Charlie didn't fully understand what Eric had in mind, but that didn't matter. The most important thing was his unwavering support. Once the initial results started to show, he would understand.
Eric couldn't help but admire his luck in having such a father. For Charlie Cooper, it didn't matter how crazy his son's idea seemed; he was still willing to give it a try.
What Eric was talking about was, of course, inspired by Netflix's model. There were similar platforms in China—Youku, Tudou, Tencent Video. Although Netflix had been around for several years, their company was still focused on renting out video cassettes, competing with Blockbuster, without considering the future of streaming platforms.
Time constraints prevented them from realizing the importance of streaming.
In that case, Eric decided to seize this opportunity.
Buying or investing in Netflix wasn't an option. First, no one would sell the company, especially now, when Blockbuster was retreating, and Netflix had bright prospects. Second, if he were to invest, it would be better to put the money into his own project. Owning something is always better than having something foreign.
However, as his father correctly noted, if he did launch his own platform, it would provoke the wrath of the major TV networks. They would never grant them licenses for their series and movies, putting MGM in a position where they could only show their own work.
The only way to overcome this deadlock was to consistently produce quality content and attract users with low prices and high quality.
Additionally, Eric planned to launch two complementary companies—Facebook and YouTube. Neither had been born yet, and this was the perfect moment to create them. The first company would provide strong support through social media and drive traffic, while the second would offer a platform for repurposing and promoting MGM's content.
By integrating the accounts of all three platforms, they could create a powerful ecosystem. Later on, a messaging service similar to WeChat or QQ could be added to this system, but Microsoft with MSN and Google were already dominating this area, so they would have to wait. Otherwise, faced with their technical obstacles, the project might not survive.
There was also the idea of Twitter, but its style didn't allow for immediate integration, so it could be set aside for now.
...
On March 10th, Eric visited the Transformers set in Oregon.
The filming process was going according to plan, and Patty Jenkins, as the director, was handling it wonderfully. Then he went to Weta Digital to check on the progress of the special effects. They had already completed more than a third of the work. The project manager reported that more than half of the company's equipment was being used for Transformers, even cutting resources from The Lord of the Rings: The Return of the King.
Of course, Eric understood that this wasn't entirely true, but he expressed his gratitude anyway. The Lord of the Rings trilogy had launched simultaneously, and they were now close to completion.
Meanwhile, the script for Get Out was finished. Leigh Whannell personally brought it to Eric for review. They spent the whole day in the office refining the script. Now, they just needed to find a writer who could add characteristic jokes and racial humor. Eric and Leigh weren't strong in this area, so they needed a specialist.
As for The Purge, the script was also completed, and Eric gave the green light for filming with a budget of $4 million. Instead of James DeMonaco, who at that time was only a screenwriter with no directorial experience, Anthony Ferrante, known for Sharknado, was appointed as the director. Ferrante would work on The Purge first and then on Sharknado 2, further tying him to A.K. Films.
In addition, the company sold the rights to their parody films Chainsaw and Dragonfly to local TV stations. Chainsaw was sold to 42 channels, and Dragonfly to 61, bringing in about $4.8 million in profit on a budget of $1.5 million. Considering tax benefits and subsidies, the net profit was around $3 million.
These films were shot in a month, sometimes in just two or three weeks, though their quality suffered. Eric set a target for A.K. Films—no less than 20 such films a year.
Meanwhile, Sharknado had already sold 240,000 tapes, and sales continued.
...
On Wednesday, at the MGM office, Eric received a report from Wull, the head of the marketing department. Wull always worked quickly and completed tasks ahead of schedule.
"These days, we've visited all the major cable TV networks and held internal screenings. The reaction was excellent. Every channel praised our project, calling it groundbreaking. Each channel wanted to get their hands on it."
Wull, the marketing manager, smiled as he recounted his recent successes. He had previously worked at a small film company and was experiencing such a triumph for the first time.
While he was talking, Eric delved into the report.
The first channel to make an offer was AMC, which in the original world also aired The Walking Dead. They offered $4 million for each of the first three episodes, with the price for subsequent episodes depending on ratings.
Ratings were calculated based on cable channels, targeting an audience aged 18-49, with a base rating set at 4%. For every 0.5% increase in ratings, the price of the next episode would increase by $1 million, with no upper limit.
AMC proposed an airing time from 7 to 8 PM, close to prime time. If the ratings were high, they would move the show to actual prime time.
As Eric reviewed AMC's offer, he wasn't entirely satisfied. The rating calculation was fair, and so was the target audience, but a base rating of 4% was high.
In 2002, the population of the United States was about 290 million, with around 97 million households, 85 million of which subscribed to cable television, accounting for approximately 250 million people. In the 18-49 age group, there were about 115 million people, 95 million of whom were cable subscribers.
Thus, 4% of 95 million was 3.8 million viewers. This meant that The Walking Dead would need to draw at least 3.8 million viewers simultaneously to reach the base level. To increase the price per episode by $1 million, the rating had to rise by 0.5%, which equaled 4.27 million viewers.
At a 5% rating, or 4.75 million viewers, the price of each subsequent episode would rise to $6 million.
One might wonder why the calculation was only for the 18-49 age group. The answer is simple: advertisers consider this group the most attractive in terms of consumption. They are willing to spend big money on advertising to this demographic. Advertising expenses for other age groups might be halved or even more.
Though cable channels earn revenue from subscriptions, they also make money from advertising.
For example, AMC is a basic cable channel that airs commercials despite being subscription-based. The subscription cost for AMC in 2003 was $8.99 per month.
Premium channels like HBO, FX, and Starz do not show commercials, but their subscription fees are higher. For instance, HBO in 2003 cost $12.99 per month.
In the U.S., viewers paid for each channel separately. For example, to watch series on both AMC and HBO, one had to subscribe to both channels.
In 2002, HBO had over 40 million subscribers, AMC had around 25 million, Starz had 22 million, Showtime had 20 million, and FX had 28 million. However, subscribing to a channel didn't guarantee that viewers would watch all its programs.
Competition for viewers was fierce, and subscribers had to choose what to pay for.
Understanding the logic, Eric continued reading the report. FX offered better terms than AMC, and Showtime offered even better ones, but the most favorable offers came from HBO and Starz.
HBO offered $8 million for each episode of the season. If the season brought in more than 3 million new subscribers, HBO would be willing to pay an additional $10 million. This meant that if the goal was met, HBO would spend $106 million to acquire the first season of The Walking Dead. Although the price wasn't as high as the $120 million for Band of Brothers, that was a project by the great director Spielberg, featuring many stars.
Starz offered $7 million per episode, and if the season brought in more than 5 million new subscribers, they were willing to pay an additional $3 million per episode, totaling $120 million.
Eric pondered for a moment and asked Wull for his opinion.
"I lean towards partnering with Starz," Wull replied, organizing his thoughts. "We could earn $14 million more, and attracting 5 million new subscribers doesn't seem difficult. Starz only has 22 million subscribers, and as the channel grows, attracting new ones will be easier. Unlike HBO, where gaining 3 million new subscribers might be a challenge. Even Band of Brothers attracted only 3 million new subscribers."
Eric listened to him and made a decision that Wull didn't expect:
"We'll go with HBO. Prepare the agreement."
Wull was surprised but didn't argue. Eric always made the right decisions.
Eric, however, was thinking about the future: when MGM launches its own video service, it will need successful shows to attract an audience. The Walking Dead could become one of those shows, and HBO had greater potential to make it popular. Giving up $14 million now was justified for the sake of stable growth in the future.
Eric dismissed Wull and continued to contemplate his plans.
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