Studios’ Latest Special Effect: Budgets Out the Window

At first, Larry and Andy Wachowski were merely flattered. Then the “Matrix” filmmakers grew annoyed -- the dazzling visuals from their 1999 blockbuster were being ripped off by everything from “Shrek” to a TV car commercial. So the brothers decided the next time around there would be one thing other directors couldn’t filch: a stratospheric budget.

The Wachowskis went out and spent a staggering $100 million on computer effects for their two upcoming “Matrix” movies. For a centerpiece 14-minute car chase in the first sequel, “The Matrix Reloaded,” previewing late Wednesday night and officially opening Thursday, they built their very own six-lane freeway in Alameda at a cost of $2.5 million, filmed on it for nearly three months and destroyed $2 million in cars. The second “Matrix” sequel, “The Matrix Revolutions,” due Nov. 7, concludes with a 17-minute battle scene that alone cost $40 million -- more than two-thirds the price tag of the average studio movie. All told, the two sequels combined will cost more than $300 million.

The competition, far from being deterred by the Wachowskis’ free spending, has only been drawn deeper into the game. This time, instead of simply cloning the famous “Matrix” fight choreography and “bullet-time” visual effects, other filmmakers are outpacing their own extravagant spending patterns as the Wachowskis throw down a can-you-top-this fiscal dare.

The result is a summer movie season as outlandish in its own way as the futuristic world in which “The Matrix” is set. More money than ever is being poured into a concentrated number of films, many opening only days apart. A movie budgeted at more than $100 million used to be cause for widespread concern; this summer more than half a dozen titles -- from “The Hulk” to “Charlie’s Angels: Full Throttle” -- easily exceed that.

These mega-movies have become a Hollywood habit, but their risks are poised to surpass their rewards. As with any other addiction, show business may soon be in need of big-budget rehab. “There will be some calamities -- there have to be,” Universal Pictures Chairwoman Stacey Snider says of the franchise- and sequel-filled summer season.

Seeking ‘Wow’ Value

Movie budgets have climbed so quickly, up 23.3% in 2002 from the previous year, that “The Matrix Reloaded” is no longer the summer’s most expensive release. That honor goes to “Terminator 3: Rise of the Machines,” which cost about $200 million to make. Even a lesser sequel such as next summer’s “Riddick” will cost at least $110 million, more than four times the price of the original film, 2000’s “Pitch Black.”

Hollywood seems to believe it’s money well spent. Executives at rival studios say that, based on audience surveys circulated last week, “The Matrix Reloaded” could surpass the all-time opening-weekend record of $114.8 million, set by last summer’s “Spider-Man.”

“You have to drive the audience into the theater, and they won’t be driven into the theater unless you can show them something that they haven’t seen before and must see right now,” says Joel Silver, producer of all three “Matrix” films. “You have to wow them.”

For the last several years, sequels and so-called franchise movies such as “Spider-Man,” “Harry Potter” and “The Lord of the Rings” have been Hollywood’s surest way to bring predictable profits to an unpredictable business. With 449 movies released last year, sequels and franchises deliver built-in awareness, and, as discerning moviegoers certainly have noticed, don’t necessarily have to be all that good to perform well. They can sell tons of merchandise, help launch theme-park rides and lead to television series.

The problem is that the budget bar is being raised to such heights that the fall for those who miss will be much more painful, especially as studios invest huge sums in largely untested ideas.

Mega-movies have become so central to a studio’s year-round schedule that they are squeezing out modestly budgeted adult dramas. Consequently, talent agents complain that they can’t find good scripts for their A-list actors. Frustrated by the scarcity of compelling material, top agents at Creative Artists Agency recently were sent on a quest: Each agent sifted through stacks of books, scripts and articles, looking for just one great piece of writing that could be made into a smart movie.

The upcoming slate at Village Roadshow Pictures, which co-produced the “Matrix” trilogy with Warner Bros., reveals the shift. Its titles next year include a sequel to “Ocean’s Eleven,” the “Batman” spinoff “Catwoman,” and “Troy,” a historical epic starring Brad Pitt. Village Roadshow co-financed October’s Clint Eastwood-directed film “Mystic River,” but that kind of drama is fading from the spotlight. “We are making fewer movies, but they have bigger budgets,” says Bruce Berman, Village Roadshow’s chairman. “

For moviegoers, it means even more fare directed at the 15-year-old crowd or at the broadest possible audience. The complaint that there aren’t any films for adults is bound to grow louder in coming years. Alan Horn, president and chief operating officer of Warner Bros. Entertainment Inc., says: “Clearly, the commitment to the larger pictures means we are taking some of our chips and putting them on the table where the larger pictures are.”

The movies will be not only larger but also more familiar. This year the Hollywood studios are scheduled to release a record 25 sequels and prequels, up from 19 last year. Sixteen of those films will premiere during the summer. New Line Cinema Inc., which already this year has made “Final Destination 2” and a remake of “Willard,” soon will bring us “Dumb and Dumberer” (a precursor to “Dumb and Dumber”), the horror sequel “Freddy vs. Jason,” a remake of “Texas Chainsaw Massacre” and the third and final “Lord of the Rings” installment.

Even though the mega-movie so far has delivered vast riches to the studios, future profits appear less certain. Studio executives are speculating about which of this summer’s ultra-expensive movies will swim and which will sink. The casualties probably will be more numerous among the mid-range movies crushed by the behemoths. Several executives expressed doubts about “Hulk,” “Terminator 3,” “Hollywood Homicide,” “Sinbad” and “The League of Extraordinary Gentlemen.”

“There are so many big movies week after week, there clearly isn’t enough audience to go around and make them all successful,” says Chris McGurk, chief operating officer of Metro-Goldwyn-Mayer Inc. “There are going to be a lot of winners but also a lot of losers.”

Financial Dichotomy

In a business that frequently defies rational behavior, the exorbitant spending arrives at the same moment that show business is under severe pressure to cut costs and retrench. Universal is on the block and has been told to trim expenditures, Sony Pictures Entertainment has just formed a cost-cutting committee, and other studios are teaming with financial partners on any number of future productions such as the Sony-Universal-Revolution troika’s $105-million “Peter Pan.”

The mega-movie craze is understandably proving impossible to abandon. The appeal of such enormous movies reaches well beyond ticket sales at the local multiplex. If successful, these movies become bottom-line juggernauts overseas and in the DVD market, helping drive a studio’s entire movie slate.

One hit title can boost the sales price for an entire package of films sold in a pay-television deal, and captive moviegoers for one studio’s film are bombarded with ads for the studio’s upcoming releases. On this week’s “Matrix Reloaded,” for instance, Warner Bros. is attaching a trailer for its July 2 movie “Terminator 3.” When that Arnold Schwarzenegger sequel premieres, it will carry a trailer for Nov. 7’s “Matrix Revolutions.”

“I don’t think fiscal responsibility and large, big-budget sequels are mutually exclusive,” Horn says. “We are very mindful of how we do. We are not out there hip-shooting like a bunch of mavericks. We have a program that within it carries a certain amount of volatility. What we try to do is manage that volatility.”

Warner Bros. is earmarking some $160 million for the Tom Hanks film “The Polar Express,” a high-tech digital adaptation of the popular children’s book due in November 2004. “Pitch Black” was made for $25 million and grossed an unremarkable $39 million. But Universal believed that within it lay a potential new franchise, and the studio is starting production on a $110-million sequel slated for next summer.

With so much invested in a film’s production budget, the studios are compelled to spend another fortune -- often $50 million and more -- on marketing.

“The danger is over-saturation, not the cost of the picture,” says Moritz Borman, whose Intermedia Films financed “Terminator 3” and then auctioned off distribution rights to Warner Bros. and Sony. “You are spending more and more and more on advertising.”

That’s not the only worry. Profit-participation deals often mean the studios don’t get to keep every dollar that comes through the door.

In the case of “Bad Boys 2,” a steep 30% of Sony’s revenue will be split among director Michael Bay, producer Jerry Bruckheimer and stars Will Smith and Martin Lawrence, all of whom actually cut their fees to make the film. Sony also is committed to distribute 24% of the gross from its “Charlie’s Angels” sequel to the cast and filmmakers.

Still, “the T-shirts and the DVDs and the videos will pay for the film,” predicts Nancy Juvonen, who produced “Charlie’s Angels.”

For all the break-the-bank spending, there still is a budget line that even the studios aren’t willing to cross. An early budget for a new movie based on “Superman” was budgeted at a heart-stopping $260 million. Horn said he would not make the movie for more than $200 million, and the project is on hold.

Next year’s “Peter Pan” movie originally was budgeted at $140 million. Revolution Studios moved production from Los Angeles to Australia, eliminated any big-name casting and trimmed about 10% of the screenplay and visual effects. “All we ever talk about at the studio is how we manage costs -- every meeting, every day,” says Sony Pictures Vice Chairwoman Amy Pascal, whose studio is co-financing “Peter Pan.”

Thrifty MGM, whose big summer movie is July’s “Legally Blonde” sequel, also held costs down on that film, even though star Reese Witherspoon earned $15 million -- more than half the budget of the $22-million first film -- for the $45-million follow-up. “We don’t have to do $100 million or $200 million just to make a good return,” McGurk says. “Our scorecard is profitability, not market share.”

Then there is Robert Rodriguez, who seems to inhabit a tight-budget world of his own among top filmmakers. His first “Spy Kids” movie cost $36 million and was a huge hit, grossing $112.7 million in 2001. But his next sequel cost only $3 million more, and July’s “Spy Kids 3-D: Game Over” also will cost just $39 million, even though 90% of the film is in 3-D.

“I just have a whole different philosophy,” says Rodriguez, who performs an array of jobs on his films, including sound mixer and costume designer. “I use having less money to force me to come up with better ideas. And when you spend less money, you don’t have somebody looking over your shoulder. You are more like a child finger-painting. You do whatever you want. And that’s how your movie gets energy and life.

“Studio movies have gotten so out of control budget-wise,” Rodriguez says. “And they are much more limited in the kind of movies they can make. They would rather make ‘Bad Boys 2’ than an original idea.”