More movies in theaters don't translate to more profits for industry

Glut at box office means studios, indies making less

By Lauren A.E. Schuker and Peter Sanders, The Wall Street Journal

Published October 3, 2008 at 3 p.m.

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Photo by Melinda Sue Gordon / Universal Pictures

Leatherheads, starring George Clooney, center, failed to make a dent in the U.S. box office, taking in only $31 million, far less than the $60 million it cost to make.

Photo by Bruce Birmelin

Thomas Haden Church and Ellen Page belong to the dysfunctional family at the center of Smart People, which made half of what prognosticators expected.

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When Meg Ryan and Antonio Banderas signed up to star in an independently produced comedy-action movie called My Mom's New Boyfriend, the film's backers figured they had a slam dunk - a modestly priced film with bankable stars that would surge at the box office.

The producers say the $17 million movie scored well in test screenings in the U.S. this spring and did decent business in Spain, Israel and Russia. But the U.S. distributor, Sony Corp.'s Sony Pictures, quietly sent the movie straight to DVD on June 17.

"I believe that three years ago this movie absolutely would have been on screens, if for no other reason than the actors involved," said George Gallo, who wrote and directed the film.

These days, scores of films such as Boyfriend are finding there's no room at the multiplex. The reason: Hollywood is flush with roughly $13 billion to $18 billion in financing for movies that poured in over the past few years, according to bankers and producers, vastly expanding the number of pictures getting made.

The flood of money is paying for films made by both relative newcomers and veteran film investors and producers. That dynamic has turned movie distribution into a free-for-all, with too many films vying for too few slots in theaters each weekend. Last year, more than 600 feature films - mostly independent movies not produced at a major studio - were released theatrically in the U.S., up from 466 in 2002, according to the Motion Picture Association of America. That's an average of 2.6 more movies every weekend that are battling for the public's attention.

But those figures are just for the films that make it to the silver screen. Many more films, such as Boyfriend, with big-name actors or directors never make it to theaters. More than 3,600 feature films were submitted for consideration at Sundance Film Festival this year. The number is up from about 2,000 feature submissions just five years ago.

The frothy marketplace means more choices for movie fans and more headaches for a struggling industry. In 2007, domestic box-office revenue totaled $9.68 billion, up from $9.3 billion in 2006, according to box-office tracker Media by Numbers. Box-office revenue has grown since 2005 because of higher ticket prices, but attendance started dropping last year. This year, attendance is down 4.74 percent from the same time a year ago. Lower attendance should trim box-office revenues for 2008 to about $9.6 billion, Media by Numbers projects.

Today, the credit crunch is putting the brakes on outside film financing, but Hollywood executives fear the glut created by the recent spate of overproduction is going to be felt for at least a couple more years. Some people say the worst of the oversupply problem is still about a year away.

"We're at the top of the curve heading down," says Hal Sadoff, head of international and independent film at ICM, one of the major talent agencies in Hollywood. "We've seen many of these financial institutions, private-equity firms and hedge funds pull away from the industry, but the films that they have advanced are still in production, and it will take another six to 12 months for the market to regularize again."

Amir Malin, who acquired, marketed and distributed the hit indie film The Blair Witch Project and now runs media-investment firm Qualia Capital, says that the market for such films will get tougher before it gets easier.

The havoc in the movie business was evident in April, when the release schedule was packed with a bevy of big-star vehicles hoping to beat the onslaught of summer blockbusters. Leatherheads, a $60 million football comedy starring George Clooney and co-financed by Universal Pictures and Relativity Media, took in just $31 million domestically and about $9 million overseas. The Al Pacino thriller 88 Minutes, financed for $26 million by Millennium Pictures and released by Sony Pictures, took in just $17 million in the U.S.

Then there was Smart People, starring Sarah Jessica Parker, Dennis Quaid and Ellen Page. The star-packed comedy about a dysfunctional family seemed promising, especially given its modest cost of $8 million. Its backers, including Bill Block, who runs a financing outlet called QED International, expected the movie to make about $20 million.

"It was a terrific cast and everybody loved the script, so we thought, 'Why not?"' says Mr. Block. The film grossed less than half of that, making $9.5 million in domestic theaters. "I think it's just tough out there right now - especially for the upscale adult picture," Block adds.

The competition is especially brutal in the market for small movies. Oscar-aspiring independent films - that is, films not produced at a major studio - were once seen as the most attractive segment of the movie industry. That's because sizable profits could be made on films that required relatively little investment. That calculus prompted all of the major Hollywood studios to launch divisions aimed at exploiting the market.

But the flood of indie films has driven up marketing costs, as each film spends more to compete. Last year, top-flight casts didn't prevent movies such as In the Valley of Elah and Things We Lost in the Fire from getting drubbed at the domestic box office.

To avoid collisions, studios are rapidly scaling back the number of films they're releasing, particularly smaller specialty movies. Time Warner Inc.'s Warner Bros. closed two of its art-house labels, Picturehouse and Warner Independent Pictures, this spring. In June, Viacom Inc.'s Paramount Pictures basically absorbed the majority of the staff at its specialty label, Paramount Vantage, into its main studio, cutting about 50 employees. News Corp.'s Fox Searchlight, which has had big indie hits with Juno and Little Miss Sunshine, has only six titles scheduled for release so far this year.

Indie films aren't going away, of course, but some studios have concluded that the most-expensive films - blockbusters such as Iron Man and The Dark Knight, which often cost well more than $150 million each, not counting millions more in marketing outlays - can be less risky than art-house releases such as last year's A Mighty Heart. That film lost about $15 million for its backer, Viacom Inc.'s Paramount Vantage.

Studios aren't the only ones pulling back; so are many of the individual producers who armed themselves with easily raised moviemaking funds. Producer Sidney Kimmel announced this year that his production company would scale back its releases to two films a year from five. Mr. Kimmel was hit hard when his most-recent picture, Synecdoche, New York, starring Philip Seymour Hoffman, failed to find a distributor at the Cannes Film Festival this spring.

In late July, Sony Pictures Classics bought the film, just giving its backers a portion of the revenues. Even with that, the film's backers will likely take a loss on the movie, which cost about $20 million.

Another factor is an increase in marketing costs. A decade ago, campaigns for independent movies were driven by free publicity and word of mouth. The crowded market is prompting distributors to spend big to distinguish themselves. According to the MPAA, the amount of money the indie labels at the major studios were spending on marketing shot up 44 percent to $25.7 million in 2007 from $17.8 million in 2006. Since 2002, that marketing spending has doubled, driving up competition for all films.

Too many choices?

2.6 more movies were released every weekend in 2007, on average, than in 2002. The Motion Picture Association of America reported that more than 600 feature films - mostly independent movies, not produced at a major studio - came to U.S. theaters last year, up from 466 in 2002.

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