Chapter 307: The Hacker Takes Down the Monster

As late July approached, the scorching North American Summer Season gradually cooled down. After the North American box office for The Matrix surpassed 300 million dollars, its momentum largely faded, and its growth slowed to a crawl. In the two weeks since the Independence Day holiday, it had only pulled in a little over 6 million dollars. Although its North American gross had broken the 310-million-dollar mark, its market potential was essentially exhausted.

Overseas growth had also noticeably slowed. The Far East became the final box office feast for The Matrix. By now, its combined global gross had reached 585 million dollars. To break the 600-million-dollar threshold, it would need its remaining active markets to push hard in the coming days.

As the box office fever cooled, merchandise sales for The Matrix also saw a significant drop. Up to this point, North American merchandise sales had hit 288.5 million dollars, while overseas sales broke the 200-million-dollar mark to reach 221.5 million.

However, the film's peak season had passed. Future merchandise sales would have to rely on slow accumulation over time.

Even so, based on the 30% sales commission agreements Duke Studio had signed with major manufacturers, the film would still rake in 127.5 million dollars. Adding 20 million dollars from advertising sponsorships and an extra 2 million from a 10% sponsorship bonus triggered when the global box office crossed 500 million, the film's merchandising and advertising revenue sat at nearly 150 million dollars—and that was before the television, disc, and Videotape rights had even been sold.

Compared to the nearly 600-million-dollar box office, this figure might not seem high, but box office revenue had to be split with theater chains and distributors. This income was practically pure profit.

As long as a film's box office was guaranteed, its merchandise often became high-revenue, low-investment commodities. For instance, the so-called deluxe sets or limited collector's editions—like Neo's Limited-Edition Trench Coat—carried essentially zero production cost for the manufacturers, relying instead on the collector's value brought by the film's hype. The profits they generated were nothing short of astounding.

There was a reason major retailers eagerly participated in merchandise production, spending massive sums to acquire licensing rights and allowing the production and distribution companies to take a cut.

The most typical examples were the manufacturers involved with The Matrix. The moment they heard Duke's new project had been greenlit by Warner Brothers, they reached out to Warner Brothers and Duke Studio on their own initiative to request another sponsorship.

As long as they met the film's overall requirements, Duke had no reason to refuse them.

"Seeing your films consistently become massive hits and your merchandise generate such huge profits, even I'm tempted to invest in Hollywood."

On the long pier of the estate's private beach marina, Mrs. Leah looked at Duke and Scarlett Johansson, both holding fishing rods.

"But reason tells me you're just an anomaly," she added.

Duke smiled but didn't say anything. He knew his mother was simply feeling a bit sentimental.

Mrs. Leah checked the time, stood up, and stepped out from under the shade of the parasol.

"I'm going to make a call," she said.

A gentle ocean breeze blew in from the west, bringing a rare hint of coolness to the sweltering Southern California weather. Duke reeled in his rod, looked at the empty hook, rebaited it, and cast his line back into the sea.

"No luck?"

Sitting on the other side of the parasol, Scarlett Johansson took off her sunglasses, grabbed a glass of iced juice, and took a large gulp.

"Your luck is terrible," she said. "You haven't caught a single fish yet."

Hearing the girl's remark, Duke turned to look at her.

"The fish just don't like me," he replied.

The blonde girl beside him pursed her lips and said no more.

Time really was an invisible killer. He only saw Scarlett a few times a year when his mother visited, so their relationship had inevitably grown a bit distant. Not only had the fourteen-year-old girl grown taller, but she had also begun to mature—and at a surprisingly rapid pace. She was gradually taking on the appearance he remembered.

Her facial expressions had changed along with her appearance. Aside from when she looked at his mother, Scarlett Johansson's eyes always carried a distinct coldness. Her childhood chatterbox habits had almost completely vanished; most of the time, she was withdrawn and silent.

Duke knew the cause behind all these changes, but the trauma of a broken family was something only time could gradually heal.

"What are you looking at?"

Likely noticing Duke's gaze, Scarlett turned to him.

"Don't you recognize me anymore?"

Duke shook his head and pointed at the side of his nose. Scarlett instantly understood what he meant and raised a hand to touch her nostril.

"Last year, there was a period when I was in a really bad mood, so I went with some classmates and got it pierced," she said. "But my godmother didn't like it, so I took the nose ring out and threw it away."

Hearing her explanation, Duke sighed inwardly and offered a word of comfort.

"Sweetheart, everything will pass."

"Yeah, everything will pass."

Gently shaking her little blonde head, Scarlett suddenly let out a bitter smile.

"I just don't understand. Even if he wanted to divorce Mom, he could have just left. Did he really have to take it to court to divide the assets? He's the one who cheated. He's the one who made a mistake..."

"Are people who make mistakes always this self-righteous?" she asked, seemingly genuinely confused.

Duke shook his head at her and said, "Sweetheart, you need to understand something. Most of the time, only kids care about right and wrong. Adults only weigh the pros and cons."

"Oh..." Scarlett thought about it for a moment, then simply nodded.

She suddenly scratched her cheek and asked, "Is that how your partnership with Warner Brothers works too?"

"What do you think?"

Duke grabbed his own drink and took a sip, the refreshing chill sinking straight into his chest and stomach. He then changed the subject.

"Scar, your performance in The Horse Whisperer was really good."

At the mention of movies, Scarlett Johansson finally smiled.

"Yeah. When I saw Sofia a while back, she said the same thing," she replied. "She even invited me to star in her new movie."

The sun gradually shifted west, dropping closer and closer to the horizon. Duke packed up his fishing gear and headed back toward the villa with Scarlett Johansson in tow, who was carrying the net bag. Inside the net, a few small fish could be seen flipping about.

Fishing was a rare moment of leisure for Duke amidst his busy work schedule.

His mother was equally busy with her work. She didn't stay in Los Angeles for long before returning to New York. Meanwhile, Duke Studio arrived at a crucial moment: the major investors and distributors were about to settle the North American profits for Titanic through the end of June.

Even though the film was still screening in North America, starting in July, the production and distribution companies would no longer take a cut of its North American box office. All box office revenue generated in this final stretch belonged entirely to the theater chains.

How could a film play in theaters for so long without paying a certain price?

Let alone Titanic, even for Star Wars—the film with the most large-scale re-releases—the cut Lucasfilm received from its later theatrical runs could only be described as better than nothing. It was just that every wide release triggered another boom in merchandise sales.

Duke Studio had already taken home 40 million dollars from the previous North American box office settlement. This time, however, it was a late-stage split heavily favoring the theaters. After deducting marketing and distribution costs and paying out James Cameron's partial director's cut, Duke Studio only cleared 15 million dollars.

With that, the North American box office settlement concluded, leaving Duke Studio with a total haul of 55 million dollars.

But overseas revenue was destined to be the lion's share. During this same settlement, Duke Studio received 125 million dollars from the international box office, plus another 75 million in merchandise royalties—including previously negotiated television, disc, and Videotape rights in certain countries and regions.

Even though there were still massive payouts yet to be collected, Duke's 50-million-dollar investment had already yielded several times that amount in profit.

According to projections from relevant agencies, over the next year, Titanic—in addition to its staggering 665.62 million dollars at the North American box office and 1.2152 billion dollars overseas—would generate at least another 1.5 billion dollars in merchandising revenue.

Duke's accountant, David, had also run some projections. He estimated that Duke's 50-million-dollar investment would ultimately yield around 400 million to 550 million dollars in pre-tax profit.

Heading into late July, Paramount Pictures and Twentieth Century Fox jointly released the DVD and Videotape versions of Titanic. The film's impact was truly staggering!

In its first week of release, DVD sales reached an incredible 35.25 million dollars, while Videotapes sold another 32.3 million. Combined, the two formats pulled in 67.55 million dollars.

On top of that, the film's first-run television broadcast rights were snapped up by CBS for an astronomical 8 million dollars!

Once again, the facts proved that the great ship's power was boundless, and its market potential was limitless.

As August rolled in, Titanic continued to sail through North American theaters, but The Matrix—having screened for three months—was finally nearing the end of its theatrical run. The film was set to be pulled from theaters after 14 weeks, an exit driven both by its rapidly declining box office and by Duke Studio and Warner Brothers' desire to release the DVD and Videotape as quickly as possible to cash in before the hacker craze fully faded.

Starting in late July, Duke had already begun recutting the theatrical version, splicing in appropriate deleted scenes and editing together a behind-the-scenes featurette. This was all intended to boost the DVD and Videotape's appeal to audiences.

VCDs had never really caught on in North America. Videotapes had maintained absolute dominance over the last few years until the advent of the DVD in 1996. Thanks to aggressive promotion over the past two years by Sony and various other manufacturers, the Videotape's iron grip had finally been shaken. Especially since the start of 1998, as DVD player sales surged across North America, revenue from DVD movie sales had gradually caught up with that of Videotapes.

Initially, Hollywood had resisted DVDs. But upon seeing their massive storage capacity and rock-bottom manufacturing costs, the profit-driven studios immediately embraced them with maximum enthusiasm. DVDs had now truly taken off in North America.

Duke remembered very clearly that over the next decade, DVDs would become the fundamental profit engine of the Hollywood film industry. Many movies that bombed at the box office would ultimately rely on the DVD's low costs and high margins to recoup their budgets, and even turn a profit.