Kuznets’ Remakes

Why does Hollywood’s upcoming production slate have so many remakes of classic science fiction, horror and fantasy films?  Depending on your viewpoint, several reasons.

The Writer’s Guild of America‘s 2008 strike affected the ‘deal flow’ of new scripts that Hollywood’s studios may have purchased and fast-tracked out of development hell and into pre-production.  In the language of managerial economics the studios lacked the willingness to pay (WTP) the willingness to sell (WTS) price demanded by WGA members for their services.  Faced with months of industrial action the studios pursued a fallback option: remakes of existing properties.

WGA’s delay tactics have given the studios a potential financial windfall in the near-term future.  The studios often already own the intellectual property rights for the remakes.  Demographics such as inter-generational shifts creates two consumer segments: people who remember the original films, and Gen X and Gen-Y viewers who are new.  Ancillary markets can be tapped, from cable television re-runs of the original films to DVD repackages/re-releases, ‘versioned’ editions for collectors, and ‘bundled’ packs of both films.  The studios’ windfall is a short-term boost in cashflow which can be used for working capital management or debt-equity leverage.  New Zealand’s Weta Digital also benefits as the films require its expertise in digital special effects; the studios can minimise their production costs through currency hedging and business process outsourcing.

The global financial crisis also benefits the studios through a market timing strategy for film portfolio management.  The production slate announced so far for 2009-2010 is heavily weighted towards dystopian science fiction films from the turbulent late 1960s and the energy crisis/stagflation early 1970s.  There’s also a few 1930s Depression era monster films and 1950s Cold War science fiction.  American journalist Annalee Newitz, amongst others, has observed that Hollywood studios turn to genre films during times of social dislocation; this thesis is central to 1950s film noir and its neo-noir remanifestation in the early 1990s recession, and may also fit the micro-trend of counterterrorism films in the wake of the September 11 terrorist attacks.  Cinema Studies scholar Geoff Mayer has also explored this thesis in Pre-Code Hollywood cinema and the Western genre.

However, there’s another potential pattern here that might be worth further research, even though correlation is not causation.  The 1930s Depression era films appear to fit the 54-to-70 year long macroeconomic cycle (aka the KWave) that Soviet mathematician Nikolai Kondratieff proposed, particularly the Fall and Winter periods of stagnation and recession/depression.  The time period between the 1930s, 1950s and 1970s films also roughly fits the 18-year Kuznets Wave identified by Simon Kuznets, and which might explain the deeper/unconscious interest in 1970s film properties.  Add a mid-1990s wave of films (perhaps neo-noir or the heroin chic of My Own Private Idaho and Trainspotting), and you have a series of macreconomic cycles that span film genres, subcultural imagery, inter-generational audiences and new cohorts of film actors, directors, scriptwriters and producers.

It may be a neat backtesting/retrospective explanation of how Hollywood studios can revitalise their institutional power.  Or, it just may be the theoretical framework for the Entourage crew to shed their up-and-coming careers and achieve some real deal-making longevity.

US Accounting Rules & Global Governance

The Securities & Exchange Commission (SEC) in the United States plans to adopt the International Financial Reporting Standards (IFRS) in order to enhance US competition in global markets.  The IFRS would be harmonised with, and may even replace the existing US accounting rules, the Generally Accepted Accounting Principles (GAAP) that the Financial Accounting Standards Board (FASB) oversees.

 

Critics are concerned the shift from GAAP to IFRS is an ill-fated intervention by US regulators comparable to the administrative burdens of Sarbanes-Oxley (SOX) compliance.  The perceived ‘institutional creep’ taps deep US fears on the potential for global governance institutions like the United Nations to interfere with US legal jurisdictions, Administration policies and national will.

 

To manage this resistance the SEC released a public roadmap and conducted a roundtable in December 2007.  However the Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Henry Paulson upstaged this initiative in the issues-attention cycle due to their attempts to dampen the fallout in financial markets from the 2007 subprime crisis.  Collectively the SEC, Federal Reserve and US Treasury proposals signal major changes to the US financial system’s regulatory framework.

 

The SEC’s initiative has (at least) three possible side effects.

 

The planned harmonisation with IFRS will increase the tension between the SEC and US business leaders and policymakers over gaps in the IFRS, cultural differences, and the compliance mechanisms for regulatory oversight.  The coevolution of the US financial system and global governance will need to be reframed as a systems-level opportunity to overcome partisan interests.

 

The Australia-US Free Trade Agreement (AUSFTA) may be the ‘test case’ for US implementation of IFRS accounting rules.  AUSFTA establishes a bilateral framework on intellectual property rights and strengthens the positive correlation between the US and Australian financial markets.  If it’s really ‘outsourcing’ the US accounting/taxation regulatory regime as its critics believe the SEC is doing so to a ‘friendly’ nation-state.

 

Enterprise Resource Planning vendors such as Infosys and SAP could also benefit in the SEC’s shift to IFRS.  ERP systems enable trans-national corporations to be scalable and integrate their subsidiaries’ financial reporting through a centralised database, called master data management.  SAP for instance has business rules that harmonise the taxation reporting of different countries.  If the SEC’s roadmap unfolds then SAP and other ERP vendors will have to update their configurable platforms.  IFRS rules could reinvigorate the ERP market for enterprise application integration which uses systems architectures to integrate different computer systems, software, and data.