Portfolio.com: Hollywood Deal

SNL Strives to Keep Election Momentum

Mark Stein — Wed, 12 Nov 2008 05:00:01 GMT

It's been a banner year for Saturday Night Live, which has enjoyed record ratings since Tina Fey first teased her hair, donned a bracelet-sleeve blazer, and started dropping her g's in a parody of Republican vice-presidential candidate Sarah Palin. Or so goes the conventional wisdom.

In the show's season premiere, on September 13, SNL had more than 10 million viewers, and received its highest rating since 2001.

A guest appearance by Palin herself a month later garnered almost 15 million viewers for the October 18 episode. That is the show's biggest audience in 14 years. When Republican presidential nominee John McCain appeared on the show two weeks later, viewer numbers skyrocketed again--to 13 million.

These numbers have been plastered all over headlines and press releases, proving that political cameos in this highly contested election season have translated to viewership gold for SNL.

But with the election behind us, Sarah Palin is off the national stage, and Tina Fey will likely stick to her knitting on 30 Rock. A cameo from President-elect Barack Obama is exceedingly unlikely. And maintaining those record-breaking numbers may be harder than ever for the show.

For one thing, SNL episodes this season without political guest stars haven't garnered even half the viewership of the episodes with high-profile cameos. SNL's second episode of the season, for example, drew only 6.9 million viewers. The number rebounded to 7.8 million a week later, but even that was well under the season's highs attracted by the McCain and Palin cameos.

Last election season, in 2004, SNL's first seven episodes averaged 7.1 million viewers. The average so far this season is 9.3 million.

Further compounding SNL's post-election viewer defection is the fact that, with most networks shows, audience interest is generally higher in the first half of the season than the second. That's especially true here.

"SNL has found new relevance," says John Rash, senior vice president and director for broadcast negotiations at the Campbell Mithun advertising agency in Minneapolis. That relevance, he says, stems in part from the show's "often becoming part of the news narrative itself."

Going forward, "it will miss the immediacy of November 4, as well as larger-than-life characters like Governor Sarah Palin." But most difficult for the show, believes Rash, is the lack of a breakout star like Fey, or even Amy Poehler, the show's female lead until her maternity leave took her off the air recently.

Still, NBC executives likely aren't complaining. SNL, which is constantly open to criticism from viewers who miss the heydays of the '80s, had audiences as small as 3.8 million for some episodes last season. Next to the new numbers, this season's highs look like a lucky lightning strike.

But we all know how often those happen.

by Sophia Banay

Top: Darrell Hammond as Senator John McCain, Tina Fey as Governor Sarah Palin, and Will Farrell as President George W. Bush. Photograph by Dana Edelson/NBCUAP

The Dawn of a New Night Shyamalan

Mark Stein — Thu, 30 Oct 2008 18:48:24 GMT

In a deal with Media Rights Capital, the independent film and television studio, M. Night Shyamalan is poised to make the jump from master of suspense to mini-mogul.

Under the partnership struck in July, Shyamalan and Media Rights Capital will collaborate on three movies in three years via a new production company, The Night Chronicles. This week, the first of those projects, Devil, was announced.

But unlike Shyamalan's previous projects, Devil and the two movies that follow it won't feature his scripts or direction. Though the movies will be based on stories by the filmmaker, hired guns will write and direct.

Most significantly, Shyamalan will co-own the films' copyrights -- formalizing his evolution from writer/director/sometime-actor to big-time producer, with huge potential upside opportunities.

Depending on the details of the Media Rights Capital deal, which aren't public, Shyamalan's ownership stake could give him control over licensing and marketing the films, and a piece of the pie from selling ancillary and overseas rights, DVD sales, TV series or cartoon spin-offs based on the projects.

If the deal also includes back-end profit participation -- meaning a guaranteed cut of the movie's box office take -- Shyamalan's profit could grow even richer, says Jeff Bock, who analyzes box-office sales for Exhibitor Relations, a Los Angeles-based entertainment-research firm.

"In the fiscal sense, M.R.C. made this deal because they wanted to be in the M. Night business. To do that you have to pay," says Bock. He estimates that from producing alone, without any ancillary revenue, Shyamalan could make $3 million to $5 million on box office take of $30 million to $40 million for these movies.

It all seems like a pretty good deal for the filmmaker, especially considering a recent spate of less-than-stellar box office results.

Horror is one of the easiest film genres for making money: the budgets are typically low, around $10 million to $12 million for films like the ones from Media Rights Capital, Bock estimates.

Because of that, the profit thresholds for films like these are low, too. Whether the partnership is a good deal for Media Rights Capital is a separate question.

"It depends if you think the guy has another Sixth Sense in him," says David Scardino, referring to Shyamalan's 1999 breakout Bruce Willis hit, which grossed more than half a billion dollars at box offices worldwide.

None of Shyamalan's subsequent movies have approached that level of success, although The Happening, released this summer -- and the first of Shyamalan's films in which he had an ownership stake -- has grossed $163 million worldwide and represents his first box office hit in years.

If Shyamalan can recapture that Sixth Sense magic, "it's a great deal for M.R.C., and him too, because he has an ownership position," says Scardino, an entertainment analyst for the advertising agency RPA in Santa Monica, California.

If all goes according to plan, and Shyamalan delivers hits for Media Rights Capital, look for other budding film-world auteurs to angle for copyright ownership before forking over scripts or story ideas.

On the other hand, "if it doesn't work out, everyone's in trouble." Scardino predicts that if this partnership doesn't produce another super-profitable hit along the lines of The Sixth Sense, the filmmaker's subsequent deals will become "progressively less sweet."

In the meantime, however, the arrangement does one thing: pave the way for Shyamalan to dominate theaters with multiple films at a time.

Under the deal, Shyamalan and Media Rights Capital will release one film a year for three years (Devil goes into production in 2009). In the meantime, he can work on his own films -- ones that he writes or directs -- for big studios. At the moment, he is directing Paramount's Avatar: The Last Airbender, set for a 2010 release.

Potentially, "he'll have two movies out a year under the "M. Night" banner," says Bock. "This furthers his branding. Not very many writer-directors can work outside the system this way."

Of course, the softening economy could throw a wrench into the works of the increasingly well-oiled M. Night Shyamalan machine. Despite the popular wisdom that the movie business is recession-proof -- in an interview with Time magazine last spring, Dan Glickman, president of the Motion Picture Association of America, joked that movies were better therapy, and cheaper, than psychiatrists -- there are signs that Hollywood might not be immune, after all.

An excerpt from Dreamworks' 10-Q form picked up by Footnoted.org today read, in part:

"Any decline in economic conditions may reduce the performance of our theatrical and home entertainment releases and purchases of our licensed consumer products, thereby reducing our revenues and earnings."

Entertainment executives from the notorious, like Sumner Redstone, to the obscure, like Michael Burns, at Lions Gate, have been forced to sell off huge portions of stock in margin calls.

And the stocks of the media conglomerates that own the major movie studios have taken enormous hits over the past several months.

If consumers decide to stash their money in their mattresses instead of splashing out for $10 tickets and another $5 to $10 on popcorn at the movies, profits for anyone in the movie business could fall precipitously. Even for someone like Shyamalan, who trades in keeping moviegoers on the edge of their seats, that's scary.

by Sophia Banay

Icahn Double Feature: A Yahoo-Lions Gate Deal?

Daniel Colarusso — Wed, 22 Oct 2008 22:00:00 GMT

It's safe to say that Jon Feltheimer, C.E.O. of Lions Gate, is having a bad week.

Lions Gate stock, though up from a low of $6.05 last week, has plunged to territory not seen since 2005.

Yesterday, Nikki Finke reported that Michael Burns, a Lions Gate senior executive, lost half of his stake in the company in a margin call.

And now Carl Icahn, sensing opportunity, is bumping up his Lions Gate holdings to a reported 9.17 percent.

Of course, the financial crisis has battered media stocks in general. Lions Gate isn't alone there--although Burns' margin call, and the resulting sale of a large volume of shares, probably exacerbated the slide.

But Richard Dorfman, a managing director with Richard Alan, a New York-based financial advisory and investment firm focused on the media industry, has an eye on the company's vast library of movies.

That's the one with over 6,000 flicks ranging from Dirty Dancing to the Rambo movies--and the one Icahn is probably eyeing, according to a Dorfman analysis.

The library already makes about $200 million a year for the company, and could be leveraged further, including through DVD sales and third-party licensing fees--to make Lions Gate's true value closer to $15 or $16 a share, according to Dorfman. That's more than twice the $7.20 shares closed at Wednesday.

But the Lions Gate library could end up being more of a problem in the current climate, because it could make the company a valuable target for an acquisition by, say, Yahoo. That's an idea Dorfman believes has already occurred to Icahn.

"If Yahoo buys a traditional media company like Lions Gate, all of a sudden that takes it to a whole new level," he says. "It basically would turn it into a movie distribution company"--and one well-positioned with an immensely valuable store of proprietary content, for which Yahoo conceivably could develop a profitable online distribution system.

Selling to Yahoo, we're guessing, would not be Feltheimer's first choice. But Icahn has a vested interest in increasing Yahoo's value, to recoup the investment he made in the company while lobbying for a deal with Microsoft.

As he ratchets up his involvement in Lions Gate, it's a distinct possibility that he'll use it as a chess piece in a larger game to bump up Yahoo's value.

Feltheimer certainly has other ways to goose his company's stock price without becoming a Yahoo acquisition. Just releasing another hit movie is not going to move the needle, but Lions Gate could sell off a portion of its vaunted library, precluding Icahn's maneuvering.

It could even sell its very successful television production unit--which partnered with cable channel AMC to produce Mad Men--to realize some immediate gains.

For now, it seems, Feltheimer has some time to contemplate his options. But he shouldn't dawdle, as Icahn's gears are whirring.

"Let's face it--once an activist, always an activist. Carl's been a passive investor," Dorfman says. "But now he's going to start advocating for changes and new developments."

Sophia Banay

Also on Portfolio.com:

NBC Tries to Copy Fox Hero Worship

Daniel Colarusso — Wed, 22 Oct 2008 04:00:00 GMT

A male movie star in the angst-ridden lead role. A gimmicky central conceit. A near-constant threat of torture or death.

The formula worked for Fox, which turned 24 into a smash hit when it debuted in 2001.

It's on shakier legs over at NBC, where the network is trying to breathe life into a similar premise with My Own Worst Enemy. The Christian Slater spy drama, meant to be the central show in NBC's fall lineup, debuted last week to a disappointing 7.3 million viewers.

"My Own Worst Enemy was tough to comprehend based on the promos," says Shari Anne Brill, senior vice president and director of programming at Carat, a media agency in New York. "You really couldn't get a sense of what the show was about."

Our quick synopsis: Slater plays an undercover agent, Edward, whose government-created cover and second personality, Henry, is a quiet family man who fumbles his way into the center of the action, showing up at inopportune moments, like an assassination in Russia, for example.

Easier to interpret are the show's debut numbers: "They weren't good," says Brill. And in light of weak performances by some of NBC's other fall debuts, including Kath & Kim and Knight Rider, the performance of the spy drama is all the more disappointing for the network.

"It just reinforces the need to make a pilot," says Brill, referring to the fact that some NBC fall shows were rushed into production, sans the vetting of an official pilot, due to the writer's strike earlier this year--a decision that Ben Silverman, co-chairman of NBC Entertainment, touted last spring as part of NBC's new, more cost-efficient business model.

"I know a lot of money gets put into pilots, but it's investment spending," counters Brill.

My Own Worst Enemy, which was heavily hyped on NBC before its debut, is part of a larger effort to bring big-screen stars to the network.

That idea is a lot like Fox's strategy, casting Kiefer Sutherland in the central role in 24 (and since then, adding Hugh Laurie to the network's lineup in House).

Also like 24, Enemy features a large crew of heavily accented bad guys, 24-esque action sequences, and plenty of near-escapes from torture, if not the gore-filled interrogations that are 24's specialty.

But efforts to replicate that show's success were made to little avail. When 24 debuted seven years ago, the show drew 11.6 million viewers--and even that was meager by the goals of Fox executives, who'd thrown plenty of network muscle behind marketing the series.

Despite a lead-in from Heroes, one of NBC's top scripted dramas--albeit one whose ratings have slipped this season--Enemy performed even worse.

To be fair, the Monday, 10 p.m. timeslot has been a tricky one for NBC to fill for some time now. Just a few seasons ago, that slot saw the demise of Studio 60 on the Sunset Strip, another much-hyped drama that eventually fell by the wayside.

Audience numbers for Enemy's second episode, on Monday night, weren't yet available. But some analysts contacted for this article suggested that the series could receive a boost in January, once Monday Night Football ends and a large chunk of male viewers, who should find the show appealing, is freed up.

After all, points out Brad Adgate, senior vice president at media-planning and buying agency Horizon Media, January is when the new season of 24 debuts, for much the same reason.

Besides, the premiere of Enemy, however weak, "is just one episode," says Adgate. "In this day and age, NBC is looking at other things besides just those numbers. The show will lend itself to DVD sales and people watching online." And even if the overall audience stays small, a committed group of viewers in the valuable 18 to 49 demographic could convince the network the show is worth saving.

Still, should the worst happen, and Enemy's numbers fall precipitously over the next several episodes, NBC could slot in a show like Medium, a reliable ratings bet, but one that wasn't scheduled to premiere until mid-season, or Kings, another new show from the network, in the place of Enemy.

In the meantime, if the show does fail, it may have turned NBC executives into, well, their own worst enemies.

Sophia Banay

Can W Succeed Even Though W Failed?

Mark Stein — Thu, 16 Oct 2008 11:02:59 GMT

W., the man -- a.k.a. George W. Bush -- sees the world in black and white.

W. the movie, Oliver Stone's two-hour-plus portrait of the 43rd president of the United States, paints things more in shades of gray.

As for the movie's chances of box office success? If the muted reception from the crowd at the film's premiere at Manhattan's Ziegfeld Theater on Tuesday is any indication, W., which opens this Friday in theaters nationwide, will make it into the black -- but barely.

The movie cost a reported $30 million to make, a modest sum in an era of $100 million-dollar films. Partygoers, including entertainment lawyers and Hollywood producers, pegged the potential opening weekend box office take at about $10 million. That's a number that David Poland, the editor of several influential movie-industry blogs, calls "reasonable."

After factoring in DVD sales and potential overseas box office sales, Poland says the movie will break even, but not become a cash cow. "Lions Gate is trying to sell the idea that it's this over the top comedy, a la Fahrenheit 9/11," Poland adds, referring to the distributor, Lions Gate Entertainment. "It's not that movie."

In fact, the laughs were few and far between at the premiere, where despite a huge crowd outside, there were several empty seats. Anti-Bush sentiment remained high: as the movie's title appeared on the screen at the beginning, several audience members hissed.

But when Josh Brolin, as Bush, intoned malapropisms like "is our children learning?" and "misunderestimated," there was approving but not raucous laughter -- those punch lines feel old by now.

Applause at the end was sustained, but while some names in the closing credits were met with cheers and whistles, much of the crowd had started filing out before the credits were done rolling.

At the premiere after-party at the Metropolitan Club, at the corner of Fifth Avenue and 60th Street, where a raw bar and passed hors d'oeuvres kept the crowd circulating well past midnight, the chatter was less about the movie and more about the upcoming election.

And, says Poland, that's part of W.'s problem. "We're at the end of the presidency," he says. "The reason why this movie was relevant has dissipated, now that Obama's seen as being ahead" in national polls.

Poland says he expects potential viewers to be more interested in dissecting this week's presidential debate than in seeing a movie about the current president, going into this weekend.

"Two hours and ten minutes about Bush and how he met Laura -- probably not the highest priority," he says.

Then again, Stone's goal has always been to create controversial films, rather than hugely profitable ones. But with Bush just a few months away from the end of his tenure, this particular controversy seemed boring.

by Sophia Banay

Photograph of Josh Brolin as George W. Bush and Toby Jones as Karl Rove courtesy of Lions Gate/Everett Collection

Paul Newman's Tasty Legacy

Mark Stein — Wed, 01 Oct 2008 18:30:22 GMT

With his inevitable self-deprecation, Paul Newman once said that the downside of his successes with his Newman's Own line of foods was that "my salad dressing is out-grossing my films."

In reality, his box-office draw showed an enviable growth curve, from Silver Chalice, the first of his 65 movies (which probably didn't make back the $4.5 million it cost to make in 1954), to Cars, which earned roughly double its $120 million budget in 2006.

But the record of his foods business is hard to put in the shade. It has churned up over $250 million in profit since he and a neighbor started it in 1982; all of it has gone to charity. And the companies will live on, as a commercial, charitable legacy of the actor.

If the heirs to his commercial and charitable legacy have their way, the salad dressing and the empire it spawned will continue its steady growth. Notification came via a note posted on the company's site this past Saturday:

"For 25 years, we at Newman's Own have had a front row seat to watch Paul's entrepreneurial brilliance, humor, and compassion at work helping those in need. We will miss Paul, but we will honor his vision for the Common Good through dedicated stewardship of his company that will perpetuate his philanthropic legacy. Paul wouldn't have it any other way."

To see the power of that legacy, it helps to know some history.

It seems clear that Newman's exemplary charitable record was a sort of abashed outgrowth of his mistrust of the fame and fortune brought to him by his good looks (and superb acting skill). He liked to joke that if his famously blue eyes turned brown he would have quickly become a failure.

"I was always a character actor; I just looked like Little Red Riding Hood," he said, later noting, "I started my career giving a clinic in bad acting in the film, Silver Chalice and now I'm playing a crusty old man who's an animated automobile [in Cars]. That's a creative arc for you, isn't it?"

(As reported in his New York Times obiturary, Newman "once gave out pots, wooden spoons and whistles to a roomful of guests and forced them to sit through Silver Chalice.")

With due respect to the salad dressing grosses, the actor's Butch Cassidy and the Sundance Kid made $102 million in 1969 and The Sting made $160 million in 1973; back then, that was real money.

And there were other consolations -- an Oscar in 1986 for The Color of Money, along with nine other nominations.

Most of us have our own favorite Newman performances. I'll take the potty-mouthed coach in Slap Shot, the "I can eat 50 eggs" antihero of Cool Hand Luke, and the the ice-cold half breed of Hombre.

Another favorite is the washed-up lawyer in 1982's The Verdict. In her eloquent appreciation of Newman, New York Times critic Manhola Dargis epitomizes that character as "a defining Newman type: the guy on the hustle who seems to have nothing much left but keeps his motor running, just in case."

It was around the time of two back-to-back searing performance -- first in 1981's Absence of Malice and then The Verdict a year later --that Newman was goofing around on his estate in Westport, Connecticut, and composed a dressing from his own mix of oil, vinegar, and mustard.

Normally dispensed to neighbors in wine bottles at Christmas, the tasty stuff inspired friend and neighbor A.E. Hotchner to persuade Newman to bottle more -- lots more -- and stick his mug on the front. It would come to account for 23 percent of the U.S. market for pourable dressings, about the 10th-best seller among nearly 500 choices.

He had a philosophy that his he'd been unduly lucky in life compared to those he sought to help, according to his longtime friend David Horvitz. "He felt a need and an obligation to try to give back," said Horvitz, who oversees the 11 Hole in the Wall Camps that Newman founded to give terminally ill children the chance for a free summer-camp experience.

Newman said as much before he passed away last week, age 83, of cancer. "I wanted to acknowledge luck," he said; "the chance and benevolence of it in my life, and the brutality of it in the lives of others, who might not be allowed the good fortune of a lifetime to correct it."

As recently as June 24 of this year, Newman's Own was rolling out yet another new product, a sparkling pomegranate juice drink. Newman-branded juice sales grew 38 percent last year, "well ahead of the growth in 'new age' beverages," according to the distributor, Drinks America.

More recently came their Sweet Enough Breakfast Cereals (the determinedly hands-on Newman crafted the little homilies on the packaging) and Thin and Crispy Crust Frozen Pizza.

As the product names suggest, Newman wasn't precious as he set out. "When the face came on the bottle, I knew that the profits would have to go to charity," he once recalled. "To make money off that would be so tacky.

"From this came the concept of circular exploitation," he added. "I allow my celebrity status to be exploited in order to sell stuff from which I then in turn channel the proceeds into good causes. Hence the slogan of our company: 'Shameless exploitation for the common good.' "

Once that original decision had been made, the salad dressing was sent out with store displays proclaiming, "Butch Cassidy is also a gourmet cook." More than 10,000 bottles vanished form the shelves in the first two weeks.

The privately held company turned a profit in its first year, and the profits and royalties were funneled through Newman himself to his chosen beneficiaries. He launched his Hole in the Wall Camps charity in 1988.

Newman's daughters remain active in the good works. One, Clea, sits on the Newman's Own Foundation board to help oversee grants. Another, Nell, runs the separate Newman's Own Organics line, launched in 1993.

Last year's profit of $28 million -- the product line now includes pasta sauce, cookies, popcorn, pet food, coffee, and a number of other goods as well as salad dressings -- was parceled out to a range of causes, notably the Safe Water Network with its work in India and Africa.

In January of this year, the company announced a premium wines Chardonnay and Cabernet Sauvignon, both '06 vintage, at $16 a bottle.

The labels feature Newman's signature face: on the Chardonnay label he wears a cowboy hat; on the Cabernet label he sports a Butch Cassidy-style bowler.

Newman -- whose diagnosis of cancer was only announced by Hotchner on June 12 of this year -- may already have known he was issuing a pair of collectors' items.

"We have come full circle," he said at the time the wines were introduced. "We're back to wine bottles, but this time we are filling them with a wine that will complement my salad dressing and pasta sauce. Wine was the only thing missing at dinnertime. Now the meal is complete."

We'll drink to that.

Moving on: After a year and a month of posting to this blog, this is my last scheduled contribution to Portfolio.com. I'll be helping some smart folks launch a website, and soon thereafter commence a book. Details on that will come in another forum. Thanks for reading these posts. See you in cyberspace.

Tough Times, Even in Tinseltown

Fred Schruers — Thu, 25 Sep 2008 00:00:08 GMT

Think of all the producers or directors who have the pull to plunk down at the studio of his choice and make any film he pleases. It's a short list, even in the best of times. Steven Spielberg would be at the top.

But even Spielberg's status was being called into question for a while this summer as his much discussed financing deal with India's huge Reliance Group conglomerate seemed unable to close.

The Mumbai money finally came through this week, as Reliance, along with JP Morgan Chase, said it would underwrite the near future of Spielberg's studio, DreamWorks. (The cash will let him and Stacey Snider, the former Universal production chief, quit their unhappy home at Paramount, though without original DreamWorks partner David Geffen, who seems to be fed up with the film biz.)

Make no mistake: Spielberg is still a king in Hollywood. But in these tough times, even he had to spin his wheels before Reliance found a partner to fund his next Dreamworks slate. And he had to put up with Universal, his former longtime home, declining to pay for his long-awaited collaboration with Peter Jackson on an adaptation of the Belgian comic Tintin.

Viacom came not-quite-galloping to the rescue with a proffer of $130 million for the computer-animated movie. True, that's a rich bankroll for most filmmakers, but perhaps a little undernourished for the likes of Spielberg and Jackson. As of today, the deal still sat on the table for the mega-auteurs to contemplate.

The Tintin news might have seemed better if it wasn't bookended by an otherwise chilly ending to Spielberg's relationship with Paramount. The studio's parent, Viacom, paid $1.6 billion to acquire DreamWorks in 2005, but Paramount C.E.O. Brad Grey seemed to regard it as a prideful fiefdom.

DreamWorks' partners accused Grey of taking more credit for their successes than was due, a sentiment that was hardly put to rest by Viacom C.E.O. Philippe Dauman's offhand comment to analysts that the departure of DreamWorks wouldn't be "material" to his company.

Even the relationship with Reliance, which has worked out, hasn't worked smoothly. Spielberg and Reliance have for months been due -- then overdue -- to announce that funding for DreamWorks' day-to-day operations was finally in place.

The presumed holdup was finding the Western bankers who wanted in on the debt. As hedge funds and private equity investors -- Ryan Kavanaugh's Relativity Media being the most notable example -- began to supplant the old-line bank loans, it has become harder and harder for Hollywood to find capital.

The collapse this summer of a long-building production fund that Deutsche Bank had been planning for Paramount was a landmark piece of bad news.

Some, like analyst Harold Vogel, whose Vogel Capital management is a longtime player in Hollywood's hurly-burly, remain sanguine despite the naked pessimism of some studio executives and analysts amid Wall Street's implosion.

"That is, I think, too extreme and pessimistic a view," Vogel said of Hollywood's sky-is-falling feeling. "There will be money, there will be deals done -- they just won't be done at the same price as they were six months or a year ago and there won't be as many of them."

Even as he was speaking this week, Universal and Relativity announced a major enhancement of the existing partnership.

But the largest recent one is still the Reliance move.

The deal would be valued at $1.2 billion, with $500 million of it coming from longtime film-friendly JP Morgan Chase. Yet as rich as that sounds, it didn't seem quite so large when it became clear that Paramount had no interest in underwriting the day-to-day cost of the working part of DreamWorks, its 100-plus employees, and in-house producers like Ben Stiller. That overhead amounts to a reported $50 million a year.

The announcement and subsequent accounts of what it foretells were scanty on details about who would actually have what equity stake in the enterprise. "What mystifies me," says Vogel, "is how much of the equity Spielberg and his associates retain."

Given the usual practice in which even elite director-producers like Spielberg need a second opinion from a higher up before greenlighting movies of a certain size -- something near $100 million isn't unusual -- Vogel says he wonders what kind of controls Reliance and JP Morgan attached to their check.

The funding triggered the earnest part of DreamWorks' hunt for a distributor, as Paramount quickly backed away. (In a classic Hollywood press release that sounded chummy but really meant Don't let the door hit you in the ass on the way out, Paramount gushed:

("We congratulate Steven, David and Stacey, and wish them well as they start their newest venture. Steven is one of the world's great story-tellers and a legend in the motion picture business. It has been an honor working closely with him and the DreamWorks team over the last three years, and we expect to continue our successful collaboration with Steven in the future.")

Indeed, Paramount still has a dozen DreamWorks pictures in its pipeline; but perhaps buoyed by their homegrown slate, including G.I. Joe, J.J. Abrams' Star Trek, and an Iron Man sequel, studio executives were apparently never seriously interested in keeping DreamWorks' costly personnel and infrastructure around for what they might bring to the party.

They did hurry to assert their rights to certain Spielberg projects nurtured under their banner, like his Abraham Lincoln biopic and The Trial of the Chicago 7.

Variety perhaps summed it up best: "In short, Paramount is giving up everything that costs money and is keeping everything that has already been paid for -- a shrewd business move by Paramount chief Brad Grey that is certain to exacerbate ongoing bitterness between the two camps."

All in all, the enthusiasm of Wall Street and outside investors is beginning to reflect the generally diminished expectations for Hollywood. The movie industry seems to be about to test the theory, prevalent since the film business rode out the Great Depression, that big-time entertainment is somewhat fireproof in hard times -- and the money men aren't sure of the answer.

Vogel, for one, thinks Wall Street was wrong from the start.

"The first major mistake" in recent film financing rounds, he says, "was that the hedge funds and private equity bought into this industry for the wrong reasons. In most cases the reason given was that it was a [specialized] asset class --meaning, 'Oh gosh, if the stock market goes down, then gold will go up or movies will be great, because movies are not correlated with the stock market movements.'

"I don't believe that is correct," Vogel adds, "and you're starting to see that right now."

Photograph of Steven Spielberg by Marcel Hartmann/Sygma/Corbis; drawing of Tintin and his dog Snowy courtesy of the Everett CollectionRelated Links
Hollywood's Pay TV Problem
Can Ben Stiller Cap Off Paramount's Summer?
Hollywood Square-Off

New Life for a New Line Movie

Mark Stein — Fri, 19 Sep 2008 04:00:01 GMT

Ed Harris was editing his new movie, Appaloosa, in February when he was interrupted by what sounded like very bad news: The studio producing the film, New Line Cinema, was being absorbed into Warner Bros. Worse, Harris's sponsors, longtime New Line bosses Bob Shaye and Michael Lynne, had been given their walking papers.

In his first meeting with the Warner Bros. marketing executives after the merger, Harris recalled that the outlook for his sober Western was decidedly downbeat. "I was getting the feeling they were going to throw it the dogs, or straight to DVD," he said.

Then a series of events conspired to brighten the film's prospects -- and perhaps those of the other legacy films that began life at New Line and now worry about being lost in the weeds at Warners.

A New Line movie that had been seen as a potential stiff, Sex and the City, received some warm reviews and pulled in $153 million at the box office. It found an audience that the execs hadn't fully realized was there.

Then New Line's Journey to the Center of the Earth earned $92 million, despite not having the array of 3-D screens the studio had hoped would be in place for its release.

At the same time, Warner Bros. was enjoying the biggest summer in its history, led by the record-breaking performance of a Batman movie, The Dark Knight.

Also, Harris knew, Warner Bros. chief Alan Horn is a serious fan of Westerns, and a heavy contributor to the Autry National Center of the American West, a collection of museums devoted to the region's history.

The studio's success and its leader's personal interests provided Harris with an opening to save his movie, and he took it: He made a personal appeal to Horn for support. A small but warm flock of reviews at the Toronto Film Festival, where Appaloosa made its debut, added to the slowly growing optimism.

The appeal worked, and Appaloosa, which opens in limited release on September 19 and widely two weeks later, stands a chance of extending Warner Bros.' run of good fortune.

Appaloosa is a somewhat unlikely candidate for that role. Like many others that came before it, Harris's movie shows us a bad, bad man (Jeremy Irons, displaying his usual toothsome enjoyment in playing a corrupt but elegant villain) whom we devoutly wish to see brought down.

The job of bringing him down falls to Harris' character, Virgil Cole, a rough-hewn lawman for hire, and his sidekick, Everett Hitch, an articulate West Point graduate played by Viggo Mortensen.

In addition to starring, Harris directed the film, which he also wrote with Robert Knott, based on mystery writer Robert Parker's novel.

Executive producer Michael London, of Groundswell Productions, said the film's fate has been a pleasant surprise.

"We naturally had a lot of trepidation" after Warner Bros. absorbed New Line, London said. "But once the studio began really working on the movie, they started getting excited about their marketing materials. They got a great trailer out there.

"Now, after Toronto, Warners seems genuinely invested in the movie succeeding," London added.

None of this guarantees stunning box office or a long run. But Harris is grateful that New Line's hard times did not overwhelm his film.

"It's a survivor," he said simply.

New to Hollywood? Watch Your Wallet.

Mark Stein — Thu, 11 Sep 2008 04:00:01 GMT

When Americans visit certain exotic foreign spots, we're bound to be warned, by certain well-meaning friends, to enjoy the ruins but be sure to avoid salads and shellfish.

It does seem a little ethnocentric, but it's probably saved a few of us from writhing on a couch in a doctor's office where one can't read the diplomas on the wall. If there are any.

In the same spirit of cautionary tales, it seems only fair, as monsoons of new money rain upon Hollywood from India (if bankers will only back the enthusiasm of Reliance Big Entertainment), Dubai (where Spike Lee wants to score some cash), and Abu Dhabi (where the government-owned Abu Dhabi Media has set up a $1 billion international filmmaking fund, and just announced a deal with Participant Media), to give our friends from those warmer financial climes a little heads up about the ways of the Wild West.

Rule No. 1: Movies are not a money-making enterprise, at least not for you. Legions of investors have found out the hard way that Hollywood is happy to pick your production fund like a chicken bone and leave you half insane.

Think about Sony's debacle in buying the former Columbia Pictures, as well as all of the sadder-but-wiser insurance companies, too-clever-by-half hedge fund managers, and groups of American orthodontists who have frittered away fortunes on silver-screen dreams. Most have little to show for it other than perhaps a photo of themselves standing next to an indifferent Nicole Kidman in a bright red gown.

The lesson: Movies can generate a lot of revenue at the box office, but many don't. Even stinkers can rely on foreign sales, DVD sales, and other ancillary rights to generate enough income to recoup their cost -- but you'll be lucky to see any of it.

Rule No. 2: Jam tomorrow and jam yesterday but never jam today. The White Queen in Through the Looking Glass would be a wonderful studio executive. Contracts may promise lavish rewards, but the jam has a funny way of never actually turning up.

You don't have to be from the Middle East or South Asia to discover this painful lesson. You might be from some other booming region, like Texas -- and you might even be a very sharp Harvard graduate and seasoned Texan, like Tommy Lee Jones -- and yet come to feel that you've been flimflammed by a studio.

Witness Jones' lawsuit filed in San Antonio last Thursday, seeking more than $10 million in unpaid earnings he said had been promised to him for starring in the $160 million hit, No Country For Old Men.

Although Jones had a contract structure that was not all that unusual, which promised him considerable back end -- that is, net profit -- in exchange for cutting back his usual upfront acting fee, the suit also accuses Paramount of procedural errors in drafting the contract.

The lesson: Jones made the mistake of acting first and trying to collect later. See Marlon Brando example below for how to avoid this gaffe.

Rule No. 3: What's yours is theirs, and what's theirs is theirs. Paramount was, of course, the target of perhaps the most notorious lawsuit ever filed to pry profits out of Hollywood's legendarily Byzantine system of studio accounting. Newspaper columnist Art Buchwald went to war with Paramount in 1988 over the rights to Coming To America, an Eddie Murphy hit that was curiously similar to Buchwald idea that the studio had rejected.

The mysteries of studio finance have been well detailed in Edward Jay Epstein's The Big Picture, as arising in part form the complicated shell game that is modern film finance:

"Studios now outsource the making and financing of most of their movies ... to off-the-book corporations. ... Studios are usually obliged to share their proceeds ... [but they are the party] to decide who gets what share. ... If any other participants do not agree with these decisions, their recourse is limited since the studios usually control the information on which these payments are based."

Epstein memorably quotes one studio financial executive referring to his operation as a "black box" that even skilled auditors usually can't crack open.

The lesson: If you have leverage, use it ruthlessly. When New Line desperately wanted Peter Jackson to produce its Lord of the Rings follow-up The Hobbit, he made sure he'd locked up a satisfactory slice of the trilogy's pie before signing on.

(Next -- and why aren't we surprised? -- the heirs to Lord of the Rings creator J.R.R. Tolkien sued for their cut.)

Rule No. 4: When it comes to actor demands, resistance is futile. The big dogs naturally get a better shake, as the foreign investors will discover as they encounter actors' demands for things like personal chefs on the set, luxury accommodations on locations and doublewide trailers with pop-outs when filming at a studio.

(Heck, Will Smith in recent years has persuaded producers to see the logic of renting a three-story bus behemoth -- from him -- for his use during shooting.)

The lesson: Keeping actors happy is important -- no matter what the cost -- because it keeps productions on schedule. Failing to do so can be even more expensive.

Rule No. 5: Everyone else has more power than you do. When a 1990 Tri-Star production called The Freshman fell behind schedule, requiring Marlon Brando to go two days over his scheduled stop date, he declined to appear on the set each day before being handed a $50,000 check. That was the per-diem penalty provided for in his contract.

When the studio balked, Brando called up a Canadian newspaper (the movie was being filmed in Toronto) and blistered the production on the record. Some of his choicest opinions: "It's horrible, a flop, but after this I'm retiring. I wish I hadn't finished with a stinker."

And the costs keep coming even after production ends. When it's time to go to a film festival to promote the picture, for example, expect to buy first-class tickets and hotel suites for the hairdresser, the make-up person, the personal assistant, and the ne'er-do-well brother. Balk at the cost, and you may well get no help in promoting the picture -- or, worse, a petulant star bad-mouthing the film.

The lesson: Surrender all notions about running a movie studio like a real business.

Still, the industry isn't entirely thankless. I recall being on the Freshman set for the last day of shooting as Brando (who was reading his lines off cue cards, a common practice for him) leaned into the lens, got the attention of the producer and director, and in the friendliest possible way, flipped them the bird.

Welcome to Hollywood.

Photograph of a dog masseuse by Scott Stulberg/Corbis

Superheroes Save Hollywood! (Barely.)

Mark Stein — Wed, 03 Sep 2008 17:15:10 GMT

The stellar performance of superhero movies again this summer is enough to make you wonder if the film industry has figured out a way to bottle zeitgeist.

You need look no further than the summer's two tallest action-figure tent poles, Warner Bros.'s The Dark Knight and Paramount's Iron Man, to have a clue that a superhero doesn't require actual superpowers to tear up the box office. In fact, the films argue that a (very special) "everyman" story works with ... every man. And his date.

Paramount vice chairman Rob Moore finds that the very accessibility of the heroes is what cinched the deal this summer.

"Neither Batman nor Iron Man have special powers -- anyone can be that person," Moore says. "What resonates for people is there's someone out there who uses their resources to help their fellow man. At a time when the economy's not that great and we've got a war no one likes, it gives people a sense of hope."

Paramount got the best grade in John Horn's Los Angeles Times wrap-up of summer films. Both Horn and the New York Times docked Warners points for the expensive flop Speed Racer (and piled on the woeful Twentieth Century Fox, the summer's one loser among the major studios.)

Deborah Del Prete, who produced Frank Miller's The Spirit and hopes to see it succeed in lonely superhero splendor, well insulated from the summer action blockbusters, when it opens on Christmas Day, feels similarly.

"Our society is in a dark place, but these are heroes that save us," Del Prete says. "You may call Batman, Iron Man and the Spirit antiheroes, but at the end of the day they're protecting us at a time when there's a lot of fear.

"There's terrorism, there's a war on," she continues, "and when these comic book heroes began, and when The Spirit was written, there was a war on."

Her history is accurate. Superman creator Jerry Siegel (whose heirs recently won a case reestablishing their right to the comic. which he created in 1938) watched the character ascend in popularity -- and spread from comics to newspapers, and radio -- steadily until 1945.

His stable mate Batman and several prototype Marvel characters also emerged around then. As Gerard Jones wrote in his history of comic books, Men of Tomorrow: "No other fad in entertainment has ever paralleled real-life events as closely as the superheroes paralleled World War II."

(Tellingly, as the war's end approached in 1945, Jones notes that superheroes' sales began to drop. "By the end of 1946," he writes, "they were only two-thirds what they'd been at their peak. ... By the end of 1948, most superhero comics had been canceled or converted to other genres.")

A flash-forward to 1967 shows Steven J. Ross, as head of the Kinney Corporation (which later acquired Warner Bros.), snapping up DC Comics. That move alone may have eventually justified Ross' infamously generous pay packets as Warner evolved into a global media conglomerate.

If the growth of comic books into the film industry's surest thing began 70 years ago and the wave of studio licensing of such properties began 40 years ago, this summer seems to have capped the trend.

The domestic box-office revenue for the studios in the crucial run from the first weekend in May through Labor Day is estimated at $4.2 billion. That's about 0.5 percent more than 2007's $4.18 billion -- but thanks, it's regrettable to note, to a 5 percent rise in ticket prices.

(Batman added another boost, of course; The Dark Knight recently crossed the $504 million line and is settled in comfortably behind Titanic as the biggest-grossing movie of all time.)

Buried in the revenue surge was the slim but possibly nervous-making estimate that the actual number of people who went to cinemas to see movies fell between 4 percent and 6 percent. (Admissions estimates range from a total of 577.1 million to 586.6 million.)

With a nod to the frothier fare that did well -- Warner Bros.'s Sex In the City with its surprising $152 million haul; the same studio's Get Smart, which showed Steve Carell's ascension as the town's major comic-on-film; and the mind-blowing $232 million worldwide that Mamma Mia spun out of its hellzapoppin' freneticism -- this was a summer of action-hero fare.

That means not just the Batman, and not just the Iron Man with his $317 million in the U.S. (and $250 million more overseas), but also Marvel and Universal's better-than-expected The Incredible Hulk and Wanted.

And more is to come, including next year's Watchman, a movie that is promising enough to set two major studios at each other's throats over distribution rights.

Such success for what were frankly designed as crowd pleasers could invoke a "well, duh!" moment. As Universal marketing executive Adam Fogelson hinted to me on the eve of Wanted's release, who wouldn't want to see Angelina hanging backwards over the hood of a Cobra at speed pumping out shotgun rounds?

But just as that film pulled star-in-the-making James McAvoy into a vortex of --well, who could summarize the graphic violence that went on in Wanted's third act? -- The Dark Knight was sufficiently brutal in its ethos to cause a few (quickly dashed) predictions of disappointing numbers.

And Iron Man was at its heart not just a Robert Downey Jr. romp through superherodom but a burnt-along-the-edges tale of a rich roué whose heroism, as the New York Times' A.O. Scott said, "is all handicraft, elbow grease and applied intelligence. "

Though Del Prete gives much of the credit to the current troubled zeitgeist, she says that ultimately filmmakers like The Dark Knight's Christopher Nolan, Iron Man's Jon Favreau, and The Spirit's Miller "are not taking any surveys."

"They have their own dark vision that happens to be working," Del Prete says. "As [Spirit creator Wil Eisner] put in a panel many years ago, 'This is not a little boy's comic book.' "

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