Movies & the media
Marketing expenditures spiral ever upward, but shifts in theory are shifting the money -- albeit glacially.It's all the more grist for critics: After a respite in 2004, U.S. movie studios are again failing to rein in marketing costs, which rose by 5% last year. According to estimates from Nielsen Monitor-Plus, the major studios spent nearly $3.5 billion -- $3,490.5 million, to be exact -- on media buys in 2005, compared with $3,324 million the previous year.
Disappointing news, considering that last year's Nielsen figures indicated a drop in marketing expenses for the first time in memory. (Media buys are expenditures for advertisements on television, billboards, etc., and do not include other marketing expenses such as overhead, premieres and publicity events.)
Nielsen's numbers also confirm figures that MPAA chairman and CEO Dan Glickman unveiled in March at ShoWest: The average cost of marketing a studio picture rose to $36.2 million in 2005, compared with $34.4 million the year before -- even as per-picture negative costs dropped from $62.4 million in 2004 to $60 million last year.
Still, optimists can take heart in the fact that 2005's aggregate marketing costs remained lower than the record total posted in 2003.
"That was when the upfront peaked, and we all overpaid by about 20%," says New Line domestic marketing president Russell Schwartz, referring to the cost of buying network TV ads. "The following year, it went down a decent percentage as a reaction."
Perhaps because some specific-media spending numbers continue to decrease -- principally the tally for network TV commercials -- most studio marketing chiefs interviewed for this report seem relatively blase about the 5% overall year-to-year increase.
"Certainly, everybody is conscious about the 'never-ending spiral of spending,' but it all depends on what kind of movies you are selling," says Pamela Levine, co-president of domestic marketing at 20th Century Fox. "With 'event' movies, if you are getting the kind of opening that this push is designed to deliver, then it's OK.
"My concern is about the rote tendency to spend on every movie, but there is a lot of pressure from everybody when there is a big investment on the line," she adds. "That makes people nervous, and the comfort level can come from how much you spend."
Despite the industrywide trend, spending by individual studios went in strikingly different directions last year, based in nearly equal parts on varying slates and strategies. Biggest of the big spenders was Universal, which lavished $559.6 million on media buys in 2005 -- up a whopping 36% from $411.9 million the previous year. Some of that money went to hits like "King Kong," but some went to financial disappointments like "Cinderella Man," the year's most heavily marketed movie with an estimated $48.6 million in expenses.
"There were very good and sound business reasons why we continued to chase and support 'Cinderella Man,'" Universal marketing president Adam Fogelson says. "It is a movie we believed deserved to do better at the boxoffice than it did and that we believed deserved consideration during awards season."
Fogelson adds that other Universal movies including "The 40-Year-Old Virgin" and "White Noise" did terrific business last year on more-economical campaigns.
Coming in a close second was Sony with $550.6 million in media buys in 2005, up nearly 24% from $445.4 million the year before. Part of that increase was attributable to a slew of extra releases handled by Sony after it was part of a consortium of investors that purchased MGM, but a chunk was spent on flatliners like "Zathura," a family actioner that grossed $28 million domestically -- less than its $36.7 million marketing budget.
Not surprisingly, top executives at Universal and Sony felt the wrath of their corporate overlords, and both studios have undergone key staff changes recently: Universal Pictures chairman Stacey Snider crossed the lot in February to become co-chairman and CEO of DreamWorks, and Sony worldwide marketing chief Geoffrey Ammer stepped down in December, mere months after he basked in the glory of "Spider-Man 2."
Among other studios, Warner Bros. Pictures didn't stint in 2005, making a third-place outlay of $529 million (a 4% jump from $508.8 million the previous year), and Fox came in fourth with $486.4 million, up 27% from $383 million in 2004.
Miramax, racing to put out its slate of films before the Weinstein brothers jumped ship for their eponymous new company, saw its paid advertising expenses climb to $189.1 million last year from $150.3 million in 2004 -- an increase of nearly 26% that is likely shift abruptly in the other direction this year with the studio under new leadership. (Miramax's figures include those for its sister company, Dimension.)
Paramount's year-to-year expenses were practically even -- $371.1 million last year, compared with $378.1 million in 2004 -- but four studios spent considerably less in 2005: Buena Vista, DreamWorks, MGM and New Line.
Without an installment of 2001-03's "The Lord of the Rings" trilogy to boost its marketing outlay, New Line spent $175.8 million last year, down 9.2% from $193.7 million in 2004. "It's a release-driven business, and every year some movies demand a much-higher budget than others," Schwartz says. "In 2004, (2003's 'The Lord of the Rings: The Return of the King') was a significant piece of our advertising, but our average spend has not changed."
MGM's expenses swooned from $110.7 million in 2004 to $53 million last year -- a 52% plunge -- largely as a result of winding down its operations (MGM figures in this report represent only three films). Buena Vista's outlay plummeted from $501.7 million to $368.2 million, a retrenchment of nearly 27%, and DreamWorks' slid by nearly 14% from $240.4 million to $207.7 million.
Varying annual expense sheets are no surprise because each studio has a different slate each year. In addition, the more successful a picture is at the boxoffice, the more its studio usually must spend to keep it in the marketplace -- a phenomenon that makes for a receding profit line, called a "rolling break."
What is surprising, though, is how much some studios lavished on individual pictures in 2005. In addition to "Cinderella Man" and "Zathura," big spenders included Paramount's "War of the Worlds" ($46.5 million) and
"The Longest Yard" ($44.6 million), Warners' "Batman Begins" ($44.4 million), Buena Vista's "Chicken Little" ($42.9 million), Fox's "Robots" ($41.4 million), DreamWorks' "Madagascar" ($40.7 million) and Buena Vista's "The Chronicles of Narnia: The Lion, the Witch & the Wardrobe" ($40 million).
If the latter figure seems high, it is important to remember that it was only 17.8% of "Narnia's" $224.8 million domestic boxoffice gross as of Jan. 2 -- and that percentage probably has decreased as the film plays in theaters this year. More good news for Buena Vista is that the studio likely will have to spend even less on "Narnia's" follow-ups because media expenditures for sequels usually amount to much-smaller percentages of boxoffice than is the case for originals.
Hence, while costs for the 25 studio movies that racked up the most advertising expenses last year averaged 28% of those films' domestic boxoffice takes, the final "Star Wars" chapter (Fox's "Episode III -- Revenge of the Sith") spent the equivalent of only 8.9% of its gross on media, while Warners' "Harry Potter and the Goblet of Fire" spent the equivalent of 11.3%. Compare those numbers with 19.8% and 28.2% for the nonsequel hits "War of the Worlds" and "The Longest Yard," respectively.
No wonder studios like sequels so much.
"There are so many variables, but when you release a sequel, you already have a base awareness," Paramount worldwide marketing president Gerry Rich says.
Breaking it down
Just as film production executives feel comfortable making sequels, so marketing executives feel comfortable with tried-and-true methods of selling their product. Despite the ongoing growth of Spanish-language television and the integration of the Internet into nearly everyone's lives, major U.S. studio spending on those media remained modest at best last year.
According to Nielsen, the major studios spent $52.3 million on Internet marketing in 2005, down 4.4% from $54.7 million the previous year. The decline astonished the marketing chiefs interviewed for this report, but most contend that a majority of their Internet-related costs derive from nonmedia buys.
"People are spending more on the Internet, but there are costs associated with advertising on the Internet that do not fall under the media-buys number, the costs of creating the material and things like that -- what we would call the 'basics' or above-the-line number, which means the nonmedia-buy number," Fox Searchlight chief operating officer Nancy Utley says.
Focus Features' 2005 horror release "Cry Wolf" offers a classic example in use of the Internet to promote a movie in ways not involving media buys. "We had a very integrated promotion with AOL where we created an actual 'Cry Wolf' game that you could play through (instant-messaging), which mimicked the story line in the movie," Focus marketing president David Brooks says. "We did also buy some ads, but a normal study wouldn't capture that value. A lot of studios are going that route."
Still, most studios expect their Internet spending to rise significantly this year, internationally as well as domestically. Sue Kroll, marketing president at Warner Bros. Pictures International, cites her studio's experience in France. "(2005) was the first year we were shifting some of our marketing dollars to online," she says. "In 2004, we didn't really spend any money on advertising online, though we did spend on the development of (creative) teams and customized Web sites. But we are now spending advertising money online."
Also surprising to the marketing executives were the scant sums spent on Spanish-language media last year. The major studios spent $1.7 million on Spanish-language cable TV buys in 2005 -- a 21% increase on 2004's $1.4 million tally but still a relative drop in their marketing-budget buckets -- and $66.2 million on Spanish-language network TV buys, up only 0.8% from $61.7 million the previous year.
To put those numbers in context, 2005's Spanish-language cable total represented statistically 0% of the studios' overall media costs, while the Spanish-language network outlay represented only 1.9% of the aggregate. That was precisely the percentage also spent on that most old-fashioned and least-visually oriented of media -- radio -- which drew $66.2 million in studio spending last year, up 32% from $50 million in 2004.
"The younger Hispanic audience is watching a great deal of mainstream, non-Hispanic media due to the fact that they are bilingual, and we are reaching them through those means," Rich says. "But our spending has increased on Hispanic outlets."
Adds Levine: "My guess is that next year, we will be looking at much more significant growth in this area. Sometimes it takes a while for the practice to catch up with the theory, but there is a lot of emphasis placed on the Hispanic audience because they are such heavy moviegoers. You can reach that audience in ways other than through Spanish-language television, but that remains a key vehicle -- and you are going to see it increase."
Among other expenditure areas, the most troubling news for old-time media lovers is an ongoing decrease in newspaper spending. Reflecting one of the most significant shifts in marketing, movie studios spent $538 million on newspaper buys last year, down 9.8% from $596.6 million in 2004. Part of the reason is that newspapers remain dizzyingly expensive: A one-page ad in the New York Times can cost $80,000 or more, a lot of money to reach the largely older audiences that newspapers now serve.
But the annual marketing tallies might not reflect the full sums of revenue that newspapers are deriving from studios. Picturehouse president Bob Berney notes a "massive shift" from advertising in print publications to marketing in their corresponding online editions.
"The online (papers) are very, very expensive now," he says, adding that they also are very much in-demand. "NewYorkTimes.com is sold out in many cases. Because of that, you are seeing a switch to an upfront market, just like the TV market (where blocks of ad space are bought far in advance). That is a big change, and that never happens in print."
Companies like Fox Searchlight have long-running deals with papers like the New York Times whereby the studio maintains its space and simply changes ads as its films change.
A well-placed online ad in a publication like the New York Times can cost as much as $25,000-$30,000, sources say.
Given the decline in newspaper spending as a whole, it is perhaps surprising that studio expenditures on magazine advertising rose from $24.7 million in 2004 to $30.2 million last year -- a 22% increase -- but marketing executives attribute that, at least in part, to an increase in the number of niche publications.
"If you are targeting a younger-female audience, it makes sense," says Oren Aviv, marketing president and chief creative officer at the Walt Disney Studios.
Magazines still account for a tiny portion of studio media spending -- 0.9% last year vs. 0.7% in 2004 -- but even that slight uptick is promising news for magazine publishers.
Also experiencing an upturn last year was outdoor advertising, by and large meaning billboards. The medium still accounted for only 2.7% of overall studio marketing expenditures last year, but its annual figure nearly tripled to $92.7 million, as compared with $32.2 million in 2004.
"That is the kind of trend I am worried about: marketing by rote," Levine says. "What's happening is, people are just buying outdoor because it is what others expect -- but outdoor is really effective only on certain kinds of movies. Outdoor is a very broad medium -- you can't target it -- so it either needs to be a message that is easily digestible or something used with event movies that have an iconic image like (Fox's upcoming actioner) 'X-Men: The Last Stand,' where we have an outdoor campaign."
But it is on another medium -- television -- that movie studios continue to spend by far the largest portions of their marketing budgets. On closer examination, cable and spot TV are receiving big boosts, while network and syndication are actually experiencing dropoffs.
"We have been reallocating our dollars somewhat, away from network to cable, but it hasn't brought down our total television spend," Schwartz says.
Industrywide syndication spending, essentially flat earlier in the decade, dropped by 22% to $104.1 million last year, compared with $133.5 million in 2004. Studio executives cite at least two reasons for the decline, the first being that a key audience segment has moved from syndication to cable.
"Syndication used to be the place we'd go to find programming targeted very efficiently at young males, but as cable has gotten much more targeted, people are going to cable as a better alternative," Miramax executive vp marketing Jason Cassidy says.
The second reason, he adds, is a practical one: Syndicated shows require commercials to be delivered weeks before cable and network shows do. "You have to traffic much earlier for syndication -- three to four weeks out," Cassidy says.
Network TV continued to dominate film-studio marketing budgets last year, representing about a third of industrywide media costs, but the venue nonetheless saw a slight decline. Network ad spending by studios totaled $1.179 billion in 2005, compared with $1.198 billion in 2004, while the venue's media-buying share dropped from 36% to 33.8%. The drop was not as large as that experienced the previous year (network TV buys totaled $1.239 billion in 2003), but it is a trend about which the broadcast networks must worry going forward.
Beyond the erosion of network audiences, another factor is at play, according to Fogelson. "Certain networks have a hard time approving commercials that the MPAA has already approved because of whatever parental requirements they place on advertisers," he says. "Sometimes, the network clearances can be more complicated than with cable."
By contrast, industrywide spending on spot television -- regional and local ads -- increased to $556.2 million in 2005, compared with $482.5 million the previous year. The former figure equaled 15.9% of overall expenditures, up from 14.5% in 2004.
"You want to make sure that you are buying in places where you don't have a lot of spill (to nontargeted audiences)," Aviv says. "Spot is less expensive, and you can target your audience."
But the real beneficiary of the rise in studio spending last year was cable, which drew $804.2 million in 2005 as compared with $688.9 million in 2004 and $609.2 million in 2003. Cable is closing in on network TV as the most important venue for media buys, accounting for 23% of overall studio expenditures last year as compared with 20.7% in 2004.
"As the cable universe has changed and more cable networks have been created, they are creating opportunities for marketers to target much more specifically," Cassidy says. "With young males, for instance, A&E is now shifting its programs toward them, and other places like Spike TV give marketers a much more efficient alternative. That is why the dollars have shifted so much."
In addition, the cost per ratings point remains considerably lower in the cable realm. "It can be $50,000 or $60,000 per point in primetime network TV," one insider says. "In cable, that number comes down to somewhere in the region of $9,000-$15,000."
Primetime commercials during top-10 network shows remain exorbitant, others add. "If you have a budget of half-a-million dollars, you can't even afford one spot on (Fox's) 'American Idol' -- that can run $600,000 or $700,000," one insider says.
One film executive set to buy a commercial on short notice was quoted the following prices: ABC's "Grey's Anatomy," $805,000 for 30 seconds; CBS' "CSI: Crime Scene Investigation," $789,000; and ABC's "Lost," $600,000.
Inevitably, studios follow varying philosophies when hedging their bets. Miramax, with its upscale-skewing movies, targets newspapers and cable more heavily than do other studios, whereas Sony devoted only 11.5% of its 2005 marketing budget to newspapers.
To an industry outsider, though, such debates might seem small potatoes: No studio has thrown caution to the wind and opted for a radical change in its marketing methodology. Executives admit that they are wrestling with a fast-changing world but say they remain unconvinced that another way is better.
"I can make you a compelling argument that traditional methods continue to work remarkably well," Fogelson says. "It is true that the market is changing in every way -- we are all looking to find ways to be more efficient and take advantage of the latest trends and technologies. There are adjustments being made and experiments taking place, but from where I sit, there is no need to throw out the old models simply because the general landscape is changing."
That point of view disappoints skeptics.
"We need greater change," Berney says. "Marketers in general, and the film business in particular, really have to be pushed by global change before they do anything. But the moviegoing audience went down last year, and now there will be a reaction to that."
While such a revolution has not yet occurred, he adds, "It feels like we are on the precipice of a major change."