Ahead of his presentation at the Financial Forecasting & Planning Innovation Summit in London on April 25 & 26, I caught up with Gorka Hermann, Director Finance from Paramount Pictures.
With the unpredictability of the film industry with major films flopping and minor films making millions, I was interested to see what kind of experiences Gorka had working within forecasting in this complex industry.
One of the main challenges that Gorka finds is that given the nature of the business in terms of financial reward often being spurred by emotive reactions, most of the forecasting needs to take place through 'gut feeling'. The use of high tech forecasting systems are used in the same way as other large corporations although given the nature of the business, gut feeling needs to play a part. Having moved from another industry this was probably the hardest adaption that Gorka had to make, but at the same time he and his team have managed to create systems where these gut feelings can be backed up through precise modelling.
For instance despite the media's perception of piracy and the widely held belief that it is destroying the industry, box office sales for Paramount have stayed steady throughout the past 5 years. What Gorka has found is that during times of recession numbers at the box office actually tend to stay strong. He puts this down to people being more willing to essentially go for smaller luxuries such as restaurants or cinemas rather than more expensive luxuries such as an expensive holiday or a car.
Also one of the elements of working in the European market that he has found to reduce the impact of piracy is a short lag time between the US release of a film and the European release date. Especially for films with a large following for instance Transformers or Star Trek, where the fans are normally excited about the film and not willing to wait for 1-2 months if there are versions available online.
In recent years, one of the ways that this has been combated is through the use of new technologies. Although it was possible for 35mm films to be released on the same day either side of the atlantic, digital has made it easier. For instance the use of digital films and screens has meant that films can be distributed for less and can also be moved between screens quicker and more easily. This has allowed the transfer between screens to be easier and also printing costs to be reduced.
Another element that Gorka discussed is the financial forecasting process for Paramount. Original films are difficult to forecast for compared to a sequel. It is possible to use the success of the previous films to help predict how successful the other films will be, sometimes these can even exceed the original film's revenues. Not only does this make the success of a film more predictable, but it also mitigates risk to a certain extent, as there is a benchmark for expected revenue.
Technology is also likely to affect the way that Gorka does his job in the coming years, with developments in financial forecasting software. Although this is the case Gorka makes the argument that regardless of the new technologies, forecasting will still use the same processes and this is unlikely to be effected by faster technologies. It may make the forecasting process quicker or more convenient, but the changes in this will not effect that actual core forecasting process.
We then went on to discuss what advice Gorka would give to somebody who is looking to start a similar career to him. Gorka claims that working for a consulting firm for a few years then moving into an industry that has a genuine growth potential is the best way to make the move. He also mentions that rather than choosing a job which has simple forecasting processes, choose a job which requires more complex forecasting. This way, Gorka says, you are more likely to make an easier transition to CEO if the chance ever arose.
One of the key takeaways that I have from Gorka is the unpredictability of films, which naturally make financial forecasting within the industry difficult. I think he expresses it best:
"You can do a good analysis, aim high but there will always be films that don't do so well."