The Big Squeeze : New Movie Economics Bring Good Times for ‘The Business,’ Bad Times for Hollywood

“The next couple of years should be good for the business,” says the studio executive, relaxing over a second tumbler of Dewar’s in a Manhattan bar.

“But they might be bad for Hollywood,” he says.

Good times for “the business.” Bad times for Hollywood. That seeming paradox lies at the heart of a new order that appears to be taking hold of the movie industry as the 1980s draw to a close.

After expanding rapidly for a decade, moviedom has plunged into its first serious consolidation since the early 1970s, when audiences contracted, the number of films dropped and financial pressures forced the sale of Columbia Pictures, while pushing MGM, National General, ABC, and CBS out of movie distribution.

Over the next few years, the number of pictures is again expected to drop by one-third or more. That’s largely because movie investment money, a cyclical commodity, dried up some months before last year’s stock market crash, squeezing many small production companies--and some big ones, like MGM/UA--at a time when costs were rising, and revenue increases from video and pay cable were beginning to level off.

Audiences will now have less to choose from, though many of the weaker films clearly won’t be missed. “In the last three or four years, I’ve seen a lot of movies that should never have been made,” says Cary Brokaw, co-founder of Avenue Pictures, and former head of Island Pictures, which released “Kiss of the Spider Woman” and “She’s Gotta Have It.”

The contraction also could spell serious trouble for theater owners, who expanded rapidly in recent years, and for craftsmen and Hollywood’s creative community, which prospered as new film companies bid the price of actors, writers and directors upward in the mid-1980s.

According to many close observers, however, the squeeze could benefit Hollywood’s biggest studios, which look forward to a potentially rich period of diminished competition and strong profits at a time when European television markets are opening to U.S. films, and new technologies such as high-definition television or video/audio laser discs promise fresh revenue sources.

“We’ve entered the beginning of a prolonged period of concentration,” says investment banker Roy Furman of Furman Selz, which aggressively backed small firms like Cannon Group and Kings Road Entertainment during Hollywood’s recent go-go years. Furman’ new gospel: “(Size) will be the principal competitive theme, complemented by international muscle.”

Hollywood traditionalists began complaining of a “picture glut” as early as 1983, when it became apparent that new players--notably, Tri-Star Pictures, co-founded by CBS, HBO, and Columbia--intended to bid for premium talent and theater space. Those commodities had been reserved to six established majors (Columbia, Fox, MGM/UA, Paramount, Universal and Warner Bros.), along with Orion Pictures (which never took more than 5% of the box office), and a small, family-oriented Walt Disney movie unit (which had slipped to about 3% market share).

That year, when about 400 pictures were released in the United States, Barry Diller, then chairman of Paramount, told the Wall Street Journal: “In the next three years, the industry will take a nose-dive that will take another two years to get over.”

Instead, the bull market in stocks and bonds poured still more money into Hollywood--about $2 billion in 1986 alone. Orion and Disney expanded, and newcomers like Lorimar Motion Pictures, De Laurentiis Entertainment Group and Cannon Group Inc. geared up, forcing the number of films to an apparent peak of roughly 500 this year.

America’s movie binge is about to end, however.

Projected film counts are notoriously tricky, because inventories remain high, and distributors increase or decrease release schedules on a moment’s notice to take advantage of perceived market changes.

Yet Carolco Pictures President Peter Hoffman is predicting a “dramatic drop, in the 30% range” next year. Similarly, DEG Chairman Stephen Greenwald, whose company filed for bankruptcy protection in August, puts the shrinkage at “more than 20%, but less than 50%,” as independent releasing companies like Island, Cannon and others pull in their horns.

Oddly, the number of production starts still appears strong. The trade paper Daily Variety logged 458 English-language movie starts worldwide for the first 10 months, up from 438 for the same period last year. But Greenwald and others say many of those largely low-budget films are funded by the burgeoning European television industry and will never be released to theaters in the United States.

More seriously, a reduction appears likely in “Hollywood” pictures--movies that use mainstream writers, directors and actors and vie for serious attention from audiences and critics.

“Clearly, there will be fewer major films out there. Financing just isn’t as readily available as it was,” says ex-investment banker Jeffrey Barbakow, who was recently named chairman of MGM/UA Communications Co. after 19 years at Merrill Lynch.

After bottoming out at what may have been an all-time low of about 120 in 1978, studio films climbed to about 160 a year in the 1980s, and had threatened to go higher, until several major players weakened or collapsed, eliminating movies from future schedules.

Some likely adjustments:

--MGM/UA--which had talked of releasing as many as 30 films a year, recently folded its United Artists production unit. It now expects to produce perhaps half that many films, and appears likely to do even fewer until it completes a major financial reorganization.

--Warner Communications Inc., on completing its planned acquisition of Lorimar-Telepictures Corp., will eliminate Lorimar’s new film unit, which had intended to release about a dozen films a year. Meanwhile, DEG, which briefly promised to compete with the majors, has closed its 12-film, $150-million-a-year movie operation, and has no immediate plans to resume production, according to chairman Greenwald.

--Columbia and Tri-Star, still in the throes of their own consolidation under the umbrella of Columbia Pictures Entertainment, have released as many as 37 films a year between them, and say they have enough financing to sustain their pace. Yet both companies recently delayed their four Christmas pictures until next year, and some movie insiders are betting that tight money will eventually force Columbia and Tri-Star toward smaller rosters of 12 pictures or so annually.

That strategy of self-discipline has already been adopted by more successful companies like Paramount and Disney as the average cost of making and marketing a studio film shot well above $20 million (before studio overhead) in the last few years, making big schedules too risky.

A surprisingly wide range of movie lovers say they won’t be sorry to see Hollywood’s output slashed.

“There will be very little to mourn. Aesthetically, the independent film movement was a big flop,” says New York magazine film critic David Denby.

Denby is one of several movie fans who say new companies squandered precious talent on too many bad films--just who was served when DEG put Elizabeth Perkins in “From the Hip” or when various companies put Gene Hackman into six films set for release in less than a year?--and failed to win theater and video audiences, with the rare exception of a “Dirty Dancing” (Vestron) or a “Nightmare on Elm Street, Part IV” (New Line).

“They took good directors and stars and put them in B movies. People like Dino De Laurentiis wasted good talent,” says Columbus, Ga.-based Carmike Cinemas President Michael Patrick, who points out that independently released films, despite their high numbers, still account for only about 10% of the total box office.

“We all learned there’s a limit to the appetite for entertainment. There’s going to be less chaff with the wheat,” says Avenue’s Brokaw, who predicts that films will drop about 25% industrywide.

Some observers believe that the early 1970s, when film counts were coming down, were a golden era for film making. “It might have been the best time for movies since the 1930s,” producer Peter Bart, an ex-Paramount executive, says of the period, which produced “The Godfather” (1972), “American Graffiti” (1973), “Chinatown” (1974) and other modern classics.

Still, the picture glut created work for Hollywood--and many of those jobs now seem doomed to evaporate.

The Screen Actors Guild, which records the first $200,000 of performers’ income per contract, reported that actors’ movie pay dropped for the first half of 1988 from $99.3 million a year earlier to $94.7 million. Actors’ pay had posted annual gains as high as 25% throughout the 1980s.

Corporate staff has already been slashed at MGM/UA, Tri-Star, Columbia, New World, Lorimar, DEG and elsewhere. But further consolidation among the majors could fall heaviest on the craft unions, where unemployment has grown as production shifted abroad and to cheap-labor states.

At film laboratory technicians Local 683, about 700 of 1,200 members are out of work, compared to just 200 at this time last year. About 60% of some 800 hair stylists and makeup artists in Local 706 are unemployed, compared to less than 10% at this time last year, while the publicists’ union claims to be running record unemployment rates.

“When I went to work in the (movie) business, I guess I just expected this sort of thing to happen,” says a stoic Ron Pennington, who lost his publicity job in the cutbacks at MGM/UA, and is now hoping to find work on a film-by-film basis.

A few movie insiders believe that even multimillion dollar star salaries are about to come down, particularly if the box-office admissions drop by 10% or 15%, as they did in 1971.

“It’s happening already,” says one major agent. He says a new, more austere movie economy is being shaped by “back-end” deals like those of Arnold Schwarzenegger and Danny DeVito for Universal’s “Twins” or of Dan Aykroyd and Bill Murray for Columbia’s “Ghostbusters II,” under which stars forgo virtually all of their fees in return for a percentage of the film’s receipts.

By some account, the ferocious bidding wars of the 1980s--which seemed to peak when Fox paid Bruce Willis $5 million to star in “Die Hard,” even though he never had a hit movie--were fed not just by new players, but by insecure managers caught up in the old game of musical chairs at the majors.

“I don’t really separate Cannon, DEG and Lorimar from any major studio manager that had 12 to 18 months to prove he deserved his job. He reacted the same way” when bidding for talent, says a Paramount executive.

As the film recession hits, however, it appears likely that Rolls-Royce talent like director Sydney Pollack or actress Debra Winger will suffer much less than entry-level writers, directors and actors, who enjoyed a feast of opportunity in the 1980s.

“As in the 1970s, entry will be the toughest thing,” says Carolco’s Hoffman.

Art Murphy, a USC film professor and box-office consultant for Daily Variety, agrees: “As the independents go, we’ll really be losing what I like to call the movie industry’s farm team.”