20th Century Fox counts on its mighty clout: international distribution

Article  by  Caroline NATAF  •  Published 30.05.2011  •  Updated 31.05.2011
Created in 1935, the Twentieth Century Fox studio gives the impression of enjoying absolute control and success.

Summary

In 2010, Twentieth Century Fox celebrated its 75th anniversary with great pomp, and prolific marketing campaigns for the relaunch of DVDs of the films that produced the studio’s finest moments. It was in 1915 that William Fox created the cinema chain, Fox Film, which he then merged with Twentieth Century Pictures, a film production company founded by Darryl F. Zanuck, Joseph Schenck, Raymond Griffith and William Goetz. In 1935, the names were combined to make Twentieth Century Fox. The Sound of Music was one of the first great successes of all times, but the film did not save the company from a family power struggle, and never-ending management changes, while at the same time television was gaining ground, and cinema theatres, one of the key businesses of the studio, were not filling up as they had been. To keep up with the times, during this blessed period when the first Star Wars film came out,Twentieth Century Fox started a strategy to diversify so that it would not be so terribly dependent on revenue from its films, embarking on, among other things, investments in Coca-Cola and the Aspen ski resort. The incredibly sudden buyout of the studio by two financiers, Marvin Davis and Marc Rich, did not last long, as the pair fled from the United States after committing tax fraud. This is where News Corporation came in, the Australian media group run by Rupert Murdoch, who bought Twentieth Century Fox in 1985.

News Corporation is a perfect example of vertical integration, and has everything it takes to complete its project to become omnipresent, through newspapers, television channels via cable and satellite, and Twentieth Century Fox that produces both programmes for television and films for the cinema. Indeed, cinema accounts for 20-23% of the consolidated turnover of the group each year, with or without Avatar ... Yet, the studio is only in fourth place in terms of distributor market share in America, behind Warner Bros, Paramount and Walt Disney. The studio makes its profits from films of calibre, even if the independent film subsidiary, Fox Searchlight is a case of not seeing the wood for the trees as far as brand image is concerned; Twentieth Century Fox is defined first and foremost by its financially pragmatic stance and its positioning as a film distributor.
 

A SPECIAL POSITION WITHIN THE NEWS CORPORATION GROUP?

The Twentieth Century Fox studio has been owned by Newscorp for 25 years now, and appears to be able to withstand stormy times as far as the industry is concerned. The most striking feature of the media group is its desire to exploit interaction between its various entities: through the press, television channels, Internet. This makes it easier to promote Fox films, and to schedule them for various windows. In 2010, the turnover of Twentieth Century Fox went from 7,631 million dollars, an increase of 29% compared with 2009; the operating results practically doubled, reaching 1,349 million dollars in 2010 compared with 848 million dollars in 2009. The film Avatar by James Cameron, a success that generated worldwide takings of 2.7 billion dollars certainly had something to do with that, but we should not forget that the operating results of Twentieth Century Fox manage to stay around the billion dollar mark, making a real contribution to the financial health of News Corporation. The profits, in the first instance, come from cinema takings, but a large part also comes from televised showings of its films. Despite this balance, the studio is only in fourth place as a distributor, in terms of market share. If, however, we take a harder look at overall profitability, we can see that Twentieth Century Fox brought out 19 films in 2010 coming to a total of 1.4 billion dollars (around 72 million dollars per film) compared with Warner Bros, number one in terms of market share, which brought out 32 films coming to a total of 1.8 billion dollars (around 58 million dollars per film). If we look even more closely at the figures, Avatar raked in 352 million in 2009 and 408 million in 2010: in 2010 no Twentieth Century Fox film reached the 100 million dollar mark in the box office (Date Night just about scraped in 98 million), whereas 2009 was rather successful with four films that exceeded 150 million, and which are unsurprisingly their own franchises, such as Ice Age, Alvin and the Chipmunks, X-Men and Night at the Museum. These five films, taking into account the share from Avatar for 2009, account for 75% of the annual turnover out of the twenty-two films released. The other seventeen films were either bad investments or films that were simply not sufficiently marketed. Fox Searchlight comes in at ninth position, with a 1.53% market share; it brought out 10 films and raked in a total of 160 million dollars, a mere drop in the ocean for Fox financially, but a positive image.
 
The News Corporation has been through a period of ups and down regarding the management. In 1987, Rupert Murdoch appointed the media mogul, formerly of Paramount, Barry Diller, who put cinema somewhat to the side to concentrate more on developing the televised content of Twentieth Century Fox. Then, for the first time, a director, Joe Roth, was appointed to the head of the studio: in 1991, he managed to win its initial market share in the distribution sector by producing scripts that were refused by others, such as the studio’s first animated film Anastasia. He left in 1992 to become an independent producer for Walt Disney, and was replaced by Bill Mechanic, who had a tense relationship with Murdoch because of decisions made about the films – the shareholder himself cancelled the commencement of production of the film by Steven Seagal. Titanic was the most obvious illustration of the lack of trust that Murdoch had in Mechanic who carried the film with James Cameron: just before the film came out, Murdoch sold the American distribution rights to Paramount for some sixty million dollars, while the film brought in six hundred million in America alone (1.8 billion worldwide). Luckily, the studio retained the rights for the rest of the world. Finally, Peter Chernin, from the television division of Fox, smoothed things out by implementing the instructions of Rupert Murdoch as closely as possible. In 2000, two executives were appointed to the head of the studio: Jim Gianopulos, who had been at Fox since 1994 in the international division, and Tom Rothman, who had been running Fox Searchlight since it was founded, also in 1994. They have now been at the helm for over ten years. They are often quoted as being among the most powerful in the industry in America, but they do not receive unanimous approval from directors and producers. Twentieth Century Fox is not so much a production partner, as a film distributor.
 
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A FILM DISTRIBUTOR

Twentieth Century Fox is broken down into television, cinema, and film studios. Given that the schedule of the cable channels - FOX and STAR mainly - accounts for over half of the operating income of News Corporation, and that they are broadcast throughout the world, the reality shows such as the global success American Idol and television series such as 24, or more recently Glee, are a boon for the group. The film business is however not overlooked. Twentieth Century Fox created Fox Animation in 1997, but in light of the commercial flops, closed it down in 2000, to put its hopes in Blue Sky Studios which the group bought in 1997. The animation studio indeed created Ice Age, one of the company’s own franchises. Yet, in November 2009, Fox Animation rose from the ashes with the release of Fantastic Mr. Fox, the first animated film by the film-maker Wes Anderson.
 
The studio signed distribution agreements with independent producers including New Regency, the production company for Fantastic Mr. Fox, Alvin and the Chipmunks and Knight and Day, of which News Corporation now owns 20% of the shares. To maintain these agreements, Twentieth Century Fox has been receiving finance since 2005 from the hedge fund, Dune Capital Management, usually for two to three years, and this time covering 35% of its production costs; the last agreement showed the amount of 500 million dollars, which was used up very quickly for the production of Avatar. This means that the films are financed with debt, based on forecasts of takings for films in cinemas and ultimately on estimates of advertising revenue on television channels. The other producers that the studio works with have non-exclusive agreements so that they can develop projects in several different studios at the same time: for example, Unstoppable and The A-Team were distributed by Twentieth Century Fox, while American Gangster and Gladiator were distributed by Universal – all these films were produced by Scott Free Productions, owned by the renowned Tony and Ridley. The studio continues to develop its franchises with varying levels of financial success, and highly divergent public reactions, as has been the case over the past five years: Die Hard 4 (380 million dollars in worldwide takings with a budget of 110 million), X-Men Origins: Wolverine (370 million dollars with a budget of 150 million), Alien vs. Predator (172 million dollars with a budget of 60 million). These three examples show how Twentieth Century Fox invests: the needs of the films – products of global proportions with colossal budgets that America alone would not be able to make profitable. It should also not be forgotten that in 2010, Twentieth Century Fox took its first steps in China and in India by way of Fox Intl. Prods., called Fox Star in both countries, the aim of which was to produce and distribute films for the local  market; it also acquired a 9% share in Rotana, the media empire of prince Walid Ibn Talal, operating in the Middle East and North Africa, for the sum of 70 million dollars[+] NoteSource: Annual Report 2010.X [1]. It should also be pointed out that the prince, via Kingdom Holding Co. invested 3 billion dollars in News Corporation: after Rupert Murdoch, he is therefore the group’s second largest shareholder. The intention of the studio is to have a global presence, and to conquer as many territories as possible, in the first instance via the films of Twentieth Century Fox, and secondly through products which will be considered local given the location of the studio.
 
Twentieth Century Fox, just like other studios, set up its homing device for independent films, Fox Searchlight, in 1994. At a time when Miramax, set up by the Weinstein brothers, was enjoying success, many studios marketed themselves as providers of this style of film (like those of Quentin Tarantino for example), thinking of easy profit. Now, after the 2008 financial crisis which saw the majority of these subsidiaries closing down, Focus Features at Universal, Sony Pictures Classics at Sony and New Line Cinema at Warner Bros continue to be in business[+] NoteIn February 2011, it was announced that the studio had reduced the number of film releases and had made part of its staff redundant.X [2]. Indeed, in 2008, Fox Searchlight prevented a film by Warner Bros coming out directly on video, and which became more or less a blockbuster: Slumdog Millionaire... The original idea behind creating this subsidiary was to put its money on independent English films, more often than not drama or horror films, and also films not in English. The initial successes came along quickly with The Full Monty, Looking for Richard, Juno, Little Miss Sunshine, and more recently Slumdog Millionaire and 127 Hours by Danny Boyle, The Wrestler and Black Swan by Darren Aronofsky. These films, on the whole, have received critical acclaim, but not on par with the commercial successes of the parent studio. Fox Searchlight distributes the films bought during festivals or that result from development agreements, like the one that was current until recently with the English company DNA Films, with which a joint venture (a company held 50/50 by a limited number of partners) was created at a cost of 50 million dollars to produce English films for global distribution (including 25 million from the Arts Council England). They made the following successes: The Last King of Scotland, Notes on a Scandal, Sunshine and 28 Weeks Later; but DNA has just signed an agreement with the international seller, IM Global, which the Indian group Reliance recently invested in. To get around this lack of English-language content, Fox Searchlight has just signed an agreement with Ingenious Media: this credit institution that manages various funds amounting to ten billion dollars is to provide the studio with 14 million dollars every year; the overall agreement covers around thirty films, each with a budget of less than fifteen million dollars. Ingenious Media may invest up to 30% of the budget per film in equity (cash investment), in return for which Fox Searchlight will guarantee that the film will be distributed in North America, which is a significant benefit for an independent film, given the increasing rarity of independent American distributors (unlike the video market). It should be noted that Ingenious Media had jointly invested with Dune Capital Management 60% of the budget of Avatar. Fox Searchlight was thereby able to provide the prestige required by Twentieth Century Fox at a reasonable cost.
 
DVDs still account for a significant part of the turnover via Twentieth Century Fox Home Entertainment. In America, it distributes 740 films and over 275 non-film products (television, shows) per year. Internationally, the number of releases comes to around 690 films and 160 non-film products. Since 2007, DVDs have been released with Blu-Ray technology. The flagship series The Simpsons is one of the subsidiary’s best selling DVDs, but this entity can also rely on all the series it has bought (from How I met your mother to Ally McBeal via 24) and its own franchises (the Star Wars trilogy is still the number one best seller). If we then compare the twenty cinema releases with the thousand DVD releases, Twentieth Century Fox is positioned as not only a film distributor but as a company that fills the shelves with DVDs.
 
As one of the executives of Warner Bros., Richard Fox, put it so well, “The studios are basically distributors, banks and owners of intellectual copyrights”[+] NotePeter BISKIND, Sexe, mensonges et Hollywood, [Original title : Sex, Lies and Pulp Fiction] Le Cherche Midi, 2006.X [3].
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A GLOBAL MEDIA STRATEGY

Being part of the News Corporation group, Twentieth Century Fox enjoys considerable global clout. One of the aspects that makes the studio special is how efficiently it distributes its products: subsidiaries have been set up in eighteen countries (excluding the United States and Canada), which distribute Twentieth Century Fox films or those of other distributors it sub-contracts to. In 2009, the Pathé group signed an agreement with Warner Bros. for cinema distribution and with Twentieth Century Fox for video distribution; in 2011, Twentieth Century Fox took over full distribution. This includes eleven countries in Europe (Germany, Austria, Belgium, Spain, France, Italy, Norway, Netherlands, United Kingdom, Sweden, Switzerland), four in Asia and the South Sea islands (South Korea, Japan, Taiwan, New Zealand – it should be pointed out that Fox Australia exists, but it only has filming studios, and there is no distribution company in Australia), and the majority of countries in Latin America (seventeen in all). They have therefore been able to combine their efforts for global releases such as The Chronicles of Narnia and Avatar. The press often criticises the studio’s tendency to spend everything on marketing, rather than on development and production. This helps to spread the idea that the studio sees itself more as a large-scale distribution company that has to sell its products than a cinema studio in the traditional sense of the word.

When films are released, the studio can rely on advertising in the channels that are part of the Fox group. MySpace, which is bound to be sold in the coming months, and Hulu, are also there to take part in the viral strategy. The same applies for transversal strategies and merchandising. For example, for Rio, the new animated film by the creators of Ice age, Twentieth Century Fox signed a partnership with Rovio Mobile that will take care of developing a game and mobile applications. Fox Searchlight puts more emphasis on release dates and press involvement: it does not have the same level of resources, and the marketing for each film must be more refined. Social networking sites are used for all films, with Facebook, Twitter, blogs, links to the online shop of ITunes, in order to pay to watch the film via streaming or to buy Fox Searchlight films. There is already a Twentieth Century Fox website to sell its films. Everything is geared towards getting the viewer/web surfer to watch a Twentieth Century Fox film, by buying it legally; the fight against piracy is not far off becoming a crusade, but we should praise the company’s initiative in making content available, something that is not always the case. Recently, the studio announced that it wanted to provide VOD for films that had not done as well as expected in cinemas. Cinemas went up in arms, to which Twentieth Century Fox replied pragmatically that the longer films are shown in cinemas, the less the need will be felt to reduce the number of outlets. This is a well-oiled line, after all, to force them to cooperate.
 
Twentieth Century Fox, one of the six legendary American studios, can hold its head high, and can’t hold back from boasting about the success of Avatar, which prevented it from only having a gloomy film library to offer. It achieved a cheeky result given its releases and the rest of the industry. But the major shareholder, Rupert Murdoch, through his global empire News Corporation, has got his eye on profits, and seeks to express his own views and positions through the company. The studio’s films, just like the group’s television channels, are sometimes not void of political messages; Murdoch puts forward his neoconservative views, which the media are well aware of. The studio relies on producers, and distributes their films, and churns out the company’s franchises, and tries from time to time to be daring: but can Avatar now be considered a “company franchise”? It’s a likely bet that James Cameron, one of the most independent American directors in terms of his visionary techniques will impose his own views. One of the undisputed strengths of the Twentieth Century Fox studio is the brand itself, and consequently the fact that its products can be found everywhere; but it also relies on television, its channels, programmes and its audience (the turnover of the Filmed Entertainment segment strangely never shows up the difference between income from films and from television), and the well-oiled interdependence of all the cogs that make up the News Corporation. This is symptomatic of a studio that gives the impression of enjoying absolute control and success.
 
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Translated from the French by Peter Moss
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KEY DATA

President of News Corporation that owns Twentieth Century Fox: Rupert Murdoch
Co-President of the board and co-CEO: James Gianopulos (since 2000)
Co-President of the board and co-CEO: Tom Rothman
COOs of Fox Searchlight: Nancy Utley and Steve Gilula
 
Turnover (as of 30th June 2010): 7,631 million dollars
Operating income (as of 30th June 2010): 1,349 million dollars
 
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REFERENCES

Edward Jay EPSTEIN, The Big Picture, Money and Power in Hollywood, Random House, 2000.
 
Peter BISKIND, Sexe, mensonges et Hollywood, Le Cherche Midi, 2006.
 
Matthew ALFORD, The Deep Politics of Hollywood In the Parents' Best Interests in Global Research, 26th February 2009.
 
The documentary Outfoxed, Rupert Murdoch’s War on Journalism by Robert Greenwald.
 
News Corporation, Annual Report 2010
The website of News Corporation
The website of Twentieth Century Fox


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Photo credit: safoocat / Flickr.
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  • 1. Source: Annual Report 2010.
  • 2. In February 2011, it was announced that the studio had reduced the number of film releases and had made part of its staff redundant.
  • 3. Peter BISKIND, Sexe, mensonges et Hollywood, [Original title : Sex, Lies and Pulp Fiction] Le Cherche Midi, 2006.
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