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Overheated Production

Overheated Production

April 8, 2007
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" $1,500 used to rent a pretty posh location "

Our story so far: It's a dark and stormy night in the adult DVD business. Sales are off. Competition from other markets is cutting into the profitability of large and small producers alike. Pirates are running rampant. Margins on new releases barely justify their budgets. And worst of all, there are far more titles being released on DVD than can possibly return worthwhile profits for most of the companies making them.

In my last column, I pointed out some encouraging counter-trends that point the way out of this wilderness and provided examples of producers prospering in the current difficult environment, but I left un-addressed the central issue that confronts us all — over-production — until now.

Faced with an avalanche of new videos that retailers can neither rack nor consumers can purchase with confidence, what, in the words of V.I. Lenin, must we do?

The answer, fortunately, is nothing, and it's a good thing too, given our industry's demonstrated inability to work in concert toward its own preservation. No company is going to be the first to slash production for the greater good.

No group of wholesale buyers would even attempt to impinge on manufacturers' prerogatives to make all the unmarketable junk they choose. And no trade association or other industry body has, or ever will have, the power to limit production for the video industry as a whole.

However, while I am not a libertarian in the narrow sense, an advocate for laissez-faire capitalism or a fanatical admirer of Adam Smith, I do believe that overheated markets in which too much product chases too few dollars have a way of correcting themselves. When supply exceeds demand, diminishing revenue often works hand-in-glove with rising costs to stabilize the situation.

Ironically, the thing about which producers bitch the loudest, beyond weak orders and slow pay invoices, is a growing phenomenon that may contain a solution, albeit a somewhat painful one, to the industry's present dilemma.

Not only are sales falling and wholesale floor prices harder than ever to maintain, the fixed costs of producing video for DVD release have been inching slowly upward for the past several years. The line-item increments aren't individually nosebleed inducing, but taken together they do push the totals up to uncomfortable altitudes not all, or even most, video manufacturers can maintain indefinitely.

Here's what I see when my profit margin breaks out budgets for me these days. A permit that used to cost around $400 now runs me more than $700. My camera and lighting rental packages are up about 25 percent from two years ago. Agency fees are up nearly 40 percent from five years back and fewer performers book independently.

In the past, $1,500 used to rent a pretty posh location. Nowadays anything beyond the typical beige Chatsworth, Calif., living room will run double that.

Then there are the people. Virtually every member of my crew charges about $100 more per shooting day than he or she did when first hired, and while I could undoubtedly replace these individuals with others who charge less, my current personnel line-up commands higher rates based on proven reliability, so experimenting with untried hands might result in expensive post-production damage control. And speaking of post-production, my best editor has had to triage demand by boosting his fees nearly 30 percent.

Now factor in talent costs. While the short-lived phenomenon of paying mega-rates for so-called bankable names may have passed, simply getting attractive, reliable players for the demanding sex scenes audiences have come to expect has become an increasingly costly proposition.

Scene rates for female performers have crept up rather gradually, with straight girl-girl talent heading toward eight bills — or even a grand for the most desirable — and girl-girl anal talent pricing out at standard boy-girl anal rates.

Straight boy-girl performers can still be had for well under $1,000, but because there is so much more anal being shot now, boy-girl anal talent is almost more the rule than the exception, and nearly any girl a producer wants to hire will get $1,200, if not $1,500, for that. Add more penises and the rates will climb steadily. I've paid as much $1,900 in the past year for a DP with a much-in-demand female performer.

But the real explosion in talent costs has been among the male players, and in all fairness, it was overdue. A $500 scene rate was the male standard for so many years, regardless of the performers' abilities or the nature of the work, and many producers took male talent for granted. Now with an expanding audience, including women and couples, bringing a higher expectation of male attractiveness to the mix, plus the increased need for multi-player scenes with more complex configurations, appealing and dependable male performers can, and do, command four-figure sums.

The only creative workers whose pay has remained static are directors, but the results of beating down their compensation in relation to that of everyone else on the unit tend toward laziness and larceny.

Meanwhile, the downward pressure on budgets from producers facing diminishing sales, yet still stuck on the idea that making more videos for less money will somehow get them out of the ditch, sets up an inevitable collision between the irresistible force and the immovable object. It's axiomatic that profits can't be created out of economies; they can only be generated by expanding revenues. And when economies are essentially undermined by hard costs that continue to rise, the whole more-for-less paradigm implodes.

Which brings us to the good news in an effective disguise: This industry's ability to crank out 1,000 mediocre new products a month, thereby preventing potentially lucrative titles from reaching larger audiences and breaking away into real profitability, may be coming to an end as a result of market forces that cannot be controlled by a directive form.

Companies that have the capital depth to survive the inexorable escalation of production budgets may be compelled to allocate their resources more carefully and wisely, creating fewer releases and marketing them more effectively.

Companies that don't may be driven out of DVD production altogether, limiting their sales to Internet downloads but eliminating the expense of manufacturing and distributing physical products.

The benefits of this approach to surviving DVD producers, distributors, retailers and consumers are obvious. The question is how can this approach, which departs so radically from the overheated production cycle that has characterized this industry for a decade, be made to work for companies of varying sizes, demographic skews and products?

Once the inevitability of rising costs is accepted as a given, we can begin to look realistically at more effective use of investment dollars. I have a few ideas to share on that subject, but I'll save them for next time.


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