I am Hollywood

Chapter 625: Chapter 626: We Continue



[Chapter 626: We Continue]

After becoming shareholders in Firefly Films, both Warren Buffett and David West began paying close attention to the Hollywood film market.

After Eric finished speaking, the three men realized that in Hollywood this year, whether it was the massive successes like The Mummy and Saving Private Ryan, or the failures such as Beverly Hills Cop III and Wyatt Earp, all adopted the comprehensive release strategy that Eric had referred to. Thus, they all endorsed the conclusion drawn in the first article.

None of the three felt anxious enough to ask Eric why he was discussing this; instead, they quietly followed along as Eric turned to the next page of the materials.

"First, I want to clarify something," Eric said as he flipped to another page of the document. "My plan is to shut down Disney's hand-drawn animation department, but I never said I wanted to stop Disney's animation production altogether. I simply want to shift Disney's animation studio from traditional hand-drawn animation to more advanced digital animation production."

Of course, Buffett and the others were aware of this, nodding along with smiles. They understood why Eric would say this; external rumors had exaggerated his actions to the point where people believed he wanted to replace the Disney brand with Firefly.

Eric smiled and said, "Now, the next materials compare four animated films released between 1991 and 1994: Beauty and the Beast, Aladdin, Toy Story, and A Bug's Life. These four films represent typical 2D and 3D animations. Overall, we can see that the total box office of Beauty and the Beast and Aladdin slightly exceeded that of the two 3D animations.

However, when we analyze the box office trends, it is clear that Beauty and the Beast and Aladdin follow a long run exhibition model, with box office revenue for the first eight weeks accounting for only 57% and 53% of their total box office respectively. In contrast, Toy Story and A Bug's Life had corresponding numbers of 89% and 88%, exemplifying the comprehensive release model.

Moreover, we can observe that Toy Story and A Bug's Life rapidly dropped below 1,000 screens after 13 and 12 weeks respectively, making way for other films. However, Beauty and the Beast and Aladdin maintained their 1,000 screen counts for 25 and 21 weeks, respectively. I believe that in the coming years, as comprehensive releases dominate the market, theaters will never allow such prolonged occupation of a large number of screens."

Tom Murphy asked, "Eric, this doesn't seem to prove that 2D animation is destined for extinction. We could easily apply a comprehensive release model to 2D animation, wouldn't The Lion King be an example of that?"

David West and Warren Buffett nodded in agreement.

Eric appeared to anticipate their question, maintaining his smile as he said, "Let's continue to the next set of materials."

Buffett and the others exchanged glances and turned to the next page once more.

"What I'm going to explain next is why 2D animation cannot use the comprehensive release model," Eric noted, glancing at Tom Murphy. "We've already observed that The Lion King is merely an event film. From the box office trends of animated films like The Little Mermaid, Who Framed Roger Rabbit, Beauty and the Beast, and Aladdin, we have not seen any signs of expansion in the 2D animation market. So, I hope everyone can temporarily set aside The Lion King, okay?"

Tom Murphy nodded awkwardly, while Warren Buffett and David West focused on the documents in their hands.

Eric continued, "What you see here is a comparative chart of the weekly box office for four animated films. We can observe that the weekly box office for the two 2D films fluctuates significantly. Even after eight weeks, the numbers can rise and fall unpredictably, sometimes dropping to just over $5 million, while suddenly spiking to over $8 million the next week. In contrast, the other two films have a steady decline in box office trends similar to live-action films. The question is, why does this happen? The answer lies on the next page."

As all four flipped to the next page, Eric looked up at the three men and smiled, "Isn't that astonishingly long bar on the first graph catching your attention?"

After Eric mentioned it, even those who hadn't initially noticed it -- Buffett and the others -- now saw the strikingly long bar on the graph.

"This bar graph lists the audience proportions for 2D and 3D animated films by various age groups. To present the results more clearly, I divided the audiences into four age groups: (0- 13 years), (14-18 years), (19-28 years), and (>28 years). This data is derived from Disney's past market research reports and is undoubtedly accurate."

Eric gave a brief explanation. "We can clearly see that for 2D animated films, the audience aged 0-13 occupies an incredible 41% of the total audience, while the same figure for 3D animations is only 26%. However, this doesn't mean there's a decrease in the number of child viewers for 3D animations; rather, it indicates a significant increase in the number of viewers over 13 years old. The chart shows a stark contrast in the audience proportions at ages 14-18, which are 17% and 29%, respectively. Similarly, in the 19-28 age group, the figures are 7% and 16%. I believe a substantial portion of that 7% in the 2D category is likely made up of parents taking their children to watch movies. The audience aged 28 and older watching 2D animated films is likely there primarily to cater to their children's viewing needs." After summarizing the data, Eric stopped looking at the document, looking up and said, "Disney has a tradition of re-releasing previous 2D hand-drawn animated films every seven years because Disney sees the 7-13-year-old child audience as a key demographic. Every seven years, a whole new batch of child viewers emerges. Through this detailed data analysis, we can see why 2D animated film box office trends are unstable and why they only adopt a long run exhibition model.

Because 2D animated films target a very young audience, these child viewers lack independent decision-making abilities and must be accompanied by parents to watch the films. Even during summer vacations, adults have work commitments. They can often only take children to see 2D animated films on weekends or during specific holidays. To adapt to uncertain schedules of parents, film companies must employ the soon-to-be-phased-out long run exhibition model to fully explore the box office potential of 2D animations. Conversely, 3D animated films differ. This new animation format not only appeals to young children but also resonates with teens who possess their own purchasing power and a segment of adult viewers. In the previous audience proportion statistics, the figure for child viewers in 3D animated films was only 26%, while the combined proportion for the primary movie-consuming audience aged 14-28 reached 45%. This proportion is comparable to that of live-action films, which is why 3D animated films can adopt the same comprehensive release strategy as live-action films."

Once Eric finished speaking, Buffett and the others fell into a moment of contemplation. He didn't disturb their thoughts but raised his hand to check his watch. Fifteen minutes had gone by unnoticed, and he didn't want the restaurant staff to come barging in again, so he leaned closer to Kelly Haynes and whispered a few words.

...

While Kelly Haynes felt a bit reluctant to leave Eric's passionate presentation, she obediently stood up and walked toward the exit. As she reached the door, she realized that Eric had been so close to her ear just moments ago that if he had leaned in slightly more, he could have kissed her cheek. Yet, she felt no resistance; instead, her ear warmed where Eric's breath had

brushed against her.

...

Hearing the soft click of the door behind her, Eric looked back at the three men, smiling and saying, "So, shall we continue?"

Buffett and the others nodded in agreement. Although they still had many questions, the pile of materials left in their hands made them instinctively assume that this young man had surely considered any potential inquiries they might have.

At that moment, Tom Murphy and David West felt nearly convinced by Eric's arguments,

while Warren Buffett gazed at Eric with deep admiration and eagerness. At 65, he was still vigorous, yet the issue of mortality had begun to trouble him and his partners. Many of Berkshire Hathaway's partners had asked him multiple times about the next successor of the company, and clearly, none of Buffett's children were suited for the job.

Though Buffett believed he could work for at least another decade and had humorously

mentioned that he would haunt Berkshire Hathaway even after his death, everyone -- including himself -- knew well that once he passed, Berkshire Hathaway would face

uncertain changes.

Buffett had made multiple attempts to groom a successor, but all efforts had failed. Now, this young man who could calmly recognize industry trends during The Lion King's box office success and chose long-term planning over immediate benefits possessed the insight and decisive execution he had always meant to find in an ideal heir.

Yet...

A strong sense of regret soon grew within Buffett. The wealth and status Eric currently held

also meant that he was unlikely to assume control of Berkshire Hathaway in the future. Buffett preferred his successor to stay focused on the operations of the company without being distracted by other ventures, but Eric's business interests had far surpassed those of Berkshire Hathaway. If he entrusted Berkshire Hathaway to Eric, it would be challenging for Eric to devote much energy to managing another vast company.

Though painfully recognizing this point, Buffett still felt a twinge of unwillingness. Eric was unaware of Buffett's thoughts. Seeing the three men show no signs of dissent, he

said, "Now that we've discussed the external factors impacting 2D animation, let's move on to the internal factors. I'm sure you've all noticed the cost differences between the two types of films. Yes, the two listed 2D animated films both had budgets under $30 million, while Toy Story and A Bug's Life had budgets of $50 million and $80 million, respectively."

At this point, Eric paused for a moment and continued, "First, I need to clarify something: whether it's 2D or 3D animation, the primary costs are labor costs. Every frame in both types of animated films is hand-drawn; only the medium differs. Because hand-drawn animation has been around for over half a century, the industry is mature, and there's a large number of animators. Therefore, even among Disney's finest hand-drawn animators, few earn over $100,000. However, digital animators are a newly emerging profession and are in short supply. After the success of Toy Story, to prevent Pixar's skilled digital animators from being poached by other studios, Firefly had to increase their salaries. Similarly, post-The Lion King, if Disney wanted to maintain its hand-drawn animation department, animators whose average salaries were around $50,000 could see their monthly salaries add $10,000 in the future. This means the production costs for 2D animation could nearly double..."

Tom Murphy suddenly interrupted Eric with a laugh, "Eric, you just said that The Lion King is

an event

movie?"

"Of course, but my perspective doesn't mean that all of Hollywood shares it. Everyone else seems to think that the golden age of 2D animation has returned, right?" Eric recognized Tom Murphy was joking, offered a brief explanation, and continued, "The production cost for The Lion King already surpassed $45 million, so if it doubles, the future cost of 2D hand-drawn animation could exceed $100 million."

Eric clearly remembered seeing an announcement in 1999 from Disney promoting its upcoming hand-drawn animated feature Tarzan as the highest-budget animated film in history, with a reported production cost of $150 million. However, this film only grossed $170n/ô/vel/b//in dot c//om

million at the North American box office. Based on the experience he had accumulated by now, including production costs and huge marketing expenses, the likelihood of Disney incurring losses on this movie was remarkably high.

"So, if in the coming years, theaters are no longer willing to waste screen resources for the long run of 2D animated films, with a production cost of $100 million and a possible average marketing budget rising to $50 million, we can be sure that unless films like The Lion King that are labeled event films come along again, it will be incredibly difficult for companies to recover their production costs through box office earnings. And of course, you may argue that animated films' peripheral incomes have always been substantial, so let's take a look at the next set of statistical data..."

Buffett and the others were unexpectedly struck by a wave of amusement from Eric's last statement, laughing heartily as they turned the page. Just then, Kelly Haynes quietly returned

to Eric's side.

*****

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