How Cannon Films fell apart

I wanted to write a story about a company who should be studied in economic books about what not to do. Why? This company used to roll the dice, make plenty of money and then suddenly fell apart because two movies failed? Nah, it goes deeper, much deeper.

Cannon Films was essentially doomed from day 1 and they didn't even know it yet.

But first, hold on, we need a quick example.

Imagine you and your best friend open a lemonade stand. But instead of waiting around for neighbors to walk by, you go to every single neighbor in your town before you even squeeze a single lemon.

Hey! Give me five dollars right now, and I promise to bring you a cup of the lemonade.

Your neighbors hand over their money, you end up with way more money that you need. You take that cash, buy your lemons and sugar, make the lemonade, and hand it out. You didn't use your own money to start; you used tomorrow's money today.

For a long time, Cannon Films ran the biggest, loudest, and craziest pre-sold lemonade stand in the world.

Cannon Films was run by two cousins named Menahem Golan and Yoram Globus. They loved making movies, especially cheap, action-packed ones. We are talking about martial arts flicks, ninja movies, and Rambo-styled movies.

Long before the disasters of Superman IV or Masters of the Universe, Cannon's core business model was already doomed. Even if they had never tried to make big-budget Hollywood movies, they were literally using a bad method. Cannon Films belongs in economics textbooks under a warning label: Do not build a business on a temporary loophole and pretend it will last forever.

Golan and Globus were masters of something called "pre-sales." They would dream up a movie based on a goofy title or a cool poster, write a script over a weekend, and fly to film festivals like Cannes. Before they even shot a second of film, they would sell the rights to show the movie in different countries all over the world.

If a Chuck Norris movie cost $2 million to make, they would get international buyers to hand over cash upfront to cover the costs, and end up with more money than they needed. They used tomorrow's money to pay for today's movie.

Plus, they had a secret weapon: the early days of the VCR. The VHS was crazy expensive, so movie rentals were common. How expensive? Studios sold cassettes between $60 to $80. A random joe wouldn't pay that much to own a movie like Missing in Action, but a mom-and-pop rental shop gladly paid it because they could rent it out dozens of times to different customers and make their money right back.

Cannon exploited this creating dozens of cheap movies a year, keeping budgets under $5 million, and cashing massive checks from thousands of video stores desperate for shiny plastic boxes to fill their shelves. Rental stores made money like this: Fill the shelves with as many movies as possible, A or B movies. If the A movies were sold out, the person who made the trip had to rent out the B movies, because they already made the trip, Cannon was the master of "Guess I have no choice/Good enough".

And then everything fell apart.

In economics, any business relying on a single trick is going to get crushed when things change. Blockbuster Video changed how it did bussiness.

Blockbuster couldn't afford to buy 50 copies of a movie at $65 a piece. So, they changed the rules of the industry and invented revenue-sharing.

Under revenue-sharing, they bought cassettes for a cheap fee (like $6 to $8) and promised to split the rental profits with the studio later, handing over just a tiny slice of cash over time.

For low-budget, high-volume factories like Cannon, this literally accidentally murdered them. That front-loaded cash vanished. Instead of getting paid right away, they had to wait for slow, tiny trickles of backend rental splits.

Blockbuster now flooded their shelves with major movies because they were cheap to acquire, completely squeezing low-budget B-movies out of the picture. Independent video stores, Cannon's main customers, either went bankrupt trying to compete with Blockbuster or demanded the same cheap pricing deals.

Cousins Menahem Golan and Yoram Globus decided to pour rocket fuel on the fire, the dynamic duo couldn't resist trying to be bigh budget big shots. On paper, landing Superman sounded awesome, and then they slashed Superman's budget mid-production to pay for other pet projects, while Masters of the Universe cost a fortune to produce and market.

And then it gets worse, drowning in debt, Golan and Globus were forced to sell a controlling stake in Cannon to an Italian financier named Giancarlo Parretti. Parretti turned out to be wrapped in a fraud scandal. The studio was dragged through a labyrinth of shady European bank loans, asset stripping, and legal investigations that eventually landed Parretti in prison for financial crimes.

Menahem Golan and Yoram Globus then had a massive falling out. Golan wanted to keep recklessly making films; Globus tried desperately to salvage what was left. They dissolved their partnership in 1989. Cannon got swallowed whole by MGM. Golan went off to form smaller, struggling independent companies, never capturing that old lightning in a bottle, while Globus eventually returned to Israel.

They spent their twilight years arguing over who was to blame for the collapse of a dream, not knowing it was dead from day 1.