COVER STORY : Studio Chiefs Learn to Just Say ‘No’ : After recent spending binges, Hollywood contemplates cost containment

Hollywood is still suffering a hangover from its recent spending binges. Over the past three years, the average cost of a movie has jumped more than 40%--to $27 million. In the last year, those skyrocketing costs ran smack into a worrisome dip in box-office receipts.

Now studio executives are talking about lessons learned and the need to change course. But are studios serious about saying no?

Some of them seem to be. After Disney chief Jeffrey Katzenberg poured out his frustrations over the industry’s blockbuster mentality in a 28-page state-of-Hollywood memo earlier this year that studio made a commitment to shift course. Disney will continue to hire stars--and probably pay them their going rates--but the studio is hiring them less frequently and for fewer movies in an effort to get costs better under control.

Likewise, Paramount has markedly brought down the cost of its films with an emphasis on comedy and romance, rather than big-budget spectacles, as well as by using fewer big-name stars and producers. But whether the company’s new management will continue that course is unclear.

Throughout the industry, studio executives predict that while stars will continue to command their going rates, they may find less work. “You’ll see less packaging” of several stars in one movie, said one top executive. “More likely, movies will have one star surrounded by three very good actors.”

Studios are willing to pay big salaries to stars--like Julia Roberts or Tom Cruise or Eddie Murphy--because their names on the marquee often (but not always) guarantee an audience. Many industry insiders predict that the dozens of well-known actors who can’t boast that same power--but still command salaries in the $2-million to $5-million range--will have trouble getting their asking price. But, they add, it’s still too early to tell.

For now, actors and directors who are hot at the moment seem immune to any cost containment. One prominent agent notes that in the past two months, studios have permitted several big-name directors to go over budget on film projects, but they are scrutinizing every penny on projects directed by lesser-known filmmakers.

Some writers also are feeling the pinch. Talent agent Martin Bauer notes that while the crunch isn’t as bad as in TV, some feature film writers aren’t getting the raises they want. Warners has cut back on its development spending, and such studios as 20th Century Fox and Universal have put writers under long-term contracts to save money.

The auction market for spec scripts that for a brief period had studios reaching into their coffers to the tune of $2-million dollars is suddenly dead. Nearly a year ago, attorney David Colden helped orchestrate the sale of Kathy McWorter’s comedy script “The Cheese Stands Alone” for $1 million. “Could we have sold it today for the money we did?” Colden asks. “I don’t know, but I think not.”

Part of the reason, according to agents and attorneys, is that interest on the part of some of the biggest buyers--like Columbia-Tri Star, Carolco and Paramount--has cooled, due to internal reasons, such as management changes. In addition, studios found that even after spending huge sums in auctions, some of these scripts continue to languish unproduced, often because a star that had been attached to the project (and had made it seem so valuable) dropped out.

But cost containment is hitting the hardest at the bottom of the Hollywood food chain. “Studios have taken a hard position about below-the-line salaries,” one producer said. That means that cameramen, editors, prop masters and others behind the camera who command top dollar will start finding less work, while others will have to make do with less generous raises. Whether film crews have to take pay cuts so the studios can continue to cover the costs of star salaries remains to be seen.