More Losers Than Winners in Box-Office Tally

Tuesday, September 8, 1998

The Los Angeles Times

The Biz
More Losers Than Winners in Box-Office Tally
By RICHARD NATALE

The raw numbers show there's been a record summer at the box office. But a Times analysis of box-office profitability suggests those numbers are deceiving.
     Of 43 summer films analyzed by The Times, only 16 seem certain to become profitable. Eight films will generate significant profit of $50 million or more, but only one--20th Century Fox's "There's Something About Mary"--will recoup its costs solely from U.S. theatrical release, the analysis shows. The remaining 27 films will break even, squeak by with a modest profit (less than $5 million) at some point, or lose money.
     But break-even on an average investment of $75 million (including marketing costs) is akin to putting money into a Christmas club account--there's no real return on the investment--and by the time cash flows back over 18 months to three years, you've actually lost money.
     For the first time, two studios--Disney and Fox--grossed $500 million or more for the summer, which accounts for 40% of the year's total.
     Disney was in the race for grosses, but Fox was the clear leader in profitability because its seven releases cost roughly half (less than $275 million) what Disney spent (almost $480 million) on six films. Those results should begin to show up in the bottom line for their parent companies' third- quarter earnings reports.
     The summer was a disaster for Warner Bros. One of the industry's most reliable and consistent studios in recent history, Warner brought in more than $300 million at the box office. But the company invested nearly $450 million for its eight releases, and only three are likely to break even.
     Warner also had two of the summer's biggest losers--the animated "Quest for Camelot" and the film version of the '60s TV series "The Avengers"-- accumulating tens of millions of dollars in red ink.
     Sony Pictures had no outstanding performers, but no serious money losers either. And both Universal Pictures and MGM/UA failed to show a profit on any of their few releases.
     Despite the robust domestic box office (a record $2.5 billion in tickets sold), the summer underscored the movie industry's reliance on foreign receipts. This is particularly worrisome, because years of overseas growth could flatten amid concerns over global devaluation and recession.
     Below is a studio-by-studio profit breakdown for the summer of 1998:
     20th Century Fox:
     Fox is right behind Disney in overall grosses for the summer, with about $525 million for the season and mileage left on three of its releases, especially "There's Something About Mary."
     But Fox is the clear summer profit champion, spending far less on its films than Disney. Five of the studio's seven releases will end up in the black, giving parent News Corp.'s third-quarter income a boost just in time for a planned public offering of the company's entertainment division (though the market's bearish behavior may result in a postponement of the IPO).
     By targeting specific demographics and keeping costs low (none of Fox's films cost more than $70 million to produce), the studio will more than make up for two underachievers, money-loser "Bulworth" and potential break-even release "How Stella Got Her Groove Back." Neither is expected to be a big revenue generator overseas, but fortunately both films cost well below the industry average.
     Otherwise, the studio is rolling in green. The breakthrough adult comedy "There's Something About Mary," which cost less than $25 million, should bring in about $80 million in rentals in the U.S. alone, enough to cover most of its production and marketing costs.
     Casting Eddie Murphy in the family comedy "Dr. Dolittle" worked out well for Fox. The foreign gross is expected to match the domestic take, with the real gravy coming from sell-through video.
     "The X-Files" movie could bring in $200 million from worldwide theatrical revenue and potent ancillary revenue as a sell-through video title.
     Two movies targeting female viewers, "Hope Floats" and "Ever After," also will return small profits on their modest investments, although their foreign appeal is unclear.

     Disney:
     The current summer leader, Disney has pulled in about $530 million in grosses on six films, three of which will be profitable.
     "Armageddon" is the summer's biggest grosser, but it also is the most expensive film. Still, it will be very profitable because of its overseas strength ($250 million is likely) and ancillary revenue. The sci-fi adventure was somewhat hampered by the release of the similarly themed "Deep Impact" earlier in the season, but will benefit from having only one minor profit participant.
     The animated "Mulan" is Disney's biggest moneymaker, with the unbeatable combination of worldwide theatrical revenue (as much as $350 million) and explosive video and merchandising returns. "The Parent Trap" also is likely to bring a good return from theatrical, TV and video income.
     Both "Mulan" and "The Parent Trap" continue in the Disney tradition of scoring soundly with family audiences around the world, the studio's core base.
     Strong grosses on "The Horse Whisperer" and "Six Days, Seven Nights" were offset by high production and marketing costs. The only red ink for Disney should come from under-performing comedy "Mafia!"

     Paramount:
     Paramount released just four films and only one was a disappointment, the thriller "Snake Eyes," which the studio shared with Disney. (The film has foreign distribution.) Depending on the final tally, it could be a marginal loser or a break-even proposition.
     "Dead Man on Campus" should recoup its modest production and marketing investment.
     "The Truman Show" will be the studio's biggest moneymaker and a year-end Oscar contender.
     Surprise hit "Deep Impact," which kicked off the summer season, has amassed more than $300 million in theatrical revenue worldwide. The studio split costs with DreamWorks and will also split the profit. Paramount also partnered with DreamWorks on "Saving Private Ryan," another major summer hit.

     Warner Bros.:
     Although the studio's eight summer releases brought in more than $300 million in box-office grosses, none was a clear profit maker. The best results came from "Lethal Weapon 4," which is expected to bring in about $300 million worldwide but also is saddled with huge profit participants.
     Two other box-office performers--"The Negotiator" and "A Perfect Murder"--will only break even because grosses were not high enough to justify costs.
     Two late summer releases--"Why Do Fools Fall in Love?" and "Wrongfully Accused"--won't lose the studio much money. But the same cannot be said for "The Quest for Camelot" and "The Avengers," the summer's two biggest money-losers.

     Sony:
     Sony struggled a bit this summer, despite reaping just under $300 million in grosses for the season.
     Except for "Dance With Me," for which the company has only domestic rights, Sony's films will either break even or be lightly profitable.
     The summer's second-most-expensive movie, the much-hyped "Godzilla," which cost at least $130 million, stumbled. The event movie that wasn't has grossed $136 million in the U.S. and is expected to bring in at least $200 million abroad.
     As far as disappointments go, it could have been much worse. But because it didn't work spectacularly well, "Godzilla" lost out on becoming a potential franchise and merchandising bonanza for Sony.
     The studio's other near-hit was "The Mask of Zorro," the 10th-highest-grossing film of the summer, which is expected to match its domestic gross overseas. But any potential profit will be shared with Steven Spielberg's Amblin Entertainment, which produced the film. Still, there is sequel potential here, making it a worthwhile risk in the long term.
     Two modestly budgeted and targeted films, the teen comedy "Can't Hardly Wait" and the family film "Madeline," should eke out small profits.

     DreamWorks:
     The fledgling studio had its first big moneymakers this summer--"Deep Impact" and "Saving Private Ryan"--both of which were shared-risk propositions with Paramount. The latter, a sure Oscar contender, should end up as the season's biggest grosser and do equally well overseas.
     With an anticipated worldwide gross of more than $400 million, and probably an additional $100 million in ancillary revenue, profit will be split among DreamWorks, Paramount, director Spielberg and star Tom Hanks. There should be enough to go around for everyone.
     The underachieving "Small Soldiers" was a modest risk since DreamWorks shared its exposure with Universal (which has foreign rights). After video is factored in, the movie could show a modest profit.

     Universal and MGM:
     The summer was not kind to either struggling studio, which were virtual no-shows for the season. MGM had two minor releases, "Disturbing Behavior" and "Dirty Work," neither of which will generate profit.
     Universal miscalculated on the well-reviewed caper romance "Out of Sight," but may break even when worldwide returns are counted.
     The studio may also see some money from its half of "Small Soldiers." Universal lost a little on "Fear and Loathing in Las Vegas" (domestic rights only) and a lot on the disastrous "BASEketball."

     Miramax, New Line and PolyGram:
     The independents sat out the summer except for targeted product. Miramax had a modest hit with the horror sequel "Halloween H20," released through its Dimension label, though it did not perform up to "Scream" or even "I Know What You Did Last Summer" standards.
     Miramax managed to cover its risk on the disappointing "54" with foreign pre-sales, and video will save the day on "Air Bud: Golden Receiver."
     New Line will at least break even and, depending on foreign revenue, eke some profit from the vampire film "Blade."
     PolyGram fanned in its one time at bat with the drama "Return to Paradise"