Too much money poses hidden problems

Too much money poses hidden problems

Movie money: Although Hollywood's enjoying a tidal wave of production funding from Wall Street, it's not necessarily a good thing for the film industry.

As crazy as that sounds, the fact is that the flood of private equity funding that studios and high profile producers are enjoying these days brings with it some hidden problems. On the face of it, the hundreds of millions of dollars that are going into production -- the total by now may actually be in the billions -- are a blessing because without them a lot of movies wouldn't be getting made.

That, however, is exactly the problem. Too many movies are being made simply because the money to make them is so readily available. In the end, that works against Hollywood rather than in its favor. Consider, for example, the effect that having an overstuffed pipeline of movies has on the industry's overall health. Last weekend saw four wide openings that went into about 9,200 theaters. The same weekend also saw a loss of nearly 7,000 theaters for holdover films. One of the key problems distributors face nowadays is holding theaters if a movie doesn't immediately connect with its audience.

In the past, when there was less product opening wide every weekend, films could manage to hold on for a few weeks and try to benefit from good word of mouth or even take a second shot at luring audiences with a revised marketing campaign. Now by the time a film hits its third weekend, it's starting to hemorrhage theaters if it's not performing really well. A case in point last weekend was "School For Scoundrels," which lost 1,601 theaters in its third weekend. This wasn't some highly unusual event. In fact, it's pretty routine now for any movie that doesn't open to sizzling ticket sales. Why? Because exhibitors know there's so much product in the pipeline that it makes more sense for them to take a chance that something new will perform well rather than hope something that didn't open well will somehow catch on and improve.

If there were fewer wide openings theaters wouldn't be so quick to throw out under-performers. They'd recognize that it's in everyone's interest to give films a little more time to get their message out. In the case of adult appeal films, this is particularly important because adults take longer to get around to seeing the movies they're interested in. Teenagers, on the other hand, turn up at theaters quickly because they don't have a lot of other obligations that interfere with moviegoing. Teens don't have to give up an evening to see their kids' school plays the way adults do and they don't have to go out of town for business or make time to attend charity events, etc.

Longer theatrical runs, by the way, would work to the advantage of exhibitors because it is in the later weeks of a film's release that the theaters keep a larger share of the boxoffice gross. For the first few weeks that a movie is playing the split between distribution and exhibition traditionally favors distribution in a significant way so that production and marketing costs can be recouped. By dumping movies early in their run rather than letting them catch up and find their audience, exhibitors are shooting themselves in the foot financially.

But distributors also pay the price for having too many movies in the marketplace. Because there's so much product and almost every weekend of the year now sees three, four or even five films go into wide release, studio marketers have to shout louder and louder to be heard in the marketplace. Shouting louder, of course, means spending more and more money to get the marketing message across. It's one of the reasons that marketing budgets have been soaring. Moreover, this product-driven demand for marketing exposure is a key reason that the television networks have been able to increase their rates despite the fact that their audience shares have been declining for years. If there were fewer films in the marketplace the need to shout louder through bigger ad spends would diminish, reducing industry marketing costs across the board.

The same thing is true, by the way, in the so-called independent or specialized movie arena. Wall Street money is also finding its way to indie producers and distributors and, as a result, there are more films going into limited or platform release or playing exclusive engagements than ever before. The competition is intense for the more upscale segment of the moviegoing audience that these films appeal to. Because there are funds to make so many specialized releases these days and because there now are so many independent or independent-style distributors, the cost of marketing specialized films has escalated considerably in recent years.

Not only is the proliferation of product driving up marketing costs, it's also responsible in part for increasing production costs. Because Hollywood has a limited talent pool of filmmakers and stars for studios to draw on, the current abundance of Wall Street production coin serves to keep talent prices high. Agents know that with so much product in search of talent they can get top dollar for anyone with a decent track record. A star or filmmaker who looks attractive on paper to an investment banker or hedge fund manager with lots of money to invest but little or no background in moviemaking is in a position to make big demands and see them met.

Given these hidden problems, why is Hollywood so eager to take in money from Wall Street? Well, the reverse argument is that this influx of production coin reduces a studio's risk by sharing the burden associated with financing films. Making more films is sometimes talked about as representing more times at bat and, therefore, more opportunities to hit a boxoffice home run. No one ever seems to talk about there also being more chances to strike out. In some cases, studios have constructed arrangements that share the risks more equitably than they actually share the rewards. Hollywood accounting as it relates to recouping costs has certainly made its share of headlines over the years.

Because Wall Street understands and likes the concept of investing in portfolios of movies just as they invest in portfolios of stocks or bonds, Hollywood is able to assemble packages of films to be co-financed that include some seemingly likely winners, a handful of long shots and a few maybes. The concept is that investors aren't putting all their chips on a single number, but instead are covering multiple numbers on Hollywood roulette table with smaller bets.

Wall Street isn't stupid, so why would so many investment managers who've made so much money in other industries jump at the chance to risk hundreds of millions of dollars to make movies? The easy answer is that Hollywood has always had the allure that comes from being a glamorous business. Guys who have, for instance, made their fortunes in industrial waste or pork bellies or peddling fertilizer or selling farm equipment respond energetically when they can suddenly bankroll a piece of a new movie and know that they and their spouse (or somebody else's spouse) will be wined and dined at the film's premiere and get to rub shoulders with A List stars and directors.

And it's not just glamour. There's also greed. Wall Street reads the same boxoffice reports that Hollywood does about movies grossing $1 billion or close to it in the global theatrical marketplace and about the riches from DVD sales even in today's so-called mature marketplace. At the end of the day, the Street believes the upside potential of investing in Hollywood is greater than just about anything else there is -- except, perhaps, drilling for oil!

Filmmaker flashbacks: From Apr. 29, 1988's column: "The fact that Alan Rudolph's 'The Moderns' takes place in 1926 Paris but was actually shot in Montreal may surprise moviegoers, but will be no surprise to those who know what it costs to film in Paris these days.

"'The Moderns,' an Alive films release, was made for only $3.7 million, a sum that quickly disqualified the obvious location for the film. 'We went over to Paris and looked for the locations and did our own investigation and research into what the production dollars would buy us there and we found a lot of problems,' David Blocker, who co-produced the film with Alive co-chairman Carolyn Pfeiffer, told me.

"In some ways, even if the film's budget could have accommodated working in Paris, the City of Lights might not have been the best place to make the picture. 'As far as locations, Paris doesn't exist like it did before,' explains Blocker, who produced four earlier Rudolph films, including the much celebrated 'Choose Me.' 'It's still Paris and it's still one of the great cities of the earth, but all the first level stores have been transplanted or gutted and now they're high-tech boutiques or hair salons of polished steel, glass and neon. It was tough to find areas there that are really Paris of the '20s.'

"Moreover, Blocker notes, Paris isn't an easy city in which to work: 'It's hard to close down streets. You can't just close down a bridge to shoot there. We decided to try elsewhere. We went to Montreal because we heard it had wonderful European-like streets. A lot of the old Montreal was fashioned after Paris. We flew there in the dead of winter. It was covered under eight feet of snow. We were all on our hands and knees digging through the snow trying to find cobblestones.'

"Their hard work paid off. 'We found enough of Paris or that look that Alan felt he could shoot his film there,' says Blocker. 'If you go an inch on either side of that frame when you're watching that film, you're not looking at anything that even resembles old Paris."
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