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George Clooney vs. Daniel Loeb


Buckeye
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Forgive me if this has already been posted. 

 

“[Loeb] calls himself an activist investor, and I would call him a carpet bagger, and one who is trying to spread a climate of fear that pushes studios to want to make only tent poles,” Clooney said. “Films like Michael Clayton, Out of Sight, Good Night, And Good Luck, The Descendants and O, Brother Where Art Though?, none of these are movies studios are inclined to make. What he’s doing is scaring studios and pushing them to make decisions from a place of fear. Why is he buying stock like crazy if he’s so down on things? He’s trying to manipulate the market.

 

http://movies.yahoo.com/news/george-clooney-hedge-fund-honcho-daniel-loeb-stop-161611465.html

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Love pretty much all of Clooney's work and love that there are artists who put their heart and souls into their work without caring about the $$$.

 

But, he sounds like a freshman film major throughout the whole article.  Which is weird since he's been around long enough to know how the business works.  Transformers 8: CGI crapfest is going to gross 100x more than intellectual indie drama quirkfest.  Putting the degradation of the artistic merit of Hollywood at Loeb's doorstep seems both premature and a few decades too late.

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Love pretty much all of Clooney's work and love that there are artists who put their heart and souls into their work without caring about the $$$.

 

But, he sounds like a freshman film major throughout the whole article.  Which is weird since he's been around long enough to know how the business works.  Transformers 8: CGI crapfest is going to gross 100x more than intellectual indie drama quirkfest.  Putting the degradation of the artistic merit of Hollywood at Loeb's doorstep seems both premature and a few decades too late.

 

Paranormal Activity cost $3M to make and made over $80M.  Argument goes both ways.  Tyler Perry's movies cost about $12-25M to make and generally gross 3-4 times that catering to the black audience. 

 

I think Hollywood operates like the financial industry...you have jackasses of all levels making stupid decisions, and then you have a handful of people who make good decisions and actually make money.  How the hell did RIPD get made?  Cheers!

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I don't know much about Loeb's back story or reputation but I can't quite argue with this quote from Clooney as it stands:

 

“I’ve been reading a lot about Daniel Loeb, a hedge fund guy who describes himself as an activist but who knows nothing about our business, and he is looking to take scalps at Sony because two movies in a row underperformed? When does the clock stop and start for him at Sony? Why didn’t he include Skyfall, the 007 movie that grossed a billion dollars, or Zero Dark Thirty or Django Unchained? And what about the rest of a year that includes Elysium, Captain Phillips, American Hustle and The Monuments Men? You can’t cherry pick a small time period and point to two films that didn’t do great. It makes me crazy. Fortunately, this business is run by people who understand that the movie business ebbs and flows and the good news is they are ignoring his calls to spin off the entertainment assets.
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But, he sounds like a freshman film major throughout the whole article.  Which is weird since he's been around long enough to know how the business works.  Transformers 8: CGI crapfest is going to gross 100x more than intellectual indie drama quirkfest.  Putting the degradation of the artistic merit of Hollywood at Loeb's doorstep seems both premature and a few decades too late.

 

Just have to listen to Munger's lessons on cognitive biases. In this case, incentive bias. Clooney doesn't star in the "safe" movies (ex: the mediocre action movies guaranteed to draw an audience) easy money makers. Loeb wants Sony to make more of those movies and take less risk, which would reduce opportunities for Clooney. Not very surprising that Clooney is against it, even though he is typically a lot smarter than that.

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Sincerely, I don’t understand what Mr. Clooney is complaining about… Mr. Loeb thesis about Sony is very well exposed in his Q2 2013 investor letter… and he points out that

Entertainment remains poorly managed, with a famously bloated corporate structure, generous perk packages, high salaries for underperforming senior executives, and marketing budgets that do not seem to be in line with any sense of return on capital invested. … we have heard repeatedly from key industry players and others: under Mr. Lynton and Ms. Pascal’s leadership, Entertainment’s culture is characterized by a complete lack of accountability and poor financial controls. … Entertainment continues to generate profitability levels far below those of its competitors. Based on publicly-available peer data as of March 31, 2013, Entertainment has trailing twelve month EBITDA margins that are 700 basis points below peers in the Pictures division and 380 basis points below peers in the Music division, despite the fact that each is an industry leader in revenue terms.

Such a poor management of business operations clearly should and could be addressed, right?

 

giofranchi

 

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But, he sounds like a freshman film major throughout the whole article.  Which is weird since he's been around long enough to know how the business works.  Transformers 8: CGI crapfest is going to gross 100x more than intellectual indie drama quirkfest.  Putting the degradation of the artistic merit of Hollywood at Loeb's doorstep seems both premature and a few decades too late.

 

Just have to listen to Munger's lessons on cognitive biases. In this case, incentive bias. Clooney doesn't star in the "safe" movies (ex: the mediocre action movies guaranteed to draw an audience) easy money makers. Loeb wants Sony to make more of those movies and take less risk, which would reduce opportunities for Clooney. Not very surprising that Clooney is against it, even though he is typically a lot smarter than that.

The same applies to Loeb. He doesn't care about any artistic or cultural values, he just wants the most profitable ventures put forth.

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I don't think Loeb has implied that Sony should do anything different with Smokehouse/Clooney.

 

Sony produces more than their share of flops, that suck artistically and commercially. Clooney probably doesn't watch most Sony pictures or look at their numbers - he doesn't have a grasp of how poorly the business is being run. It takes an owner to have a big picture view of a business.

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But, he sounds like a freshman film major throughout the whole article.  Which is weird since he's been around long enough to know how the business works.  Transformers 8: CGI crapfest is going to gross 100x more than intellectual indie drama quirkfest.  Putting the degradation of the artistic merit of Hollywood at Loeb's doorstep seems both premature and a few decades too late.

 

Just have to listen to Munger's lessons on cognitive biases. In this case, incentive bias. Clooney doesn't star in the "safe" movies (ex: the mediocre action movies guaranteed to draw an audience) easy money makers. Loeb wants Sony to make more of those movies and take less risk, which would reduce opportunities for Clooney. Not very surprising that Clooney is against it, even though he is typically a lot smarter than that.

The same applies to Loeb. He doesn't care about any artistic or cultural values, he just wants the most profitable ventures put forth.

 

What's wrong with that?  Isn't the purpose of a business to put forth its most profitable ventures?

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Clooney is just trying to protect his earning power. Studios produce movies. The movie theaters are the marketplace. The buyers are people like us. Movies are for the most part a commodity ( not including comic franchises). Studios need to become the lowest cost producer of a movie ( commodity). This means squeezing out actors.

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But, he sounds like a freshman film major throughout the whole article.  Which is weird since he's been around long enough to know how the business works.  Transformers 8: CGI crapfest is going to gross 100x more than intellectual indie drama quirkfest.  Putting the degradation of the artistic merit of Hollywood at Loeb's doorstep seems both premature and a few decades too late.

 

Just have to listen to Munger's lessons on cognitive biases. In this case, incentive bias. Clooney doesn't star in the "safe" movies (ex: the mediocre action movies guaranteed to draw an audience) easy money makers. Loeb wants Sony to make more of those movies and take less risk, which would reduce opportunities for Clooney. Not very surprising that Clooney is against it, even though he is typically a lot smarter than that.

The same applies to Loeb. He doesn't care about any artistic or cultural values, he just wants the most profitable ventures put forth.

 

What's wrong with that?  Isn't the purpose of a business to put forth its most profitable ventures?

 

Exactly. Something needs to disrupt the cost structure of producing a movie. Actors are not an asset but a just a commodity. I lived in Hollywood for nine months and everyone has a struggling actor EVERYONE. Too much supply not enough demand.

 

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Just have to listen to Munger's lessons on cognitive biases. In this case, incentive bias. Clooney doesn't star in the "safe" movies (ex: the mediocre action movies guaranteed to draw an audience) easy money makers. Loeb wants Sony to make more of those movies and take less risk, which would reduce opportunities for Clooney. Not very surprising that Clooney is against it, even though he is typically a lot smarter than that.

 

The model is changing, and Loeb has no clue what he is talking about either.  Safe movies like John Carter, RIPD or Lone Ranger?  Huge bombs!  Studios are going to put themselves in a more precarious position by taking huge chances on massive concentrated bets as Spielberg alluded to.  How did the Weinstein's build Miramax on independents if that doesn't work as Loeb is trying to say? 

 

I don't think Loeb has implied that Sony should do anything different with Smokehouse/Clooney.

 

Sony produces more than their share of flops, that suck artistically and commercially. Clooney probably doesn't watch most Sony pictures or look at their numbers - he doesn't have a grasp of how poorly the business is being run. It takes an owner to have a big picture view of a business.

 

Take a look at the numbers for the last five years.  Sony is having a tougher 2013, but was leading the market in 2012, and was up there in previous years.  Loeb's job is to point out short-term deficiencies to make his case...as most activists do. 

 

http://www.boxofficemojo.com/studio/?view=company&view2=yearly&yr=2013&p=.htm

 

Cheers!

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Exactly. Something needs to disrupt the cost structure of producing a movie. Actors are not an asset but a just a commodity. I lived in Hollywood for nine months and everyone has a struggling actor EVERYONE. Too much supply not enough demand.

 

No more correct than saying every executive is a commodity.  Certain people CAN make a difference.  Daniel Craig made a difference with the Bond franchise.  Matt Damon made a difference with Bourne.  Johnny Depp made a difference with Captain Jack Sparrow.  We can't say that all actors are simply a commodity, because that isn't true.  Can every actress perform like Meryl Streep or Cate Blanchett?  Nope. 

 

But I do agree that the incentives are wrong.  Why are big-name actors earning their salaries on revenue and not profit?  It's the studio executives that are making decisions like that and misaligning incentives.  When Johnny Depp wants to make a movie like the Lone Ranger, why not say for every $100M we put in, you put in $10M, but then you get 10% of the net profit after distribution and advertising.  You think a dud like the Lone Ranger gets made?

 

What's wrong with that?  Isn't the purpose of a business to put forth its most profitable ventures?

 

If you were only making profitable movies based on net profits relative to cost, all we would be watching are movies by Tyler Perry, Adam Sandler and cheap horror movies!  ;D  Cheers!

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Exactly. Something needs to disrupt the cost structure of producing a movie. Actors are not an asset but a just a commodity. I lived in Hollywood for nine months and everyone has a struggling actor EVERYONE. Too much supply not enough demand.

 

No more correct than saying every executive is a commodity.  Certain people CAN make a difference.  Daniel Craig made a difference with the Bond franchise.  Matt Damon made a difference with Bourne.  Johnny Depp made a difference with Captain Jack Sparrow.  We can't say that all actors are simply a commodity, because that isn't true.  Can every actress perform like Meryl Streep or Cate Blanchett?  Nope. 

 

But I do agree that the incentives are wrong.  Why are big-name actors earning their salaries on revenue and not profit?  It's the studio executives that are making decisions like that and misaligning incentives.  When Johnny Depp wants to make a movie like the Lone Ranger, why not say for every $100M we put in, you put in $10M, but then you get 10% of the net profit after distribution and advertising.  You think a dud like the Lone Ranger gets made?

 

What's wrong with that?  Isn't the purpose of a business to put forth its most profitable ventures?

 

If you were only making profitable movies based on net profits relative to cost, all we would be watching are movies by Tyler Perry, Adam Sandler and cheap horror movies!  ;D  Cheers!

 

Right. Saying actors are a commodity might be too generalized. Although actors are not born they are made. I know some talented actors that just need a "break". The difference between a good to great actor is huge. They are plenty of good actors with a bit more coaching and practice might become great. The great actors have their subcommunications absolutely down.

 

They are masters of facial expressions, voice tonality, body language, and timing. Few actors have this mastered.  A lot of high profile hedge fund  people are basically actors. Perfect everything that FITS the model of a hedge fund wall street type think Daniel loeb and ackman.  How many other actors could have played Daniel Craig's role well? Heres the profile: good looking, muscular, charisma, and british accent. That leaves the pool to say to keep it simple 1,000 actors. 1000 thousand supply to 1 demand ( movie).  Actors just model stereotypes Its a learnable skill just like anything else. You are absolutely right with the incentives not being aligned.

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The model is changing, and Loeb has no clue what he is talking about either.  Safe movies like John Carter, RIPD or Lone Ranger?  Huge bombs! 

 

I was just thinking about the economics of John Carter and Lone Ranger.  While I admit that I am definitely out of my depth when discussing the movie business, I think that these aren't as a huge of a mistake as people think because of the huge amount of upward optionality in these movies.  The companies are not trying to launch just one movie, but a franchise.  So if they were successful, we could easily see two or three sequels, which should be very profitable as well if history serves as a guide.  I could not give an educated guess of the probability between bomb and successful franchise for these movies so maybe even so they were a terrible decision.

 

If anyone has a good grasp of the movie making industry, I'd love to hear your thoughts.

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But, he sounds like a freshman film major throughout the whole article.  Which is weird since he's been around long enough to know how the business works.  Transformers 8: CGI crapfest is going to gross 100x more than intellectual indie drama quirkfest.  Putting the degradation of the artistic merit of Hollywood at Loeb's doorstep seems both premature and a few decades too late.

 

Just have to listen to Munger's lessons on cognitive biases. In this case, incentive bias. Clooney doesn't star in the "safe" movies (ex: the mediocre action movies guaranteed to draw an audience) easy money makers. Loeb wants Sony to make more of those movies and take less risk, which would reduce opportunities for Clooney. Not very surprising that Clooney is against it, even though he is typically a lot smarter than that.

The same applies to Loeb. He doesn't care about any artistic or cultural values, he just wants the most profitable ventures put forth.

 

What's wrong with that?  Isn't the purpose of a business to put forth its most profitable ventures?

Depends on your time frame. Do you want to put our the most profitable movies this summer or do you want to build a studio that great directors, actors, stage people etc. want to work for, and build a history of making quality work?

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The model is changing, and Loeb has no clue what he is talking about either.  Safe movies like John Carter, RIPD or Lone Ranger?  Huge bombs! 

 

I was just thinking about the economics of John Carter and Lone Ranger.  While I admit that I am definitely out of my depth when discussing the movie business, I think that these aren't as a huge of a mistake as people think because of the huge amount of upward optionality in these movies.  The companies are not trying to launch just one movie, but a franchise.  So if they were successful, we could easily see two or three sequels, which should be very profitable as well if history serves as a guide.  I could not give an educated guess of the probability between bomb and successful franchise for these movies so maybe even so they were a terrible decision.

 

If anyone has a good grasp of the movie making industry, I'd love to hear your thoughts.

 

That's the idea...but then I think many studio executives who have the power to give the green light to such a project, probably give their own abilities too much credit. 

 

I think you could equate the film business to the asset management business.  You have huge mutual fund companies that provide mediocre to poor results, but somehow they continue to operate.  Then you have the small independent studios that make very profitable movies on a net margin basis, but don't have the ability to gather the assets...think small hedge fund managers with great results but low assets...yes, I'm speaking about myself!  ;D 

 

In another life, I would have liked to make low-budget documentaries or independent films.  I'm still not ruling it out at some point...at least from the production side!  Incidentally, did anyone see Spike Lee go off on Bloomberg on Friday?  It was very funny!  Cheers!

 

http://www.bloomberg.com/video/spike-lee-i-was-kick-starting-before-kickstarter-mgC7h7nyQgG0sppmFYZgSA.html

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The model is changing, and Loeb has no clue what he is talking about either.  Safe movies like John Carter, RIPD or Lone Ranger?  Huge bombs!  Studios are going to put themselves in a more precarious position by taking huge chances on massive concentrated bets as Spielberg alluded to.  How did the Weinstein's build Miramax on independents if that doesn't work as Loeb is trying to say? 

 

Take a look at the numbers for the last five years.  Sony is having a tougher 2013, but was leading the market in 2012, and was up there in previous years.  Loeb's job is to point out short-term deficiencies to make his case...as most activists do. 

 

http://www.boxofficemojo.com/studio/?view=company&view2=yearly&yr=2013&p=.htm

 

Cheers!

 

Sony has a lot of capital tied up in entertainment - they better be close to the top of the league tables each year. But revenue isn't as important as income for shareholders. Revenue matters more for George Clooney and others whose incentives aren't aligned that well with shareholders.

 

Why do you think Loeb only wants to make "safe" blockbusters (which aren't really safe at all) and not smaller indie films? I don't think he's actually said that.

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