I went to showcase at the Wiltern Theatre in Los Angeles featuring Crosby/CPR, with Cohn opening. It was a great performance and Mr. Cohn undoubtedly had/has considerable talent.

The problem was he wanted a $600,000 advance. He probably already had recorded masters for a new album. It is not hard to create a scenario (in the ancient world of record companies long ago) that he actually had expended this amount doing so. If they had not already been recorded, perhaps this was the imaginary budget to do so, or they were in some intermediate state of being recorded but not yet finished. Possibly Atlantic also was seeking contribution for its unrecouped balance, on the theory it had invested significantly in Mr. Cohn’s name, image and reputation, thus his prospects in the marketplace.

I thought this was hilarious. There was no conceivable way Mr. Cohn’s new masters would support an advance of this magnitude. I am not sure they would have supported any advance at all under the circumstances. This particularly was so given the massive structural changes record companies were starting to undergo, mainly precipitated by the ascendancy of the Internet and the corresponding demise of the CD.

I don’t know what happened after that. Evidently the masters were abandoned, as Mr. Cohn’s next record was a “live” record self-released in 2005 on his own label. This means no record company – be it major or independent – wanted the masters in question. In short the market had changed completely and Mr. Cohn had been left behind. In 2007 he released a record on Decca Records, which is a subsidiary of the Universal Music Group (perhaps not-so-coincidentally headed by Doug Morris). That record seems to have sunk without a trace.

Weird scenes inside the goldmine, indeed.

Marc Cohn

Vinyl pressers are huge pieces of equipment. A small globe of vinyl is placed on the machine. It then is squashed between two metal plates or stampers. An incredible amount of steam pressure is necessary in order for the vinyl to extrude fully around the metal plates. Each pressing machine has a unique signature. It was possible to tell which machine pressed each record just like it was possible to isolate the distinguishing characteristics of typewriters (key pressure, slight irregularities in the type face, etc.).

Around 1986 or so I sold all of the equipment in Capitol’s Glendale plant to Record Technology, Inc. (“RTI”) based in Camarillo. The Jacksonville plant was shut down a few years later. At the time RTI did custom pressing work for organizations like Scientology. Scientology had researched the matter thoroughly and concluded that vinyl was the most durable way to preserve the spoken words of L. Ron Hubbard. Digital media were likely to disintegrate or become obsolete over time (as in, “who has a Sony Betamax player anymore?”). Another one of RTI’s clients was JVC.  Ironically I later consulted for JVC, which became interested in buying RTI, though no transaction ever materialized. I am sure that, although it no doubt endured a fallow period, RTI’s business now has rebounded.

In addition to a good pressing machine there are two other important determinants of the quality of a vinyl record. They are: the quality of the original master sound recording; and the quality and amount of vinyl used to make the LP record. In the 1970s – 1980s it was a scandal how terrible the quality of the master tapes were. Capitol’s studio would take a copy of the original master sound recording then make 3rd generation copies of it for each of its pressing plants. Additional 4th generation and 5th generation copies undoubtedly were used as well. This resulted in inevitable deterioration of sound quality. This issue now by and large has been addressed with re-mastered, high-quality copies derived from the original, 1st generation tapes (for both vinyl LPs and CDs).

Low-quality vinyl also was used abundantly. For all I know it was made from recycled automobile tires. Approximately 120 grams of vinyl typically were used to make the record. In the late 1970s – early 1980s a company called Mobile Fidelity started pioneering the use of 180 gram, higher-quality vinyl. It obtained licenses from the major record companies to issue their sound recordings in that format and became modestly successful in audiophile circles. If I’m not mistaken it later filed for and subsequently emerged from Chapter 11 bankruptcy as part of the transition from vinyl LPs to CDs. Most of today’s vinyl LPs are made of high-quality vinyl and either 180 grams or even 200 – 240 grams of vinyl are used.

One of the main constraints to vinyl reproduction now is the quality of turntables and phonograph record needles. In the 1980s one could spend thousands of dollars on a high-quality turntable. Magazines like Stereophile advertised ultra-expensive components. High-end turntables rested on vibration-isolating legs, the speed and torque of the motors was carefully calibrated, the arm was weighted just so and they used a high quality needle. While this type of turntable still is made they probably only sell a few a year to ultra-high-end audiophiles, which now comprise an even smaller percentage of the already small percentage of vinyl users.

Today’s turntables are mass produced, consumer items. They are a mis-match with the higher-quality vinyl being used and it is difficult to see how they can reproduce it accurately. Many of them have digital outputs enabling the user to rip the vinyl record onto CD. This exercise probably is illusory for two reasons. First, most master sound recordings worth listening to probably now are manufactured somewhere on CD. It has taken me some time to find a few of my personal favorite LPs, several of which were manufactured in limited quantities (say, 500 or so) on obscure European labels. But they’re out there. Second, the quality of the digital conversion on the new hybrid turntables is extremely low. The most inexpensive Apogee converters – an industry standard – cost over three times the entire turntable package. Ripping one’s vinyl LPs to CDs might be fun but it is unlikely to result in a high-quality listening experience, to the extent that matters.

There also now is a limited but active market for reselling copies of one’s old vinyl records. As might be expected this is driven by supply and demand. Just because something is old doesn’t mean it’s commercially demanded. Mass-produced vinyl records are not saleable at any price, whereas rare ones command hundreds of dollars.

In conclusion I suspect that vinyl will remain a miniscule fraction of the marketplace. People who buy vinyl records think they’re cool, and they probably are. However with technological advances there is little difference in quality between LPs and CDs (and their emerging successors), or to the extent there is it is imperceptible. One of the biggest surprises of Internet audio – downloads and streaming – is that people don’t care all that much about audio “quality.” Convenience and ease of use by far are more important factors. It is likely over the coming years that physical media itself will become obsolete. CDs and even downloads will be replaced by cloud computing. One’s entire music library will be accessible from anywhere without the intervention of physical media. In fact two days before Mr. McGeehan’s article (on December 5, 2009) Brad Stone wrote an article in the New York Times, “Apple Strikes Deal to Buy the Music Start-Up Lala.” Apple, with its incredibly (and deservedly) successful iTunes, is on track to implement precisely this objective. People will continue to buy and experience music, although the format in which they do so will continue to change.

An old-school vinyl pressing machine

“Buffy the Vampire Slayer” is part of the cultural zeitgeist. As a recurrent meme it is precursor to the current wave of vampire movies and TV shows such as “True Blood, “Vampire Diaries” and “Twilight.” The semiotics of “Buffy” somehow became a closet industry with academicians writing theses on what it’s all about. But I want to consider Ms. Gellar as an actress on her own terms and within the framework of her own ambitions.

I started off by watching all of the Buffy episodes. OK, some of them. She has what I would characterize as a repertoire of stock looks, which she deploys broadly depending on the situation. There are six of them:

(1) concentration or determination, as when slaying vampires;

(2) mild disgust or contempt;

(3) she mopes around for much of the time, achieving a zombie-like catanoia;

(4) a mirthful pout;

(5) consternation – not concernful, but more like being surprised by someting; and

(6) my favorite, which is apprehension, disorientation, confusion, or even shock. She freezes like a deer caught in the headlights of life.

There are two Buffy scenes I like the best. (1) One of the season finales in which she dispatches Adam the robot. Borrowing an effect from The Matrix, she stops a bullet in her hand and it turns into a dove. (2) In another season finale, she sacrifices herself in lieu of her sister Michelle Trachtenberg by diving off a platform, looking radiantly confident (a variation of look 1), her long blonde hair fluttering behind her.

I then decided to watch four of the movies she’s been in.  These are: (1) The Grudge; (2) Suburban Girl; (3) The Air I Breathe; and (4) The Return.

The Grudge is unwatchable. Its plot is a lot of Japanese kabuki figures popping up from various nooks and crannies in an ostensibly haunted house. This is meant to be scary but instead the whole affair is cartoonish. This becomes particularly evident if one turns off the sound and views it at 2x speed, which always is a good litmus test. Although Grudge features plenty of look 6, the pleasure this affords is outweighed by the stupid plot, hackneyed characters, poor direction and flat monochromatic look.

Suburban Girl is a romantic comedy with Alec Baldwin. I am familiar with this genre having made a movie called Dawg with Elizabeth Hurley and Denis Leary. It’s not clear to me why the movie is called Suburban Girl seeing as how Buffy (er, I mean, Ms. Geller) is a book editor living in downtown Manhattan. The movie is cute but totally formulaic but she is well-cast in the role and displays plenty of look 2 and look 4.

More challenging is The Air I Breathe, which is four stories linked together in the manner of Bunuel. This is a movie that requires itself to be taken seriously and that makes an aesthetic statement. Ms. Geller portrays a washed-up pop singer whose management contract is sold to a mobster (played by Andy Garcia). I made a movie with similar look and feel called The Man From Elysian Fields, so I’m well aware of what this movie was trying to accomplish and how it tries to get there. Elysian Fields in fact also starred Mr. Garcia. Ms. Geller is in look 2 and look 3 most of the time. There is a last-minute plot twist at the end where she succeeds to a satchel of cash originally stolen by the character in the first vignette, enabling her to start a new life. As she walks down an airport concourse we see a slight but welcome flash of look 1.

Her most challenging role by far is The Return.  Here she is on a journey of self-discovery, reconstructing a car accident she was in when she was a young girl. She took on the spirit of another woman who died and started experiencing life as if she was her. Filmed predominantly in rural, out-back settings, the movie has a gritty feel to it. Ms. Gellar is required to stretch out of her more familiar postures and actually do some serious acting. She portrays an emotionally disturbed cutter, a role requiring some psychological nuance and finesse. By and large she achieves this objective and I would recommend this as the best movie in her oeuvre. With plenty of look 6, plus some look 1 in particularly intense scenes.

Some of the rooms have ingenious and lethal traps in them. These progressively dispatch two of the characters (Alderson and Rennes). One of the characters named Quentin (who is a police officer) commandeers the position of group leader. He goes progressively crazy and eventually kills three of the other characters, Holloway, Worth and Leaven. He then gets squashed in-between the movement of cubes. This leaves one person left, Kazan, who in the end appears to escape.

Here are some of the ways it is possible to interpret this macabre tale.

1. It is a commentary on the bleakness of modern technology. Nobody knows who built the cube (not even Worth, who, it is revealed, is an engineer that participated in its design). Nobody knows its purpose. Nobody knows how it came to be inhabited with the protagonists, though their talents are eerily complimentary. The cube itself is huge, impassive and seems to operate automatically.

2. It is a commentary on man’s inhumanity against man and the stupidity of authority figures. Quentin is not a good leader. Rather than inspiring the group he berates and threatens them. He is easily frustrated. He wants to abandon Kazan. He ends up killing three of his fellow denizens.

3. It is a commentary on the futility of inductive reasoning. Rennes initially believes he has figured out a way to avoid rooms that are booby-trapped by throwing in a pair of shoes and seeing if a trap is activated. This method proves to be unsuccessful and he dies from being sprayed with acid.

4. It is a commentary on human ingenuity in the face of danger. Leaven turns out to be a student who is smart about prime numbers and geometry. The crawl spaces between each cube have three three-digit numbers on the entry ledge. She observes that if each of these numbers is prime then the next cube is booby-trapped. Later Quentin almost gets caught by a trap in a room she thought she had cleared. So much for that theory. She then hypothesizes that instead of being primes the numbers are prime powers so they need to factor them before entering the adjacent cube. This is a brute-force arithmetical task beyond Leaven’s abilities to do easily. At this point it is revealed that Kazan is an autistic savant with an ability to quickly factor primes, which enables them to push forward.  Leaven also (correctly) hypothesizes the numbers are Cartesian coordinates that can be used to calculate the position of rooms within the cube. The numbers represent each room’s location; how many times it moves; and where it ends up in the grid.

5. It is a commentary on the futility of purposeful human endeavor. Towards the end of the film, following arduous progress, the group ends up back in the same cube where they started. It would have been more efficacious for them simply to stay there, attempt to figure out its movements, and then escape. The only person eventually to escape is Kazan, the autistic savant.

In conclusion I mildly recommend this movie. It is not as good as say “Stalker” but then again it has more modest ambitions.

Not everything sells for $.01.  Most titles sell for 25% – 50% of their original list price.  Depending on elasticity of supply and demand prices can be higher than the original list price.  Many sellers believe scarcity justifies an astronomically higher price.  These titles however never will sell because on margin the value of the information is less than the asking price.  One of the most salient features of consumer entertainment software (books, CDs, DVDs) is that it can be duplicated, or the informational or entertainment content extracted, at marginal cost.  It is not uncommon for Google News to provide hypertext links to over 1,000 sites per story.  Knowledgeable websites such as www.wikipedia.com distill (with varying degrees of success) the knowledge content of every conceivable topic (to the extent Wikipedia is deficient, there are thousands of other sites to fill the gap).  The web site www.hulu.com gives away copies of television shows and clips readily are available on www.youtube.com.  Once Google finishes digitizing every book there is then the value of a physical copy of a work in principle could decline to zero.  These are just a few examples; the $.01 title on Amazon is a precursor to this effect.  As a general rule of thumb if the used price is much higher than the original list price then there will be little demand for the title.

The existence of this active secondary market creates a dilemma for the original creators of the work – the proprietor of the copyright, who may be the author of the book, the band who recorded the CD, or their corporate assignees.  There is a copyright law principle called the “first sale doctrine,” which means that only the original retail sale of the copy attracts a royalty.  Subsequent resales of used copies are non-royalty-bearing.  This is one of the main factors permitting a secondary market for used copies to exist to begin with.  As a consequence every time a used copy is sold for less than the retail price it displaces a potential retail sale and thereby destabilizes the market for royalty-bearing copies.  Reciprocally if a used copy is sold for more than the retail price then it misallocates the entrepreneurial rents potentially realizable from the sale.

There may be many reasons why this doesn’t matter.  The author may be dead and his/her estate inconsequential; the cost of looking to the publisher for royalties is less than the amount of royalties that practically could be obtained.  The band may have broken up or never recouped the amount of any advance and recording costs paid by the record company.  Repeated successive editions of a work (e.g. a college text book) tend to reduce the price of earlier editions to zero.  The vast majority of works simply no longer are consumer-demanded except by a very small minority probing the esoterica of a given subject.  Perhaps only one out of a million copyrights survives its initial release.  Nobody wants the title, even if it is priced at $.01, and on margin demand falls off quickly or is nonexistent if the title is priced even pennies higher.

For active bands or writers, on the other hand, this presents a real theoretical problem.  Not only are there economic issues, but cheaply-priced goods also intrinsically derogate from the perceived value of the work, thereby impairing the creator’s future prospects.  There is a practical solution to the surfeit of copies in the secondary market, which is that the creator or owner of the work actively can intervene in the secondary market by buying up used copies, to the point where a first-sold royalty-bearing copy presents the lowest-price alternative to the consumer.  The creator of the work should continue doing so until the price to the consumer equals or exceeds the amount of the anticipated royalty-bearing unit (with an allowance for transaction costs).

There remains the possibility that a perceived increase in demand for secondary-market copies will increase the number of secondary-market copies available, potentially driving up the buyer’s cost.  Practically however this does not seem to be the case; only rarely are more than say 100 used copies of a secondary-market title listed for sale.  Amazon is not a perfectly efficient marketplace and only motivated sellers tend to use it.  The vast majority of potentially-demanded secondary-market copies simply seem to disappear, thus capping the secondary-market buyer’s potential liability.

In many cases copies can be repurposed.  CDs for example can be re-sold by the artist at performances for something approaching a retail list price.  In this case the creator will capture and retain a margin that may be considerably higher than the royalty payable on the first sale of a copy through a distributor.  If the price for used copies consistently exceeds the list price this should be a signal to reissue the work (duplicate more copies for first sale).

The same principle pertains to some extent to items for sale on eBay, although eBay’s offerings are more diverse.  The biggest enemy of most manufacturers of durable goods is everything they’ve previously sold.  For manufacturers of long duration it would be impractical to stabilize the secondary market.  Most goods become obsolete, not more valuable.  There is however a thin tier or tranche of sellers who are competing directly in the marketplace with recently-sold in-demand durable goods, which may be sold on eBay for significantly less than the retail price.  This not only reduces the volume of the seller’s potential sales but also depreciates from the perceived value of the goods.  These sellers are making a serious error by not actively stabilizing their secondary markets.

Lions Gate’s fourth quarter results were mediocre, as was its FY 2008 – 2009.  There are several reason for this, including developing softness in the DVD market; over-spending on marketing and promotion; its ill-advised acquisition of the TV Guide cable channel; and a distribution deal it made with the kiddie-video firm Hit Entertainment.  See Joe Flint’s article “Lions Gate swings to loss,” Los Angeles Times (June 2, 2009). 

One factor Flint doesn’t analyze is the cost of taking on third-party distribution deals like it did for the movie “The Haunting in Connecticut” which was produced by Gold Circle Films.  Lions Gate also recently announced a similar deal with Ryan Kavanaugh’s troubled Relativity Media, see Claudia Eller’s article “Lions gate turns to Relativity Media to fill movie pipeline,” Los Angeles Times (April 28, 2009). 

Here’s how these deals work.  The distributor (Lions Gate) has a fixed amount of overhead that it needs to amortize over the number of films it puts out each year.  If it doesn’t have a sufficient number of its own proprietary releases to do so, then it tries to make up the shortage by “renting” its system out to somebody else.  Instead of earning a profit from distributing the movie (or incurring a loss if it isn’t successful), all it gets is a modest distribution fee, typically in the range of 15%.  Typically the producer pays all prints and advertising, which typically runs (or should run) in the range of 10%. 

Let’s analyze how this pertains to “The Haunting in Connecticut.”  Domestic theatrical box office gross is that reported by Daily Variety.  All other numbers are informed estimates based on typical industry outcomes:

Domestic theatrical box office gross:                                    $ 55,389,516

Less 50% to exhibitors                                                               -  27,694,758

Gross distributor margin                                                          = 27,694,758

Less 10% P&A reimbursement                                                 -    5,389,516

Less 15% distribution fee to Lions Gate                                -    4,154,214

Gross producer margin                                                              = 18,151,028

Less production budget (est.)                                               -  10,000,000

Net producer margin                                                                  =   8,151,028

While the numbers aren’t in yet, Lions Gate also will handle domestic DVD sales, for which it will earn a distribution fee, typically in the range of 15%.  It also may handle domestic TV sales (when that window materializes), for which it will earn a distribution fee, typically in the range of 5%.  In some cases the distributor gets a slice of the net producer margin, however in this situation it seems unlikely seeing as how the Lions Gate didn’t incur any proprietary risk in connection with the property such as putting up P&A funds or paying the producer an advance against anticipated revenue.  Significantly Lions Gate will earn zero on foreign sales, even though a domestic theatrical release considerably enhances the value of those rights.  All foreign sales revenue will be retained by the producer (Gold Circle), subject to whatever foreign sales agreements it has in place.

From the producer’s standpoint I would evaluate this as an excellent result, though of course out of this the producer has to deduct all of its selling, general and administrative costs; together with post-production interest (“Haunting” sat in the can for over two years before being released).  It also has to amortize all of its failures over those films that are successful.  Gold Circle’s “New in Town” with Renee Zellweger, for example, made $16.7 million, yet cost approximately $15 million to make; “Over Her Dead Body” with Eva Longoria made only $7.6 million, with approximately the same negative cost.  Both are subject to the same arithmetic set forth above, resulting in huge losses. 

From the distributor’s point of view, however, these deals are rarely profitable.  The reason why is that the distributor’s services are inefficiently priced.  The value of a domestic distribution relationship to the producer far exceeds the amount the distributor charges for services (particularly with foreign sales, where Lions Gate earns nothing, even though having a domestic theatrical release significantly enhances the value of those rights).  The distributor typically undercharges for its services in relationship to their actual cost.  By the time personnel costs and corporate overheads are factored in, the distributor often spends more than it makes.  Finally and most importantly the distributor loses return on time.  Every property takes a certain amount of effort and energy to market, advertise and promote.  The amount of this activity isn’t scalable to revenue actually received.  Every minute the distributor spends servicing third-party properties, it could be spending on working its own proprietary films, which exponentially greater revenue potential.  For this reason it truly might be said that the third-party distribution deal is the last refuge of a firm on the edge of failure, because in the end it lacks sufficient creativity to develop and produce its own product.