STATE OF THE INDUSTRY, PART 2

When we left off yesterday, television programming was being squeezed and squeezed hard.  “Well, what does that matter to me, a movie obsessive?”

Well, dear reader, the television business has been the medium that has kept some of the film studios going.  The internet boom that was making the television network business incredibly profitable became the internet meltdown that exposed the downside of the film business.  I always wondered why the internet bust-out was so painful to the networks, as the whole thing created a hyper bubble and its bursting meant only a return to what had been the norm a few years before. 

But you know how you spend more when you earn more… same thing in business.  In the I Life (apologies to AT&T’s M Life, which still seems incomprehensible even now that I get the idea), the fat got fatter and some who were starving were thrown meaty bones.  Not only was there suddenly 20 and 30 and 40 percent budget cuts – strict diets all around – but the ability to hide losses before they hit the bottom line disappeared.  And we all know how Wall Street loves unexpected losses. 

On the film side, where the cash flow life of the average film had been squeezed down into a 5-quarter window, the bean counters also had to figure out how to deal with a new set of accounting rules that made it even harder to push losses into image convenient accounting periods.  Magicians can do card tricks without any special equipment, but try to make The Statue of Liberty disappear without any mirrors and you are going to be one unhappy Copperfield.

For non-network players, the internet meltdown was even more damaging because it took some of the largess out of the TV business and “forced” conglomerates to look more closely at the bottom line, where in-house programming was a better business choice than outside programming. 

Why have Sony, MGM/UA and DreamWorks all decided in the last year to pretty much get out of the television business?   Could it be because, unlike Disney, Fox, Paramount, Warner Bros. and Universal, none of them have television networks that they control on cable or network?  Is there any wonder why Barry Diller’s Universal unit of Vivendi is seen as the prime contender to finally make NBC into a studio-based network? 

There are those in this town who strongly believe that Sony, DreamWorks and MGM/UA will all be out of the film production business before too long. 

DreamWorks is carrying over $400 million in debt and, given the state of the film business, no one seems terribly interested in investing any more in the company.  This doesn’t mean that DreamWorks isn’t a leading provider of quality product.  As in yesterday’s examples, this has nothing to do with quality or skill.  The question is, in this moment in industry economics, can a company that has one heavily exploitable franchise (Shrek), almost no television business and this kind of debt, continue to proceed as is? 

DreamWorks released six movies domestically last year.  Of those, only Shrek generated a significant profit for the company.  Some clearly lost money.  And of the five releases for which DreamWorks had foreign distribution rights, only A Beautiful Mind seems like a sure moneymaker.  The studio is listed as a co-producer of Jurassic Park with Universal, but I don’t know what the financial involvement actually is.  Amblin, Spielberg’s pre-DreamWorks production company, is definitely a profit player, but is DreamWorks?  I don’t know. 

And I don’t know how one cannot wonder about DreamWorks most important asset, Steven Spielberg: The Director/Producer.  How long will Spielberg be willing to be weighted down with an entire studio and all that debt?  Again, it’s nothing personal.  It’s only business.  But if you are The Man and you are seeing your company spend $80  million or so to generate a profit of about $40 million on A Beautiful Mind while your old buddies at Imagine Entertainment didn’t risk a dime and will, between salaries and points (gross and back-end), make more than your company will on the picture… well, doesn’t that make you just salivate for the old Amblin days? 

DreamWorks isn’t seeing big returns in the record business, the television business or the film business.  And their library is too small to generate the kind of dollars that could keep them growing.  That is not true of Sony/Columbia/Tri-Star or MGM/UA.  They both have major libraries that can still generate a lot of cash.  But both have had serious problems in the production and distribution business lately. 

MGM/UA had 12 releases last year.  Hannibal was an expensive hit.  Heartbreakers may have made a little money when all was said and done.  Jeepers Creepers made good money.  Legally Blonde made really good money.  That’s it.  Eight other dead bodies.  Some were inexpensive losers, like the pick-up of Born Romantic (a movie that I really enjoyed).   No Man’s Land was inexpensive and one of the very best films of 2001… but it never got rolling at the box office.  Ghost World was the Croupier of last year… lots of well-deserved buzz and box office of around $6 million.  There were no box office stars in The Claim or Anti-Trust, but the same excuse can’t be made for Bandits, Original Sin or What’s The Worst That Can Happen?.  At least they didn’t have Rollerball in 2001!  (Of course, the delay only meant that most of the $5 million that they saved by not marketing against summer competition went into the extra interest charges.  They may have even saved a little there.   Of course, if the $9 million opening became a $15 million opening by the nature of summer…)

The question at MGM/UA is, as it always is when Kirk Kerkorian is in charge, how long will it be before the studio gets sold again, what will the conditions be and what will K.K. do to get the studio prepped for a buyer?   I would say that the Lion tamer was really ready to sell more than a year ago.  He had a Silence of The Lambs sequel on the way with Oscar-nominated Gladiator-maker Ridley Scott at the helm.  He had Bruce Willis, Angelina Jolie, Martin Lawrence and a remake of Rollerball that promised a nude Rebecca Romjin-Stamos coming off of her X-Men heat.  Hell, his publicity people even had some folks believing that The Claim was an Oscar contender.  But trying to sell a studio in late 2000/early 2001… there’s only one Vivendi each five years and MGM/UA is no Universal.

Sony had 24 releases in 2001.  The only film that crossed – or ever will cross – the $100 million mark domestically was Black Hawk Down, released by the studio on the December 28.   To be fair, Sony had 18 releases in 2000.  Two grossed over $100 million.  None of the three will gross over $130 million domestic.  They averaged about $90 million each in production costs.  Hmmm… How complicated is it to figure this out?

There were nineteen $100 million movies released in 2001.  Disney had 4, Warner Bros. had 2, New Line had 2, Fox had 2, Paramount had 1, MGM/UA had 1, DreamWorks had 1 and Sony had 1.

Universal had 5.

So which company do you think was talking to the ever-reliable Wall Street Journal reporter John Lippman for an article last Friday about how they were going to emulate the franchise-happy 2001 of Universal?  Well, Sony, of course. 

More on the state of things tomorrow…

PAGE TWO:  Knowles’ Book, Big Bucks For Manning & An Oscar Doc