While media giants AOL Time Warner, Walt Disney Co, Viacom, News Corp and Vivendi - still reeling from Wall Street's white-knuckle ride - grapple with their television, radio and multimedia divisions, their film studios are enjoying a bonanza.
The movie industry, the world's most glamorous loss-leader, predicts at least $9 billion in US ticket sales this year, a 7 per cent increase on 2001's all-time high of $8.35bn. Moreover, the summer season - which can account for 40 per cent of annual ticket sales - is on course to haul in a record-breaking $4bn as Americans embrace super-sized distractions from the War Against Terror and their dissolving stock portfolios. Each week the media breathlessly inform us of another record tumbling as sequels, spin-offs and comic-book heroes explode, popcorn-like, on to the scene.
But this summer's logjam of blockbusters, fuelled as ever by the studios' desire to exploit school holidays and the consequential merchandising opportunities, is actually undermining the potential profits of individual pictures at a crunch time for their parent companies. The shoehorning of a greater number of films into those coveted May-to-September dates this year has resulted in marketing costs spiralling further and the bizarre spectacle of some studios letting their own movies compete directly against each other.
'It is a crazy time for an already illogical business,' sighs Walter Parkes, who is co-chief of the DreamWorks studio and a producer of three of this year's big summer films - Minority Report, Men In Black II and Road To Perdition. 'You have to throw money around because basically you get one weekend for your film. There are no second chances. You're just trying to be heard above the other stuff out there.'
Parkes says the US summer season now mirrors the TV schedules, with each franchise being rushed into its traditional slot. Men In Black II opened in the US on 4 July, the same date the original film opened in 1997. Similarly, the 'holiday season' - Thanksgiving to the New Year - will have the next Harry Potter and Lord of the Rings instalments. A record number of big-ticket pictures, including 10 sequels and remakes, has been crammed into the release schedule between 1 November and 27 December. 'It is so competitive, very often you have a release date for a concept for a movie that hasn't even been written. Inevitably, this pressure will lead to a less good film being made,' says Laurie MacDonald, Parkes's wife and co-chief at DreamWorks.
When films develop more organically their releases and marketing campaigns are reliant on three companies that track public awareness. 'You know that these companies get it wrong 50 per cent of the time but the business is so unpredictable, you choose to have faith in this very iffy procedure,' explains Parkes. 'Spending so much money makes us all act irrationally.'
Yet the clamour to get product into the marketplace means that studios routinely 'greenlight' titles that never stand a chance of making money. Says Parkes: 'At DreamWorks we make about eight films a year and the target is for them all to break even. We assume that each year one of them will make a lot of money - we just don't know which one. And, of course, the variable in every project we put out there is the cost of the talent. Sometimes we literally sit down with the agents of the biggest stars and explain with the aid of charts why we cannot greenlight certain films - that at a certain point their client would have made a particular amount of money while we would not have recouped a cent.'
This dilemma is amply illustrated by two of the summer blockbusters Parkes produced outside the DreamWorks fold. Minority Report, the dark, futuristic thriller, was made for a bagel platter under $100 million because director Steven Spielberg and star Tom Cruise did not take any salary upfront. However the pair will each earn an estimated 15 per cent of the box office gross. Typically studios split the box office spoils 50-50 with the cinemas so Twentieth Century Fox will be left with just 20 cents from each dollar.
Similarly, Sony had to forfeit about half the profits of its comedy sci-fi Men in Black II to scale its skyrocketing budget back to a manageable $140m. Star Will Smith got a $20 million paycheque - four times what he received for the original film - plus 20 per cent of the box office gross and ancillary revenues, while co-star Jones got $20 million plus 12.5 per cent. In addition, director Barry Sonnenfeld got 10 per cent, and Spielberg - who is credited as executive producer as he dreamt up the idea for the original movie - has pocketed 7.5 per cent. This means that the studio's typical 50 per cent of box office is all going to five people, and the US theatrical release cannot make Sony any money. It will not even cover other production costs.
While the studios are more or less resigned to mortgaging a huge chunk of their potential profits simply in order to have something to release, they are increasingly exploring more ingenious ways of reducing their production budgets. Spielberg assembled a huge supporting cast of promotional partners, including Lexus and Nokia, who stumped up tens of millions in advertising support for Minority Report in return for product or brand placement.
Parkes insists that Lexus did not hand over any cash in return for Cruise taking the wheel of a futuristic Lexus convertible but he concedes that the car manufacturer paid for a tie-in advertising campaign worth about $15m to Fox. This was clearly a far more profitable arrangement for the studio than Universal Studios' 1994 deal with Mercedes under which the company paid a rumoured $5m for its new 4x4 vehicle to be roadtested in Jurassic Park.
The famously entrepreneurial Spielberg, who, along with Jeffrey Katzenberg and David Geffen, founded DreamWorks in 1994, revels in his reputation for being able to shave movies' production costs. Indeed, as DreamWorks is the only Hollywood studio not aligned to major television or music operations, its survival depends on its ability to deliver profitable movies, says Parkes. 'Steven is very good at "backing into a number" and DreamWorks is the only studio that has filmmakers at executive level so we know what can be achieved for the price.' Spielberg's latest film as a director, Catch Me If You Can, a comedic drama starring Leonardo DiCaprio and Tom Hanks, has just wrapped, with its budget coming in at under $60m - practically loose change in Tinseltown.
Parkes, who is the film's producer, says that this was achieved only because its expensive stars drastically reduced their usual fees for the privilege of working with Spielberg. Costs were further reduced by using less experienced crew. More significantly, certain ceilings on profit participation were installed.
Sony did manage to implement some element of financial control on Men In Black II. If the film notches up $200m at the domestic box office - the original film took $250m - the participants will go into 'hiatus' and the meter will only start to run again if the film's gross exceeds $300m. To date the film has grossed $189m and it is now expected to peter out around the $200m mark.
Parkes believes that the studios are finally beginning to get more aggressive in their attempts to keep budgets down. He thinks it will soon be standard practice for directors' salaries to be linked to their ability to come in on budget and that stars and even directors will be locked into contracts for potential sequels even before their films get greenlighted.
While the delay in a Men In Black sequel was partly because of protracted negotiations with its stars to reprise their roles, Sony greenlighted a sequel to the Vin Diesel action movie XXX, which currently tops the US chart, a week before its release, locking down the talent at pre-opening salaries. Parkes is currently waiting for director Ridley Scott to commit to a sequel to DreamWorks' hugely profitable Gladiator. Parkes envisages a 'Godfather-like' trilogy spanning generations, which would allow Russell Crowe's slain character from the first film to reappear in flashback sequences.
Ultimately though, Parkes believes that studios could save themselves millions of dollars in advertising costs if they were more open to dialogue with each other about release schedules. Catch Me If You Can, Leonardo DiCaprio's first film outing for almost three years, is scheduled to open in the US in December and is expected to be a hit. The only wrinkle is that the film is being released on the same day as Martin Scorsese's long-awaited violent epic Gangs Of New York, which also happens to star DiCaprio. For the foreseeable future, the box office bloodbath shows no signs of abating.
