Big Budgets Are Proof Talk Is Cheap, Movies Can Still Be Expensive

At London’s Pinewood Studios, production on “Alien 3” has commenced. The 20th Century Fox film, a special-effects extravaganza that stars Sigourney Weaver, is budgeted at more than $30 million. And that’s before advertising and marketing costs are counted.

A budget of those proportions is supposed to send film industry executives scrambling for the aisles, now that Hollywood has embarked on one of its periodic austerity drives. But Fox studio Chairman Joe Roth said he had no compunction about giving the go-ahead to “Alien 3.”

“It all depends on the material,” Roth said. “And some movies cost a lot of money.”

Roth apparently is not alone in that assessment. Despite the recent hand-wringing over film costs, which climaxed last week with the publication of a 28-page internal budget-slashing manifesto from Walt Disney Studios Chairman Jeffrey Katzenberg, the torrent of spending continues.

Studio pipelines are overflowing with high-cost projects, expensive sequels, multiple-picture producer deals and big-event films costing $30 million to $70 million, including Universal’s “Jurassic Park,” Tri-Star’s “Hook,” Paramount’s “Star Trek VI,” Columbia’s “Radio Flyer,” Warner Bros.’ “The Last Boy Scout,” and Disney’s “Billy Bathgate.”

Some film executives say cutbacks will become more apparent as new projects emerge, and the success of such films as Paramount’s “Ghost” and Disney’s “Pretty Woman” has unquestionably spurred interest in modestly budgeted love stories.

Escalating production and advertising costs at a time of economic recession have also had a sobering effect, as it was reported this week that film production costs jumped 14%, to $26.8 million per film last year, while print and advertising expenses rose 26%, to $11.6 million per film.

But many people reject the idea that Hollywood can change its free-spending ways. Film executives have perennially pledged to cut costs, only to reverse field when a big-budget movie such as “Batman” hits pay dirt. The studios must also contend with agents and lawyers seeking more lucrative deals for their clients.

“I applaud their interest in the subject,” said Harold Vogel, an entertainment analyst with Merrill Lynch. “But it’s like OPEC and its oil quotas. Everyone says let’s keep the price of oil up through the cartel. But what actually happens is somebody always cheats.”

One key player in the blockbuster game that remains unfazed by the latest round of anti-spending rhetoric is Carolco Pictures. The company, known for big-budget action films such as “Total Recall,” will continue to produce at least one “event” film a year, a Carolco executive said.

Another of Hollywood’s big spenders, Steven Spielberg, is working on two films said to cost about $50 million each: the star-heavy “Hook” and “Jurassic Park,” with realistic model dinosaurs among its elaborate effects.

Several studios have also recently engaged in a bidding war for the services of John Hughes, the writer-producer behind the phenomenally successful “Home Alone,” which is still going strong after grossing more than $213 million at the box office domestically. Hughes is represented by Creative Artists Agency, which is known for securing lucrative deals.

Hollywood’s spending habits have become steadily more profligate since the early 1980s, when a glut of videocassette and cable TV money made it relatively easy to fund big films. Even as the influx of funds from such “new media” started to level in the mid-1980s, a wave of Wall Street investment buoyed the film companies. Foreign money then came into play, first from the expansion of European television markets and then from Japanese investors.

Cash-rich studios cranked out a steady line of big-budget movies throughout the ‘80s, including two “Indiana Jones” sequels at Paramount and “Batman” at Warner. But 1990 brought executives back to earth, as such costly films as “Days of Thunder” and “Havana” flopped.

Paramount Pictures Chairman Frank Mancuso lobbed the first volley against rising costs by parting ways with Don Simpson and Jerry Bruckheimer, the highflying producers behind “Days of Thunder.” Warner Bros. Chairman Robert Daly next joined the chorus. But it was Katzenberg who issued the strongest call for fiscal sanity in a detailed internal memo that industry insiders assume was intentionally leaked to the press.

Katzenberg pledged to avoid high-cost projects in the future. Yet the company remains in the blockbuster business for now. Among its upcoming releases are “Billy Bathgate,” based on the E. L. Doctorow novel and starring Dustin Hoffman; “Rocketeer,” an adventure fantasy featuring sophisticated special effects, and “What About Bob? ,” a comedy starring Bill Murray and Richard Dreyfuss.

Of all the studios preaching the gospel of austerity, however, Disney still has the most credibility.

Lisbeth Barron, an entertainment analyst with S. G. Warburg Securities in New York, responded to Paramount’s budget-cutting pronouncements by reiterating an earlier recommendation that clients sell the parent company’s stock. “Despite claims by the company that it is reducing expenditures on films, there is no indication that such discipline exists,” Barron wrote in an unusually harsh Jan. 18 report on Paramount.

Wertheim Schroder & Co. analyst David Londoner forecasts that expensive projects still in the pipeline will depress film company profits by as much as 20% in 1991 and that 1992 could be just as bad if the companies don’t trim budgets by as much as $5 million per film.

But Londoner has been strong on Disney and Time Warner stock, and he believes that the companies are serious about cuts.

If they trim their budgets, the big studios may find themselves leveling the playing field a bit for smaller competitors such as Orion Pictures. Under a tightly restrictive agreement with its primary bank, Manufacturers Hanover Trust Co., Orion has generally been limited to budgets of $23.5 million or less--precisely the sort of limit that stronger companies such as Disney, Time Warner and Paramount are now trying to enforce.

Agents say profit participation may become the preferred payment plan of the 1990s as studios search for ways to cut production costs. Big stars, who often receive a share of box office revenues, may now seek an expanded percentage of video, cable and pay-per-view revenues in lieu of large up-front salaries, according to several agents. Other lesser-known stars may find their salaries frozen.

Studios have traditionally resisted sharing proceeds from video and other ancillary markets. Disney and Fox, for instance, have a non-negotiable policy against video profit participation. But agents see that wall crumbling as deal-making becomes more creative.

“You are not going to find an overall net reduction in the amount of money creative people receive. That just won’t happen,” said the William Morris Agency’s Mike Simpson.

BIG BUDGET FILM PROJECTS

Estimated cost* Projected Movie Studio (millions) release date Jurassic Park Universal $40-$50 Open Hook Tri-Star $40-$50 Christmas Terminator II Carolco $50 Summer Billy Bathgate Disney/Touchstone $30 Summer Alien 3 Fox $35 Winter Rocketeer Disney $30 Summer Hudson Hawk Tri-Star $40-$50 Spring The Last Boy Scout Warner Bros. $33 Winter Radio Flyer Columbia $35 Summer

*Cost estimates supplied by the studios and Baseline computer service. Baseline culls its information from press reports and elsewhere, and attempts to confirm it with film producers.