Chapter 104: The Monopoly of the Seven Majors

Without any suspense, the headlines of the newspapers the next morning were all about "Simon Westeros' New Romance Exposed."

In an apartment at the Century Building.

Simon woke up to the sound of the telephone ringing and remained on the phone almost continuously until he finished breakfast.

Jonathan Friedman and Patricia Kimberley called first thing to inquire about what exactly was going on between Simon and Sandra, and how they planned to handle the media. Simon's response was to keep their statements vague. Sandra had initiated the kiss the previous night, and if he immediately declared that there was nothing between them, it would undoubtedly embarrass her.

Naturally, Jenny also called, her tone a mixture of reproach and jest, accusing Simon of being a flirtatious scoundrel, before the conversation drifted towards the more profound topic of kissing techniques. Simon patiently indulged her tangents and even tried to broach the subject of resuming their dating, only to be rebuffed again due to serious issues of pride.

In a string of calls, Denis O'Brien, head of Artisan Entertainment, also rang up.

Artisan Entertainment had agreed to participate in the production of "When Harry Met Sally," and Denis O'Brien wanted to discuss the contract details formally with Simon. Typically, this would be Amy's role, but with her needing to head to New York, Simon, having no major plans for the weekend, took it upon himself.

After two days of intensive negotiations, Daenerys Studios and Artisan Entertainment formally signed a collaboration agreement on Monday. Upon her return from New York, Amy Pascal began discussions with major film studios about distribution partnerships.

Then, the strong monopolistic hold of the major film companies over Hollywood distribution channels and the vulnerability of Daenerys Studios' fledgling status became evident again.

At the headquarters of Daenerys Studios.

Simon and Amy sat on the sofa in his office reception area, discussing in low voices the recent outcomes of Amy's negotiations with several major film studios, the atmosphere unavoidably somber.

Due to the consecutive successes of "Run Lola Run" and "The Butterfly Effect," producers had initially shown interest in investing in "When Harry Met Sally."

However, once Daenerys Studios decided to produce it independently and only wanted to collaborate with the big seven on domestic theatrical distribution, attitudes changed markedly.

Paramount and Universal outright refused Daenerys Studios' offer for collaboration, citing fully booked distribution schedules.

That left five.

Since Daenerys Studios only wished to license North American theatrical distribution rights, Columbia demanded a buyout, offering merely $3 million.

For an independent production distributed by Hollywood studios, the typical box office revenue share is around 20%. Based on this percentage, Columbia's offer of $3 million equated to an estimated $15 million box office in North America.

A $15 million box office wasn't too bad for that era. Films with a production cost of $15 million achieving this in North American box office typically recoup their investment through subsequent distribution channels.

However, this figure was far below Simon's recollection of "When Harry Met Sally's" box office performance; he naturally couldn't accept it.

The remaining four were willing to go with a revenue-sharing model.

MGM and Disney demanded a high distribution commission of 15%, with marketing costs billed separately. Moreover, both required Simon to sign additional conditions like directorial and screenplay deals and could not offer satisfactory screen counts or release slots.

Next were Fox and Warner.

Fox was willing to offer a release slot at the end of March around Easter, guaranteeing a minimum of 1,000 screens and a distribution commission of 12%. However, Fox also demanded the rights to handle the distribution of "When Harry Met Sally" through other North American channels.

Warner offered the best release slot among the seven, in November, around Thanksgiving, guaranteeing a minimum of 1,000 screens and a distribution commission of 10%. However, they also wanted the rights to handle distribution through all channels outside of North American cinemas.

The biggest difference between agency distribution and buyout pre-sales lies in the timing of payment.

If Daenerys Studios retained the rights to distribute through other channels, they could quickly recoup funds through buyout deals for subsequent distribution rights, as was the case with "Run Lola Run," once "When Harry Met Sally" hit the theaters and performed well.

Choosing agency distribution, however, meant waiting for the film studio to complete distribution across all channels before they could settle payments.

For instance, with video tape distribution. A film would only hit the market three months after leaving theaters, following a window period. Even if settlements were quarterly, it would still mean a wait of at least another three months.

Thus, opting for agency distribution, even if it ultimately brought in more profits, the long payment cycle of several years was something a small company like Daenerys Studios couldn't afford.

In essence, the conditions offered by the five willing majors were far from what Simon had hoped for.

However, that

 five of the seven major film studios were willing to collaborate with Daenerys Studios was itself a result of Simon's success with two consecutive hit films. For an independently produced film, with Simon wanting to retain more rights to distribution, it was unrealistic to expect the majors to offer favorable conditions, especially not for prime slots like the summer season.

This situation was a true reflection of what independent Hollywood producers regularly faced.

Although Hollywood wasn't short of second and third-tier film companies capable of distributing films independently, the monopoly of the big seven over film distribution channels was no trivial matter, only fully appreciated by those who experienced it firsthand.

Take New Line Cinema, for example. Founded by Robert Shaye in 1967, it wasn't until 1984 with "A Nightmare on Elm Street" that they could secure just 165 screens for its debut, and that too on a non-peak date of November 9.

Even the recent "A Nightmare on Elm Street 3," although finally breaking the 1,000 screen mark, debuted on an even less favorable date of February 27. For major studios, such release periods were virtually graveyards for films, reserved only for movies with little commercial expectations or those produced by independent filmmakers.

So, why didn't New Line choose a summer or Christmas release?

Because they couldn't get in.

Even after the antitrust "Paramount Decree" forced the separation of production studios from theaters, the deeply intertwined interests between major film companies and North American cinemas remained largely intact.

Moreover, with the Reagan administration's ongoing deregulation of the media industry, the Paramount Decree had effectively become obsolete.

Currently, North America had about 22,000 cinema screens, with the 7,500 in prime urban locations contributing up to 80% of the annual box office revenue.

After the demise of the Paramount Decree, companies like Warner, Universal, and Columbia had re-entered the cinema exhibition business and now controlled nearly half of these core 7,500 screens.

Owning direct control over 40% of North America's total box office revenue, plus close ties with other cinema chains, meant second and third-tier film companies might manage minor successes but could never threaten the majors' monopoly.

Fully aware of these dynamics, Simon still felt a profound frustration.

Looking again at the memo listing the majors' collaboration terms, Simon raised his head to Amy Pascal and asked, "Amy, what do you think are the chances of us distributing this film ourselves?"

Amy Pascal shook her head, "Simon, that's too risky. This is $15 million, not the $1.8 million from 'A Nightmare on Elm Street.' Domestic box office figures are crucial for setting the terms of subsequent channel distributions. Doing our own distribution isn't impossible, but we might end up with less than half the box office that the majors could achieve, which would severely impact all subsequent revenue streams. It's simply not worth it."

After listening to Amy, Simon fell silent, understanding her reasoning.

His gaze returned to the memo, weighing the various collaboration proposals in his mind.

Columbia's $3 million buyout was certainly out of the question.

Fox and Warner, even if "When Harry Met Sally" still managed to hit $90 million at the North American box office, the share Daenerys Studios would receive from the box office might still struggle to exceed $20 million.

Simon valued the subsequent distribution channels' revenue more, as was the case with "Run Lola Run."

These two were also ruled out.

That left MGM and Disney.

However, the release slots offered by MGM and Disney, one in early October and the other at the end of February, were all graveyard periods.

Moreover, Simon was not keen on signing any more directorial or screenplay deals.

It was already Thursday.

On Monday, Simon had handed the "The Lion King" screenplay to Jonathan, hoping to collaborate with Disney, but first had to deal with Fox, owing to a previous contract that required another screenplay after "The Butterfly Effect" and "Final Destination."

Although Fox was not into producing animated films, their lawyers had wrangled all day before signing a formal mutual understanding agreement, allowing Jonathan to pitch the project to Disney.

With these thoughts, Simon sighed inwardly, knowing he had to face reality.

At the moment, the only thing that could make the major film studios eager was his own name. To achieve a partnership, he would have to sign another film deal with either MGM or Disney.

He circled MGM and Disney's names on the memo and handed it to Amy, saying, "Keep in touch with these two, Easter in March with a minimum of 1,000 guaranteed screens, that's our bottom line. Everything else is negotiable."

Amy nodded, her preference also leaning towards these two companies.

As for Simon signing another deal with conditions, Amy didn't see it as a big issue.

Spielberg, for instance, was restricted to directing films for Universal, Warner, and Paramount due to contractual obligations.

Following the success of "Jaws," Universal had converted Spielberg's seven-year exclusive contract into a four-film deal. To this day, Spielberg still owes two films under that agreement.

Thus, despite publicly expressing his dislike for Universal's president, Frank Price, and even stipulating in his contract that he would not work with Price, Spielberg had no choice but to continue working for Universal.

With the agreement in place, they discussed a few more details before there was a knock at the office door.

After Simon permitted entry, Susan opened the door and said, "Mr. Westeros, Ms. Kidman's hair dyeing is complete."

As Susan spoke, a tall, fair-skinned woman with newly dyed black hair entered. It was Nicole Kidman, who was just twenty years old at the time.

Black-haired Nicole Kidman.

Simon and Amy looked up at the young actress. Kidman's change was dramatic, the dark hair giving her a different aura compared to her usual look, potentially adding an intriguing layer to her role in their upcoming project.

Nicole greeted them with a shy smile, subtly self-conscious about her new appearance, but also evidently excited about the opportunities this new role might bring.

Simon, assessing her look, nodded approvingly. "It's a bold change, Nicole, but it suits you. It adds a certain mystery, which is perfect for the character."

Amy added, "The timing couldn't be better with the discussions we've been having with MGM and Disney. This new image might just give us the edge we need."

Simon then turned his attention back to Nicole, "How do you feel about the character? Any thoughts or concerns?"

Nicole took a moment, her initial nerves seeming to settle as she began to discuss her role, her voice carrying a mix of enthusiasm and professional focus. "I've been studying the script, and I think there's a lot to explore with her. I'm particularly interested in her background story and how it influences her actions. It's a challenge, but I'm excited to dive deeper."

Pleased with her engagement and perspective, Simon considered her insights, thinking about how they could enrich the character's depth and the overall narrative. "That's a good approach. We'll ensure you have the resources you need for this research. Also, let's schedule some workshops with the director and co-stars to fully develop these ideas."

As they wrapped up their discussion, Simon reiterated his commitment to pushing for favorable terms with MGM or Disney. "We're going to make sure we have the best possible platform for this film. I want the industry to see what we already know—that you're perfect for this role and ready to leave a significant mark."

Nicole nodded, her expression determined, "Thank you, Simon. I won't let you down."

With a clear plan in place and Nicole's new look sealing her transformation for the upcoming role, Simon and Amy felt a renewed sense of optimism. Despite the challenges in dealing with the big studios, they were reminded of why they ventured into this business—to tell compelling stories and showcase remarkable talent like Nicole Kidman.