This transcript has been edited for length and clarity.
Brian Kenny: Spotlight, Argo, American Hustle, The Hunger Games. This is a small sampling of great, Oscar-worthy films that you might never have seen were it not for “The Black List.” Not to be confused with the Hollywood blacklist of the 1940s and 50s during the McCarthy hearings, today's Black List is one that people are scrambling to be on. In fact, having your name, or more accurately your script on this list, could open doors that lead to Hollywood greatness. So, if you are an aspiring screenwriter with a killer script swimming around in your head, listen up. Today we'll hear from Professor Henry McGee about his case entitled, The Black List. I'm your host, Brian Kenny and you're listening to Cold Call.
Henry McGee teaches MBA students and executives at Harvard Business School, and he's also a member of the School's Digital Initiative. Prior to joining the faculty here he served as president of HBO Home Entertainment. Henry, thanks for joining us today.
Henry McGee: Brian, it's terrific to be here and it's especially great to be here just a few days before this year's Oscar show.
Kenny: I love movies, so for me this was fun to read about something I never knew existed and to hear how it came about and the influence it's having in Hollywood. Can you just set up the case for us? Who's the protagonist and what's on his mind?
McGee: Franklin Leonard is a young entrepreneur who's developed a highly effective method of identifying potential hit screenplays—a sort of Holy Grail that had eluded the motion picture industry for over a century. He uses crowdsourcing to develop his annual list of hot but unproduced screenplays. This year, in fact, three of his films that had been previously identified on The Black List: Hell or High Water, Manchester by the Sea, and Arrival, are all nominated for this year's Best Picture Oscar.
When the case opens, we find Leonard (who has branched into the business of connecting screenwriters, agents, and executives through an online service he's developed called "theblacklist.com") now ponders what his next move is going to be in Hollywood. He has to decide whether he's going to leverage the expertise and access that he has into actually going into the business of funding film production.Kenny: I'll mention also, this case is one of a series of cases that we're doing in February to recognize Black History Month. Franklin is an African American. He's also a graduate of Harvard College. He's the protagonist in this case. Why did you choose to write about The Black List?
McGee: This case was originally written to be taught in a course I launched this fall called Los Angeles; Hollywood: Distribution and Marketing Challenges in a Digital World. It's a course that combines traditional case method teaching on campus with a structured, hands-on field learning experience for students. The class is about 30 students and it's broken into small teams that are assigned to address a challenge or an opportunity faced by either a traditional Hollywood player or a disruptor. Our learning partners range from Amazon to Warner Brothers. The students work with a partner remotely during the fall, and then we all move to LA for a couple of weeks at the beginning of January when the students are embedded with the companies, and finish their work and recommendations to the companies. More than half the class, as it turns out, has little or no knowledge about the motion picture industry. They are fascinated by both the economic and cultural power. When you think about it, on Monday morning, every news outlet prints or talks about two statistics: how the sports team did, or what the box office was.
Kenny: Box office, right.
McGee: There's not another industry like that at all. It's hugely important. As a result, the cases that I do in the course have to simultaneously do two things. They have to introduce the students to the vocabulary of Hollywood, because many of them are unfamiliar. At the same time, present them with a challenge that someone in the business is facing. Franklin Leonard, who is trying to disrupt this business, is absolutely the perfect subject for the students to study. They have to understand the ecosystem that he's playing in, and also appreciate the dilemma he faces as he tries to disrupt a system that's pretty entrenched.
Kenny: You spent your career in this industry. It's a very complicated landscape now, and it's become more complicated with the advent of digital streaming and broadband. How big is the motion picture industry?
McGee: The US motion picture industry is roughly about a $40 to $50 billion business that goes up or down depending on the box office for the year. About half of that revenue, actually more than half of that revenue, comes from overseas. Domestically, the rest comes from home entertainment, television, and licensing...
Kenny: I love the way you broke down in the case the way a film gets made. Can you talk about the four components?
McGee: Hollywood is traditionally called a dream factory, but in fact there are really four structured phases that each film goes through: development, financing, production, and distribution.
Development covers everything from the initial idea of the film, the plot, the setting. That can either come from a book, an original idea by a screenwriter, an executive—those ideas come from many places. In this development period, the screenplay is worked on. The screenplay is used by producers, whom you might sort of think of as orchestra conductors who are putting together the different pieces to attract a director, stars, and so on.
This package is put together and is ready for financing, which is the second phase of this factory. You have to make a decision. People look at it from studios, independent financiers. Movies are put together even using lines of credit on credit cards. Many different ways of doing that.
With the money secured, the film then goes in to production, which consists of really two sub phases. One is principal photography which is people familiar from seeing films about being on set, or in a studio, and then very importantly these days what's called post-production which we add special effects and the music and so on.
The final phase, the phase which my course is mainly focused on, is the marketing of the film and its distribution. Those are the four phases. That can take anywhere from as little as two years to as long as 20 depending on what the film is.
Kenny: Where does the lonely screenwriter fit into this whole equation? That's at the core of what Franklin is doing, right?
McGee: Right. Well, screenwriters are key. Although, interestingly, in Hollywood, the director and stars are typically paid much more than the screenwriters. One of the things that, in addition to his crowdsourcing, that Franklin has done is an important analysis that has guided him, and which is making him think about how he should approach filmmaking.
What he decided to do was, rather than focus on the big Hollywood blockbusters, the films that are costing $150 million, $200 million, he says, "Why don't I take a look at the subset of films I'm interested in seeing, which are typically films $50 or $60 million dollars or under in budget." I know it sounds enormous, but by Hollywood, that's not so large. What he discovered, was if you looked at which films in that $60 million-and-below category had the best financial returns, it wasn't those films that received major acting awards. It wasn't films that had gotten major directorial awards. It was the screenplay award that most determined their financial success.
Kenny: One of the things that the case gets into is the pressure the industry is under, and what drives the industry to choose these blockbuster, or "tent pole" films, these $150 to $200 million films, while leaving to the side films that could have great potential. How do they balance that pressure?
McGee: In the entire ecosystem, what has happened is that the studios have increasingly focused on the large blockbusters. By the way, that's where the money is. If you look at for example, last year's box office, four of the top five films were released by Disney and the fifth was Universal. All of these were big blockbuster films, budgets well in excess of $150 million. We've talked about the importance of the global market. These are films that travel well, and these are also studios with huge amounts of overhead and worldwide distribution apparatus. A smaller film isn't really worth their time. As a result, you do have a number of independent distributors who are fitting in that niche.
I do want to say though, again, that there are almost two different industries. For example, again, just looking at last year, the number one film was Rogue One, the Star Wars film from Disney which had a USbox office gross of well over half a billion dollars. The largest independent film last year, and still in theaters, is Manchester by the Sea. I'm excluding the films from the six majors and the mini majors. We'll come back and talk about that in a minute. If you look at purely independent films, the number one film was Manchester by the Sea. That has yet, after all these many weeks, yet to get to $50 million at the box office. You can see you're playing in two very different fields.
Kenny: I would imagine a film like Manchester by the Sea probably wouldn't have the international appeal, obviously, that a blockbuster film would have.
McGee: It's not unusual for an American action film to actually have a bigger gross outside the US than inside the US
Kenny: People like action.
McGee: The premise of the course…we talk about the challenges facing the business, and two things that are driving it. One is globalization. The second is digitalization, both of which have changed everything we know about the business. I'd like to talk to you a little bit more about globalization. It's important for people to understand that after years of being the number one market for theatrical films, that sometime within the next two or three years, maybe even sooner, that China will actually have a bigger box office than the US. It's tremendous focus on the growth of the business outside of the United States, and a real premium on developing both the product and the distribution mechanisms that can capitalize on this growth of the overseas market.
The industry is still dealing with the impact of digitalization and what that means in terms of both how films are produced, and how they are distributed. Now that we have moved to the fact that a film can easily be zipped around on the internet to homes all around the globe, Hollywood finds that it now has some very, very serious competition from Silicon Valley. While the game has generally been one of the six majors playing with one another and arguing about shares, it's a new ballgame with the entrance of companies like Amazon and Netflix. It's worth pointing out, for example, that Manchester by the Sea, which is nominated for six Oscars, is a film from Amazon. Another big development is it's very likely that Time Warner will soon become a wholly owned subsidiary of AT&T Corporation. It's a very fast-changing and dramatically changing industry. That's the one in which Franklin is trying to figure out what the role of an independent can be in there.
Kenny: Tell me a little bit about Franklin. What's he like? What motivates him?
McGee: Franklin is a great guy. He's always been interested in literature and is (in his terms, not mine) a numbers geek. When he graduated, he wasn't quite sure what he was going to do, so he spent a little time working on a political campaign. He spent some time working as a reporter for a newspaper in the Caribbean and, as is often the case for many Harvard College graduates, he found himself as an analyst at McKinsey. He got a call from a friend in Hollywood that there was an opening as an assistant at the very powerful agency CAA, Creative Artists Agency. Even though it involved, initially, answering the phone and getting coffee, Franklin realized that was a way to get into the business. He packed up everything and moved from the East coast to California and has been there ever since.
Kenny: It sounded in the case like he was pretty much aware of his own personal brand, and how he presented himself was going to have an impact on how people received The Black List and his business. He's in this California setting, he's kind of playing that Hollywood part, but he's also very astute about the numbers and the strategy that he's chosen as he thinks about evolving what he's started.
McGee: Franklin is very much his own man. He is aware that as an African American working in what has traditionally been a largely white industry, people often look at him curiously. He is self-confident enough that he proudly wears his braids and his brilliance come across immediately. He's also very affable. People like working with him.
Kenny: Yeah, I'm sure. There's a wry humor behind the name The Black List.
McGee: Yes, now The Black List is a play on a couple of things. Earlier you mentioned the blacklist from the 50s, which was a negative thing. You obviously didn't want to be on the black list because you couldn't get work in Hollywood. Also, Franklin was aware that often the term black in the English language is used for something negative. As a black man working in Hollywood, he was desperate to reclaim blackness as a positive. By calling it The Black List that you actually wanted to be on, as opposed to not be on, he totally subverted that. It's the first time in Hollywood where you really want to be on The Black List.
Kenny: I love that.
McGee: It's also an interesting time for him, as he thinks about these projects, to be in Hollywood where the focus—whether there's action on it we can talk about or not—is on diversity. As you know, last year we had the Oscars So White campaign. For the last two years in a row, not a single actor of color had been nominated for an acting award. The Motion Picture Academy, which gives out the Oscars under Cheryl Boon Isaacs, who happens to be an African American woman, decided to dramatically open up the ranks of Oscar voters. In fact this year, it's going from zero nominees in the acting category for two years running, this year we have six actors of color, four of whom are African Americans, which is obviously a great thing to happen during Black History Month.
Kenny: And I'm sure Franklin is paying close attention to that too, right?
McGee: Yes.
Kenny: For the aspiring screenplay writer that I shouted out to in the intro, what would they expect to happen if they submitted a screenplay to The Black List?
McGee: They get two things: one, they get a feedback about the writing, about the quality of the writing. It's scored along different dimensions, and so it's sort of a mentoring, tutoring. Importantly, what happens is it gets a grade. It's a way for studio executives and agents also have access to the screenplay because it's posted. One of my students described it as sort of a Yelp for screenplays.
Kenny: Careful what you look for, because I'm sure the feedback is not always what people are expecting.
McGee: Yes, exactly.
Kenny: Have you taught this case in class?
McGee: I have. The students love it. We were also fortunate enough that Franklin came out from California to be in the class. They loved him. I think what the students like are two things: one is it gives them a sense of the business and its complexity. At the same time, it gives them hope that there is room for innovation and for a young person to come in with new ideas. After all, The Black List, which is relatively new, actually started in 2005 when Franklin was working as a low-level production executive at a company and couldn't believe that he couldn't find anything good he wanted to read. What he decided to do was to send out a letter to about 75 of his contacts and ask them to put together a list of their favorite screenplays they had read that year, but that had not yet been produced. What he would do would be compile that, and then send it back. This was, by the way, in the era of faxes to show you how far back it goes.
It immediately caught on as a sort of crowd sourcing approach to finding out what the best screenplays that were out there. It wasn't too long before Hollywood embraced this. For example, Franklin told me that he knew that The Black List was making an impact when he was a production executive. It obviously had been done anonymously. He was a production executive and an agent came to him and said, "Franklin I really shouldn't be telling you, but I have inside news that the screenplay I'm showing you, it's going to be on next year's Black List."
Kenny: That's definitely validation that he probably welcomed. Just going back to the students and how they think about this in class. Did Franklin walk away with any great ideas for different directions that he could take it in?
McGee: No, I think his focus right now, his dilemma is trying to figure out where in the chain he wants to be. He's been very much embedded in the whole pre-production area identifying hit screenplays and giving notes and so on. He has an opportunity because people have approached him because of his database and his taste, to expand that and get involved in film financing. The question is: can he really stop there? Once you've put your money into a project, or other investors' money, given the importance of distribution and marketing, does he also have to get involved there? Where in that manufacturing and distribution chain does he enter? He's still wrestling with that.
Kenny: You can find “The Black List” case along with thousands of others in the HBS Case Collection at hbr.org. I'm your host Brian Kenny and you've been listening to Cold Call, the official podcast of Harvard Business School.