Made In Hollywood

As July approached its end, the intense summer movie season in North America gradually cooled off. After The Matrix surpassed $300 million in North American box office revenue, its popularity waned significantly, and growth slowed to a crawl. From Independence Day weekend to now, two weeks later, it only grossed a little over $6 million. While the North American box office did exceed $310 million, its market potential was nearly exhausted.

Overseas, the growth rate also showed a clear decline. The Far East became The Matrix's final box office haven. Now, its global box office total stands at $585 million, but to break the $600 million milestone, the remaining markets must continue to perform.

As the box office cooled, The Matrix's merchandise sales also saw a steep decline. To date, merchandise sales in North America have reached a staggering $288.5 million, and overseas merchandise sales have surpassed $200 million, totaling $221.5 million.

However, with the film's peak season over, future merchandise sales will depend on slow accumulation over time.

Even so, based on the 30% royalty agreement that Duke's studio signed with various manufacturers, the film has already earned $127.5 million from merchandise sales. Adding $20 million from advertising sponsorships and an additional 10% sponsorship increase of $2 million for films that gross over $500 million globally, the film has already brought in nearly $150 million in revenue from merchandise and advertising alone.

This figure may seem modest compared to the nearly $600 million box office total, but remember, box office revenue must be shared with theaters, distributors, and marketers, whereas this income is almost pure profit.

As long as a film's box office is substantial, merchandise often becomes a low-cost, high-return product. Some so-called luxury sets or limited-edition collectibles—like Neo's limited-edition trench coat—aside from the collection value driven by the film's popularity, are extremely inexpensive for manufacturers to produce and generate astonishing profits.

The enthusiasm of major manufacturers to participate in film merchandise production, investing significant funds to obtain character licensing while also agreeing to a cut of sales for the film production and distribution companies, is not without reason.

A prime example is the companies involved in The Matrix. Upon hearing that Duke's new project had been approved by Warner Bros., they immediately approached Warner Bros. and Duke's studio to request sponsorship opportunities once again.

As long as their proposals align with the overall film's requirements, Duke will not refuse these manufacturers.

"Seeing your films always become hits and their merchandise generate huge profits, I can't help but consider investing in Hollywood myself," Lady Leah remarked, standing on the long pier of the beach at the estate, glancing at Duke and Scarlett Johansson, who were holding fishing rods. "But rationality tells me you're an exception."

Duke chuckled lightly and said nothing. He knew his mother was simply expressing her thoughts.

Lady Leah checked the time, rose from her seat under the shade of the beach umbrella, and said, "I'm going to make a call."

The gentle sea breeze blew in from the west, bringing a rare hint of coolness to Southern California's scorching weather. Duke reeled in his fishing line and, seeing the empty hook, re-baited it and cast it back into the water.

"No luck?"

Scarlett Johansson, seated on the other side of the beach umbrella, removed the sunglasses perched on her face and took a big sip of her iced drink before saying, "Your luck is awful. You haven't caught a single fish so far."

Hearing her comment, Duke turned to her and said, "The fish don't like me."

The blonde girl pursed her lips but said nothing more.

Time, indeed, is an invisible killer. Duke only saw Scarlett a few times each year when his mother visited. Inevitably, their relationship became more distant. The 14-year-old girl had not only grown taller but had also started developing rapidly, gradually taking on the appearance Duke remembered from before.

Corresponding to her physical changes were her facial expressions. Scarlett Johansson's eyes were almost always indifferent unless she was looking at her mother. Her chatterbox habit from childhood had nearly vanished; she was now mostly silent.

Duke understood the catalyst for these changes. The pain of a broken family could only fade with time.

"What are you staring at?"

Noticing Duke's gaze, Scarlett turned her head and asked, "Don't recognize me anymore?"

Duke shook his head and pointed to his nose. Scarlett immediately understood, touched her nose, and said, "Last year, I was in a really bad mood for a while, so I got one with a few classmates. But godmother didn't like it, so I took the nose ring off and threw it away."

Hearing this, Duke sighed inwardly and comforted her, "Darling, everything will pass."

"Yes, everything will pass," Scarlett murmured, shaking her head lightly. Then she suddenly smiled bitterly and said, "I just don't understand. Even if he wanted to divorce Mom, he could have left quietly. Why did he have to go to court to divide assets? He was the one who cheated, who made the mistake…"

"Do people who make mistakes always get to act so self-righteously?" Scarlett seemed genuinely puzzled.

Duke shook his head at her and said, "Darling, you must understand that, often, children distinguish between right and wrong, but adults only weigh pros and cons."

"Oh…" Scarlett thought for a moment and then nodded.

She suddenly scratched her cheek and asked, "Is that how it is with your collaboration with Warner Bros. too?"

"What do you think?" Duke took a sip of his iced drink, feeling the coolness spread through his chest and stomach, then changed the subject. "Scarlett, your performance in The Horse Whisperer was excellent."

Talking about movies brought a smile to Scarlett Johansson's face. "Yes, Sophia told me the same thing when I saw her recently. She even invited me to act in her new film."

The sun gradually moved westward, getting closer to the horizon. Duke packed up his fishing gear and, carrying the net bag, walked back toward the villa with Scarlett Johansson. Inside the net bag, a few small fish were still jumping.

Fishing was one of Duke's rare leisure activities amidst his busy schedule.

His mother, also busy with work, didn't stay in Los Angeles for long before returning to New York. Meanwhile, Duke's studio entered a critical moment, as investors and marketers began settling the North American profits for Titanic as of the end of June.

Although the film was still showing in North America, from July onward, the production and distribution companies would no longer share in the film's North American box office. All subsequent earnings would go entirely to theaters.

It's impossible for a film to remain in theaters for such an extended period without incurring certain costs.

Even for Titanic—or Star Wars, which had the most widespread re-releases in history—during its later re-releases, Lucasfilm could only earn a nominal share of the revenue. However, every large-scale re-release triggered a surge in merchandise sales.

Duke's studio had already collected $40 million from the previous North American box office share. In this final phase, with theaters taking the lion's share, and after deducting promotional expenses and James Cameron's share as director, Duke's studio received only $15 million.

This concluded the North American box office revenue settlement, with Duke's studio earning a total of $55 million.

However, overseas earnings were destined to be the main focus. In the same settlement, Duke's studio received $125 million in overseas box office shares, plus $75 million from other revenues, including TV, DVDs, and VHS sales in some countries and regions.

Even though substantial income would continue to flow in, Duke's $50 million investment had already generated several times the profit.

According to projections by relevant agencies, within the next year, aside from Titanic's current North American box office of $665.62 million and overseas box office of $1.2152 billion, it is expected to generate at least $1.5 billion in merchandise revenue.

Duke's accountant, David, also made some forecasts. He estimated that Duke's $50 million investment could yield pre-tax profits of around $400 million to $550 million.

In late July, Paramount Pictures and 20th Century Fox jointly released Titanic's DVD and VHS versions. The film's influence was astounding!

In its first week of release, the DVD sold $35.25 million, while VHS sales reached $32.30 million, totaling $67.55 million.

Additionally, the film's first-round TV broadcasting rights were purchased by CBS for a staggering $8 million!

Once again, the facts proved the immense power of the ship and its limitless market potential.

By August, Titanic was still sailing in North American theaters, while The Matrix, three months into its run, was nearing the end of its theatrical release. The film, shown for 14 weeks, was about to exit theaters. This was partly due to the rapid decline in box office revenue and partly because Duke's studio and Warner Bros. wanted to capitalize on the fading Matrix craze to quickly release DVDs and VHS tapes to rake in profits.

Starting in late July, Duke re-edited the theatrical version, adding some appropriate scenes and cutting behind-the-scenes footage. This was also to enhance the appeal of the DVDs and VHS tapes to viewers.

VCDs had never gained traction in North America. For years, VHS tapes dominated until DVDs emerged in 1996. With aggressive promotion by Sony and other manufacturers over the next two years, VHS's dominance began to wane. Especially by 1998, as DVD player sales increased in North America, DVD revenue began to catch up to VHS.

Hollywood initially resisted DVDs, but upon seeing their enormous storage capacity and low production costs, the profit-driven studios immediately embraced them enthusiastically. DVDs were already on the rise in North America.

Duke remembered clearly that in the next decade, DVDs would become Hollywood's cornerstone of profitability. Many box office flops could recover costs and even turn a profit through DVDs, thanks to their low production costs and high margins.

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