James Cameron's holiday movie "Titanic" is proving to be a gigantic hit with audiences. The bigger surprise is that the most expensive movie ever made at more than $200 million may actually make a little money.
But neither the quality of the film nor the strong box office changes the fact that "Titanic" is a bad business proposition.
Even Bill Mechanic, chairman of 20th Century Fox--the film's primary backer--readily admits that.
"The truth is, you don't want to be in this kind of business," says Mechanic, who estimates that the movie must gross at least $400 million for Fox just to recoup all its production and marketing-distribution costs. Essentially, that means "Titanic" will have to be one of the highest-grossing movies of all time--which now seems possible--just to break even.
In the three weeks since its release, the film has taken in just under $160 million in domestic box-office receipts and another $50 million in early foreign returns. At its current rate, the movie could top out at more than $250 million in the United States and an equal amount overseas. Box-office revenue is split about half and half with exhibitors.
The 194-minute epic about the most famous shipwreck in history is sure to be one of the top three highest-grossing movies of 1997, along with Universal Pictures' "The Lost World: Jurassic Park," which grossed $700 million worldwide, of which $230 million was made domestically, and Sony's "Men In Black," which has collected $572 million worldwide, including $250 million in U.S. ticket sales.
If its foreign receipts match or surpass its ultimate domestic sales, "Titanic" will have no problem breaking even. Worldwide video, television and other ancillary sales could deliver hundreds of millions in additional dollars. (NBC already has agreed to pay $30 million for the film's initial broadcast rights.)
Beyond a modest return on investment, there are other benefits for a studio like Fox, which is owned by Rupert Murdoch's far-reaching media empire, News Corp. Having a "Titanic" in a film library can help drive TV package sales around the globe. The company also presumably has a better chance of enlisting Cameron in future projects.
And even if "Titanic" had been an unmitigated disaster, it would hardly have sunk a studio like Fox, which has the benefit of its parent company's deep pockets and its other businesses to offset losses on the movie side.
Still, Mechanic acknowledges, "It's not a good business proposition to be in the $200-million or $150-million movie business--it's un-economic."
Unlike independent film companies, which often presell the rights to films to protect themselves, the major studios generally take the risk upfront, sometimes in partnership with each other. Before the first dollar came in the door on "Titanic," for example, Fox and Paramount Pictures had to spend more than $250 million. So even a profit of tens of millions of dollars may be a poor return on investment as the revenue trickles in over three years or so.
Fox invested the lion's share of "Titanic's" production money, while Paramount, the film's domestic distributor, capped its portion at $65 million. Both studios will have spent another $30 million to $40 million in marketing costs through the domestic and foreign life of the picture. Paramount, which is the most risk averse of the major studios and has never spent more than $65 million on a movie, gets to collect half of the profits from every source for putting up a third of the film's cost. Not a bad investment.
Although it appears that "Titanic" will make at least a minimal return on investment for Fox, spending as much as it did for potentially so little return is a questionable decision.
"We hopefully dodged the bullet on 'Titanic,' " Mechanic says. "But, to think you can keep dodging that same kind of bullet is unrealistic. The business is not expanded enough to take those kinds of risks. . . . You don't want to play those kinds of odds."
Besides, as Mechanic reminds us, since movie making is not a science but an art, even with the best of elements going for you--a great story, great direction and great acting--success is uncertain.
In the case of "Titanic," that success came with a huge price.
"It was an experience that was humbling to all of us," Mechanic says.
Putting aside the fact that "it's rare to be associated with such a brilliant film," the studio chief acknowledges that the production process was demanding. "It put a strain on the organization and all the individuals who were involved and on the filmmakers. . . . It was tough to live with."
Although Mechanic, who was a top executive at Disney before coming to Fox, inherited "Titanic" while the film was in development and was not responsible for greenlighting it, he was charged with overseeing a production that essentially went about 100% over its original budget of $110 million. (At that price, it might have been a good risk for the studio.)
"We didn't intend to make that kind of investment," Mechanic says. And, if it's up to him, he says the studio won't be repeating that mistake any time soon.
While Fox has other projects lined up with Cameron, including a remake of "Planet of the Apes," Mechanic says that another $200-million James Cameron movie "is not going to happen"--at least not at Fox.
Mechanic says that since making "Titanic," the studio has not greenlit a movie even costing $100 million, and none of the films currently in production exceed $70 million.
"We've been conscientious about bringing prices down," Mechanic says. "We've redone our entire physical production department and put new systems in place."
Mechanic says one of the main culprits for "Titanic" going so far over budget was inadequate prep time before production got underway.
"You have to do your homework before you start shooting, not after," he says.
"You need a lot of lead time on the big movies and to know what your effects are going to cost before you start."
Trying to control finishing costs on a movie as logistically complex as "Titanic" was much more difficult than anybody had anticipated, Mechanic says.
According to Mechanic, Fox--which like other studios has had its share of costly flops, such as this year's "Speed 2: Cruise Control" and "Volcano"--is now making a concerted effort to curb costs. But it's also possible that a successful "Titanic" could raise the bar on the industry's already stratospheric production costs.
"It probably will and it's disgusting," says the head of one studio.