Hollywood says ‘cut’ to lavish paychecks

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Welcome to Hollywood’s new movie math.

Thanks to the nose dive in the economy and, even more troubling to the movie industry, declining DVD sales that have propped up the business for years, the studios are hammering down the generous financial deals long enjoyed by the most established stars and filmmakers.

The financial scrutiny once reserved for big-budget movies is now getting applied to the studios’ chief staple -- the mid-size picture -- which constitutes the bulk of the films made in Hollywood.

Few movie projects illustrate the new economic reality better than “Morning Glory,” a comedy about a grizzled TV anchorman played by Harrison Ford who is hired to co-host a struggling morning talk show for a hard-driving producer portrayed by Rachel McAdams. It’s the kind of movie by a noted screenwriter, Aline Brosh McKenna, who hit it big with “The Devil Wears Prada,” that until recently a studio wouldn’t balk at making.


But Paramount Pictures, the studio behind “Morning Glory,” did balk, agreeing to make the movie only under the condition that Ford, producer J.J. Abrams and others cut their fees and adjust the formulas that let them earn profits in the picture.

For years actors, directors, producers and writers have ridden the rising crest of the entertainment business by commanding lavish paychecks as the studios have been willing to pay ever-higher sums for their services. They routinely dictated financial terms to the studios, which had little choice but to accept them if they wanted to make the movie.

No longer. In a sign of the times, Ford and others involved with “Morning Glory” agreed to reduce or defer their compensation to get the picture made. “Morning Glory” was originally budgeted at about $65 million, a risky sum for a comedy featuring an aging star mostly recognized for action roles.

Because the filmmakers and talent are consenting to hold off full payment of their fees, the movie will cost the studio about $40 million after a tax credit it will earn from shooting in New York this spring. That’s considered a reasonable bet.

Creative deal making is becoming increasingly common throughout Hollywood as the recession exacerbates the pressures studios already feel on their bottom line. Indeed, Hollywood is watching DVD sales slide with as much anxiety as Detroit is witnessing a plunge in auto sales.

DVD sales fell 9% in the U.S. in 2008, despite a push for the new high-definition Blu-ray format. Analysts expect similar declines in home video sales throughout 2009.


As a result, studios have vowed to take a tougher stand against the financial demands of actors and filmmakers as they struggle to adjust to slower growth.

“Since I’ve been in the business the agent’s job has been to raise their client’s fee,” said Ron Bernstein, a literary agent with International Creative Management. “Today, in almost any negotiation, you are expected to reduce your client’s money.”

In “Morning Glory,” for example, Ford is getting paid $8 million upfront, millions less than he ordinarily would receive for a non-action role. McAdams, an up-and-coming star who garnered attention in “The Notebook” and “The Family Stone,” agreed to $2 million upfront even though her most recent fee was $4 million for the upcoming futuristic adventure movie “The Time Traveler’s Wife.” Director Roger Michell is also getting $2 million, half of what he’s made previously.

Abrams, a creator of ABC’s popular series “Lost” and one of Hollywood’s most sought-after filmmakers, is not taking any money upfront.

“The architecture of this deal feels inherently practical,” Abrams said. “Not just because of the current economic situation but because of the [new] realities of Hollywood.” He declined to comment on the financial terms of the film’s talent deals.

“Morning Glory” represents a growing trend in the movie business that claws back one of Hollywood’s most lucrative prizes: The so-called “first-dollar gross” deal enjoyed by stars and top-tier filmmakers. Those deals cut talent in on ticket sales, siphoning off valuable revenue before the studios can earn back their investment.


Increasingly, studios are insisting on breaking even before doling out profits to participants. Although that limits what stars and filmmakers can earn upfront, it also can sweeten the pot for them when the movie is a blockbuster.

Moreover, on “Morning Glory,” in exchange for the stars and filmmakers forgoing their cherished first-dollar gross arrangements, Paramount agreed to give something back that studios typically do not grant on mid-range budget pictures: In calculating what it will pay the film’s talent, Paramount will base its formula on 100% of the DVD revenue it receives, rather than the customary 20%.

This has been customary on big-budget movies, where studios have hundreds of millions of production and marketing dollars at risk. Walt Disney Studios has invoked a no-first-dollar gross policy on such costly pictures as the “Pirates of the Caribbean” series and its planned production of “The Sorcerer’s Apprentice,” a fantasy adventure starring Nicolas Cage.

Now talent involved in moderate-cost movies are also getting pinched.

Sony Pictures was able to make its romantic comedy “Julie & Julia,” starring Meryl Streep, written and directed by Nora Ephron, for $35 million because the talent made concessions. The same went for Universal Pictures’ “Frost/Nixon,” which cost $29 million to produce after everyone involved, including director Ron Howard and his producing partner Brian Grazer, was flexible on compensation.

“The economics of the movie business are challenging right now,” said Michael Lynton, chairman of Sony Pictures. “We’re all trying to be creative about our deal making.”