Marketing Costs Scale the Heights

When John Woo’s costly World War II epic “Windtalkers” had a disastrous debut this summer, MGM Studios responded in Hollywood fashion: It spent millions of dollars on emergency marketing.

Despite the infusion of cash for new ads, the box-office receipts didn’t climb, but the losses did. “Windtalkers,” starring Nicolas Cage, grossed just $41 million in the U.S., or $1 million less than what sources said it cost to market. And that didn’t include the film’s price tag of more than $110 million.

Such desperation spending has helped drive studio marketing expenses to an all-time high. Ten years ago, it cost an average of $12 million to market a studio movie. Today, that average is $31 million, and studios can spend nearly twice that on big “event” releases such as “Spider-Man.” With spending on movie advertising up 17% so far this year, the stage is set for Hollywood to surpass the nearly $3 billion it shelled out to promote its movies in 2001.

The record amounts increasingly are skewing the economics of the volatile movie business and raising the ante in the high-stakes box-office game. The studios say if they spend more they’ll make more, particularly on blockbuster hopefuls. It’s great when it works, but when it doesn’t, marketing costs eat away at already thin profit margins and bloat the losses on big flops.

For every heavily promoted movie such as “Spider-Man,” which has grossed more than $800 million worldwide before one DVD has gone on sale, there are dozens of duds such as “Windtalkers,” which struggle to recoup their marketing costs, let alone make a profit.

“Everyone thinks we spend like drunken sailors, and they’re right,” said Peter Adee, who took over marketing at MGM after the release of “Windtalkers.” “It’s because it’s an all-or-nothing game. You either open [big] or you die, so there’s a lot at stake.”

Afraid to Be Timid

Studio executives believe they cannot afford to spend less than their competitors even on movies with built-in audience awareness such as the highly anticipated sequel “Men In Black II,” which had a $50-million promotion campaign.

Even with support from a big advertising partner such as Pepsi, which New Line Cinema teamed up with for its big summer comedy, “Austin Powers in Goldmember,” studios still spend as much as they would have on their own.

“You have to make sure you’re not taking anything for granted,” said Russell Schwartz, marketing president at New Line, which is owned by AOL Time Warner. “We can’t assume the promotional partner is actually selling the movie or just creating awareness. We still have to spend to make sure the audience understands why they need to go see it.”

The same was true at Sony Pictures this summer. The studio perhaps could have saved some of the $60 million it spent to market an already highly-recognizable title, “Spider-Man.”

“Nobody wants to save the dollar that leaves you a dollar short,” said Jeff Blake, head of worldwide marketing and distribution at Sony Pictures. “Could we have saved a couple of dollars and pulled a couple of bricks out of the building? I wouldn’t have even wanted to try.”

Some question the wisdom of such excessive spending when studios’ corporate parents, such as AOL Time Warner, Walt Disney Co. and Vivendi Universal, are being pummeled by the stock market.

“It is obscene,” said Peter Sealey, a marketing consultant and adjunct professor at UC Berkeley who headed marketing at Columbia Pictures in the mid-1980s. “There’s no excuse for the consistent overspending ... it’s close to corporate fraud.”

There is no way to quantify what advertising dollars actually buy. Studios defend big-budget marketing because they believe it can turn a solid performer into a global blockbuster and deliver additional revenue with the sale of videos, DVDs, TV rights and merchandise. With high-profile movies today often costing more than $100 million to produce, executives reason, a mega-marketing campaign is the insurance policy that protects that investment.

“You have to spend money to make money,” said Geoffrey Ammer, marketing president at Sony, which outspent its competitors this summer to promote such hits as “Spider-Man,” “Men in Black 2” and “XXX.”

But the studio also spent about $50 million to promote its $120-million sequel “Stuart Little 2,” which opened to a dismal $15 million and grossed $63 million in the U.S.

The ‘Batman’ Factor

Hollywood’s current spending frenzy can be traced to 1989, when Warner Bros. flexed its marketing muscles with another big event movie, “Batman.” Far in advance of the movie’s release, the studio bought TV ads and plastered billboards with the iconic bat logo. “Batman” also started the trend of opening movies in more than 2,000 theaters.

Today, the push to open films even wider requires studios to mount lavish marketing campaigns aimed at filling those seats on what has become a movie’s do-or-die opening weekend. If a movie doesn’t immediately ignite at the box office, it will be kicked out of the way by the next mega-marketed competitor -- dramatically cutting its chances of turning a profit.

“If you don’t hit it within 24 to 72 hours, you’re out of the game,” said Universal Pictures Vice Chairman Marc Shmuger.

Added Robert Friedman, vice chairman of Paramount Pictures Motion Picture Group, “The life expectancy of movies is shortened by this style of marketing ... it feeds on itself.”

Sealey, the onetime marketing chief, calls Hollywood the “last remaining bastion of irrationality in the marketing world,” especially because studios have the benefit of pre-release tracking that helps predict a movie’s prospects.

Studio bosses say such marketing research sometimes comes too late.

By the time Disney realized it had a dud on its hands with its $80-million action comedy “Bad Company,” it couldn’t rein in its $39-million ad campaign.

“Unfortunately, when you’re opening a movie, you’ve spent most of your money and you have to hope and pray that your movie will break through,” said Disney Studios Chairman Richard Cook. “That’s the movie business.”

When movies do open poorly, like “Windtalkers,” studios defend pouring more money into advertising in hope of setting up the movie’s release beyond the box office.

“We’re not saying we made the right decision,” said MGM Chief Operating Officer Chris McGurk, “but you’re trying to create awareness for the video and DVD release and hopefully that pays off.”

More than 2 million videos and DVDs of “Windtalkers” arrived in stores last week. MGM officials project the movie will generate more than $30 million in home entertainment revenue over the next six months. Even then, the movie still will lose money.

In this environment, it’s not surprising that marketing costs continue to rise as studios struggle to make their films stand out.

A recent Warner Bros. study showed that between October 2001 and March, an average of 27 movies -- and as many as 43 -- were advertised each week on television, Hollywood’s preferred advertising medium.

“The clutter in the TV marketplace is so severe, you’ve got to get your message through,” said Warner Bros. domestic marketing chief Dawn Taubin.

Studios feel the need to spend big on innovative ways to get their movie noticed.

This summer, Revolution Studios painted a 100-foot-by- 500-foot logo and Aug. 9 release date of its thriller “XXX” on the roof of the Hollywood Park racetrack so it would be visible to passengers on flights making their approach to Los Angeles International Airport.

“It was a clutter-buster.... We had to do something to distinguish ourselves,” said Revolution marketing President Terry Curtain.

Caught in the Middle

Getting noticed isn’t the only pressure studios feel these days.

Executives say they are caught between parent companies imploring them to spend less and powerful, marketing- savvy stars and filmmakers urging them to spend more.

“It’s a hard line to walk,” said Schwartz. “On one hand, you have corporate pressure not to overspend, then you’ve got talent, producer and agent pressure to spend what they think is enough. And on the blockbusters, there’s an expectation that you’re going to spend an aggressive amount based on the competition.”

Producers will tell you that it’s part of their job description to badger studios.

“That’s what producers do,” said industry veteran Laurence Mark. “We figure out different ways of telling the studios to spend more money ... you have to buy attention because you’re competing with a lot of big spenders.”

Of course, there are exceptions to that rule.

Take this year’s two biggest surprise hits, MGM’s “Barbershop” and IFC’s “My Big Fat Greek Wedding.” Both low-budget movies had narrowly focused marketing campaigns costing about $20 million each.

“Most films today do not follow that pattern, and they become instant blockbusters through the sheer force of the marketing,” said Paul Dergarabedian, whose company, Exhibitor Relations Co., tracks box-office results.

But as “Windtalkers” and others prove, marketing doesn’t guarantee success.

Studio marketers say they see no way out of the cycle of unrestrained spending.

“If there was some kind of spending cap to keep us from our bad habits, it would be greatly welcomed,” said New Line’s Schwartz.