Dog Days for Dealmakers : Actors, Agents See Bargaining Power Erode With the Recession

Fueled by a recessionary economy, a sense of panic has descended on dealmakers in the Hollywood film industry, as studio executives increasingly balk at raising the salaries of actors and directors whose names do not guarantee box-office hits.

While megastars like Arnold Schwarzenegger, Kevin Costner, Mel Gibson and Julia Roberts can still get top dollar, industry experts say, other leading actors are suddenly finding they have no such leverage.

Agents who only a few years ago negotiated from strength, now find tough bargaining with studios the norm. As a result, some stars are rejecting contracts, vowing not to work for six months or longer until they can again make their “quote”--the price they got for their most recent film.

Studio executives have become increasingly alarmed at shrinking profit margins as production costs have soared to an average of $27 million a picture--excluding prints and marketing--while the number of moviegoers this summer and fall has declined.

Costs have risen at a far higher rate than revenues. “If you look at the core of the movie business, films opening in theaters, there is no growth there,” said one industry source.

For the dealmakers, the agents who became power brokers in the Hollywood of the 1980s, the widespread cost cutting has been like a splash of cold water.

Entertainment attorney Peter Dekom said he is seeing deep cuts for everyone but the top stars.

“In television, I’ve seen writer-producer . . . deals drop 50% to 75% or more,” Dekom said. “In feature films, I’ve seen (studios) lop a seven-figure number off an actor’s salary. Screenplay costs have dropped like a stone.”

Dekom said that the “six or seven” top stars in films will not be affected by the current recession, but others will.

“If you are an ascending actor, then your price is likely to go up,” he said. “If you are not able to put bucks in the seats, then those actors will wind up having their prices challenged.”

Dekom said he has seen some stars, when told they must take substantial pay cuts, simply turn down the deal and refuse to work. Others, however, do accept the cuts and try to make up for them by taking back-end deals, he added.

“Studios are growing very, very tough,” said entertainment lawyer Tom Hansen. “It’s harder to make the deals that we did three years ago. The studios are seeing a much smaller pot of gold at the end of the rainbow.”

Agents say the studios began to get tough this summer, when the box office began to lag. Now, some big-name actors have had their contracts cut as much as half to three-quarters of their prior quote and such cuts are common at every studio.

For the agents, who earn a 10% commission, the plunge in pay for actors, directors and screenwriters is disturbing.

“The reason is this,” explained one attorney. “Let’s say the agent got the star $3 million (on a prior picture). He sends the guy a script and the actor says, ‘Let’s do it.’ The agent comes back from the studio with only a $750,000 offer. That agent is now terrified. The actor is going to fire that agent and go to another agency because he expects that agency to get him back up to $3 million.”

The big stars like Schwarzenegger, whose compensation for “Terminator 2” included a 1982 Gulfstream III jet, and Roberts, whose salary--at least before “Dying Young” bombed this summer--was reportedly $7 million, can almost dictate their prices. But those who have been making between $2 million and $4 million a picture have to accept less in order to work.

“The middle-range talent has had to take some cuts in order to continue to work,” said TriStar Chairman Mike Medavoy. “In one case, we actually took an actor’s and actress’ salaries and cut them in half. They thought the material was good and they decided to do it.”

Some actors are agreeing to take substantial pay cuts in return for a certain percentage of the gross. For example, an actor who normally makes $4 million will accept $1 million but then get a certain percentage of the film rentals to the studio.

Until this year, agents would go into negotiations and studio executives would ask, “What is that person’s ‘quote?’ ” said entertainment attorney David Colden. “Today, many times it is a zero-based negotiation. You start all over again. What a writer, director or actor earned before is less important than it used to be.

“It’s terrible out there,” Colden said of the current climate in dealmaking. “I’ve been doing this for 13 years and I’ve never seen it as bad as this year.”

Colden said the general reason star salaries are coming down is that this year there has been approximately $200 million less in domestic box-office gross, which translates into $100 million less in box-office rentals going back to the studios because the exhibitors keep 50%.

“In addition to that, you have the general recession in the economy,” Colden said. “In the heyday of the bidding up of salaries, there were many independent studios bidding for the same limited talent pool with the majors. People could demand more money. Those independents have largely gone away.”

For the big talent firms such as Creative Artists Agency, William Morris Agency and ICM, the ripple effect of the economic downturn has not yet had a noticeable effect.

“I don’t think there will be layoffs (at the agencies) now,” one source said. “I think if there are layoffs, that is coming next summer.”

But for many agents, 1991 is turning into a troubling period.

“It’s a tough time to begin for an agent,” said one leading executive. “I would say there is a fair level of anxiety (among them).”

“This is the way agents make money--through making deals and increasing the price,” one young agent explained. “The reality is, now there are less deals and prices aren’t going up.”

At ICM, Chairman Jeff Berg recently told a staff meeting that the firm would have to examine all cost structures.

Some say the film industry has only itself to blame for its current financial problems.

First, it created its own competition with the video rental market. While video rentals have been a new resource, some believe they are a principal cause of the recent plunge in the box office. Instead of paying up to $7.50 at the movie theater, a person can rent a film for $2 and sit his entire family around the television set.

Second, studios for years have given the green light to enormously expensive projects that stood little chance making profits.

They cite Touchstone Pictures’ “Billy Bathgate,” with a price tag of $40 million, as a recent example of a film that simply cost too much in the current climate. TriStar’s “Hook,” with a reported budget of $80 million, will probably break even, they add, but it was made primarily because Medavoy wanted the studio to make a statement to Hollywood: “We’re back!”

Medavoy said that despite the economy, he does not see the era of big-budget films as being over.

“I think every studio will have one or two big-budget pictures because the industry feels it can bring out people,” Medavoy said. “I think a really big picture brings people to the theaters.”

But Medavoy said that some screenplays may have to have certain scenes removed, if the studio deems them to be too expensive to film.

At a time when American workers are facing layoffs, such cutbacks and reduced salaries may appear trivial. But some in the film industry say many people are envious of the big salaries, and see them as part of Hollywood’s allure.

“The average Joe has, I think, both a resentment as well as an adulation of movie stars and rock stars and entertainment types,” attorney Colden said. “Yes, they may resent a star’s salary, but they are also fascinated by it because they have a secret desire that even if they can’t do it, they wish they could.”

In the current economic climate, however, many stars will have to take less.

“The era of the star demanding and the studio caving in every time is at an end,” said one industry source. “My favorite phrase is, ‘How can you insult me with that offer? I am not going to accept a 20% raise. I want more!’ ” he said. “That phrase isn’t heard a lot anymore.”