Battle of the Would-Be Blockbusters

This is how crazy the economics of the movie business have become.

In order for a film costing in the $100-million range to break even or turn a profit, it has to be among the top handful of moneymakers of the year. That’s no easy feat given how flooded the market is with product.

Next year there are more films close to or exceeding $100-million budgets than ever before.

Industry executives are holding their collective breath in anticipation of next summer, when there are numerous movies in that stratosphere, including “Titanic,” “Speed 2,” “Batman 3,” “Starship Troopers,” “Fifth Element,” “Men in Black” and “Airforce One.”

“A hundred million dollars is practically scale on any big movie today,” says a prominent talent agent who represents top actors paid more than $17 million to star in such films. Add in $50 million to $75 million more in global marketing costs.

“It’s the vogue,” says Disney Studios Chairman Joe Roth. “The problem is every studio has two or three of these movies and the marketplace won’t expand and support all of them.” He notes, “We’ve seen this summer coming for two years and the problem will be if you have one of these titles that don’t catch fire, you’re going to lose a lot.”

Because they are sequels to highly popular movies, “Jurassic” and “Batman” are expected to eat up a good deal of the market, which doesn’t leave as much room for the other behemoths.

The rule of thumb is, if a movie costing $100 million grosses $100 million at the domestic box office, it can be expected to match that or do 25% to 30% more business internationally, in which case it would break even or make a little money.

In addition to the expensive summer fare, there are three mega-budgeted films set for release next spring, two of which concern the same subject matter--20th Century Fox’s “Volcano” and Universal Pictures’ “Dante’s Peak.” The other costly film slated then is Alan Pakula’s “The Devil’s Own,” starring Harrison Ford and Brad Pitt.

Some studios are attempting to cut costs by partnering with each other on the bigger budget films. Fox and Paramount are doing so on James Cameron’s “Titanic,” which is expected to cost well over $100 million. Paramount, which bought the domestic rights, is financing a maximum of $50 million, according to industry sources.

Disney and Sony are sharing the risk on “Starship Troopers,” whose budget is just over $100 million.

Disney’s Roth admits: “Partnerships aren’t great. They exist because the prices of the big titles are so frightening--one disaster can sink a program--you’re willing to take less upside to protect half your downside.”

Peter Chernin, who was just promoted from Fox studio chief to president of News Corp., concurs: “Partnerships don’t change the fundamental economics, they just cut the risk and the upside in half. . . . Generally, we’re not believers in sharing rights . . . we’re in a worldwide movie business and have to take the shots.”

Certainly that strategy paid off in spades for Fox, which paid about $75 million to produce “Independence Day” and will reap the benefits of an expected worldwide gross of $800 million.

Paramount has been in the forefront of shared deals for three years and believes the strategy has served it well.

“The cost of films has gotten out of control,” says Paramount movie Chairman Sherry Lansing. “No matter how successful you are, the margins don’t work. When films start approaching the $100-million levels, we all have to look at this if we want our business to continue.”

Disney and Paramount are also advocates of making fewer movies, believing that smaller slates will have an impact on marketing and production costs--which are at an all-time high--and ultimately on the returns.

Fox is adhering to its plan to make 18 to 20 movies a year, more than it has in years past but less than most studios today. Those who know incoming Sony Pictures chief John Calley say he will probably pare down the number of movies Columbia and TriStar release each year.

But not every studio is jumping on the less-is-more bandwagon.

Universal plans to increase the number of movies it releases, though decrease the number of titles it finances, says Chairman Casey Silver.

Warner Bros. Co-Chairman Robert Daly also makes no apologies for how his studio has been operating.

“Warner Bros. has historically made more movies than anyone--25 to 30 a year--and we’re not changing the way we do business,” says Daly. “But, we think longer about each call we make because everything is more expensive.”

Within the last two weeks, Warner drew a line in the sand on two projects--refusing to pay $10 million for Michael Crichton’s new book “Airframe” and postponing production on another Crichton adaptation, “Sphere,” until the final budget of the Barry Levinson-directed film looks more like $85 million than $95 million.

Even so, Warner and Sony have more expensive movies on tap than any other individual studio.

If Hollywood is serious about improving margins, companies will have to do more than cut back on their slates.

Logic would have it that if fewer movies are made, the cost of studio overhead--which runs in the hundreds of millions of dollars a year--would come down accordingly. Companies would save by downsizing the number of projects in development, their studio support staffs and the number of “first-look” production deals that often don’t bear product.

These arrangements can cost the studios from a few hundred thousand dollars a year to multimillions.

“In the last five years, the studios have been working as employment agencies for the agents,” suggests Roth. “We have to be more selective about who we’re in business with and what kind of arrangements we make.” He adds, “Most of these first-look deals are ludicrous because by definition you’re housing and paying for a staff who by contract has no loyalty to make movies for you.”

Roth, for one, is moving away from first-look deals in favor of guaranteed commitments from directors and producers.

Universal, which is retooling under parent MCA’s new management team led by Frank Biondi Jr. and Ron Meyer, is being criticized for having more “term” deals than any studio, but it feels justified.

“We’ve stepped it up largely to replace a major supplier of big-event pictures,” said Silver, referring to the loss of Steven Spielberg’s Amblin Entertainment, which is being folded into DreamWorks SKG. “Over the long haul, you look at the results of these deals and the ones that don’t perform you cut.”

Studio executives agree that the economics of the movie business are totally out of whack.

“I’d like to believe we’re coming to the end of this period of extraordinary inflation,” says Chernin. “If we can get the business to stabilize a little bit, there’s a chance over the next few years to improve the economics. But right now they’re just atrocious.”

Another industry insider insists “We’re going to have to seize back the business, and this [next summer] is the end of the craziness.”

Is it?

Quoting Yeats, a top industry player observes: “The center cannot hold.” The preceding part of the quote he left out: “Things fall apart.”