Movie Industry Likely to Go on Diet

Though more moviegoers than ever settled into cinema seats this year, Hollywood still struggled to make a profit. Result: fewer movies next year

IT looks as if it's time for Hollywood to make some New Year's resolutions.

The town that manufactures cinematic fantasy for the world just got a reality check with newly released box-office figures for 1995. Despite the biggest draw in history - $5.2 billion in ticket sales, a 1 percent increase over last year's $5.1 billion - profit margins are down some 14 to 15 percent.

"Even though people are flocking to the movies, the amount of money that studios are making for themselves is getting smaller," says Chris Lanier, president of Motion Picture Intelligencer, a firm that tracks the movie industry in Beverly Hills, Calif.

"The trend has been for profit margins to continue shrinking, which is a bad sign for economic and creative health," says Mr. Lanier.

Because of skyrocketing star salaries, such as $20 million for names like Jim Carrey and Sylvester Stallone, Hollywood studios spent nearly 15 percent more on average bringing new movies to the screen in 1995. In addition, exorbitant costs for ever-more-dazzling special effects - from the digitalized characters of "Toy Story" to the exploding jet skis of "Waterworld" - are tacked onto steadily rising costs of production from sound to lighting.

The average studio film now costs $35 million to make and another $15 million to distribute and market. Since studios typically receive half of all sales, the average film needs to collect $100 million in worldwide sales just to break even. Only seven films have topped that mark so far for 1995.

"We're sort of in a tailspin right now, and it's getting worse," says Tom Sherak, senior vice president of 20th Century Fox. "The profit margins at the studios have become unbearable."

Too many movies

Part of the problem is also the growing number of movie releases - 257 major releases from the main companies in 1995. The competition has led to costly advertising campaigns.

"The growing number of pictures being released has become the silent killer," says Jeff Blake, president of Sony Pictures Distribution. Because each new movie must compete with the others premiering the same week, recent releases, and those scheduled to be released in coming weeks, more and more films are dying before audiences know about them.

"Movies that used to bring modest incomes are now pulled from theaters in one or two weeks and become complete write-offs," he says. "When you try and work your way through an 18-screen multiplex, it doesn't take a genius to figure out how this is happening."

According to John Krier at the box-office tracking firm Exhibitor Relations, 1995 was characterized as an off year for having no breakaway blockbuster such as last year's "Forrest Gump" (domestic gross: $329 million) and "The Lion King" ($313 million).

At the same time, two of the most expensive movies ever made were produced, "Cutthroat Island" - which reportedly cost more than $100 million - and "Waterworld," running up a tab somewhere between $175 million and $212 million. "Waterworld" was considered an economic bomb by Hollywood standards, grossing only $88.2 million so far. "Cutthroat Island" got off to a slow start with only $2.4 million in its first weekend.

With this news of shrinking profit margins, creative conservatism is more likely, analysts say.

"The headline is that the big in Hollywood are getting bigger and those who would like to make smaller, more artful, or experimental movies can't afford to compete," says Douglas Gomery, a professor of journalism who studies the economics of cinema at the University of Maryland in College Park. "It becomes more dangerous to take risks, so we are likely to get more predictable movies and ones that are similar to those which have already been hits."

Harold Ramis, director of critically acclaimed "Groundhog Day" and a star in megahits "Ghostbusters" and "Ghostbusters 2," says a new "austerity psychology" is likely in coming months. That means everything from cutbacks in perks from office space to newspaper subscriptions to diminished choice in technical personnel. Ironically, new cuts may not affect skyrocketing costs for stars.

"What's interesting is that the star deals get bigger, but they hammer the crew people harder to do more with less," Mr. Ramis says. "[Studio heads] already seem to be very keen on limited excesses ... but there is still a shocking story to be written about movie star perks like jet planes."

Without megahits like "Forrest Gump" and "The Lion King" to jack up the yearly gross, more films with modest successes were needed to make 1995 a record year at the box office. This year, eight films earned between $75 million and $100 million, compared with two last year. Twenty-eight films grossed between $25 million and $50 million compared with 20 last year. "There were no films this year that ranked in the top 20 of all time," adds Exhibitor Relation's Paul Dergarabedian.

Top 10 moneymakers

In order, the top 10 movies for 1995 were: "Batman Forever" ($184 million); "Apollo 13" ($172 million); "Pocahontas" ($141.4 million); "Toy Story" ($115.7 million); "Ace Ventura: When Nature Calls" ($102.9 million); "Casper" ($100.3 million); "Die Hard With a Vengeance" ($100 million); "Crimson Tide" ($91.4 million); "Waterworld" ($88.2 million); and "Seven" ($87 million).

Despite the sobering early news about profit margins for 1995, analysts note that overseas sales, video releases, and possible earnings from cable TV will add to studio coffers.

"It's a good news/bad news story," adds Mr. Gomery. Noting that Hollywood will make another $5 billion with overseas distribution and perhaps $15 billion in video sales from 1995 movies, he says: "What's happening is the business is changing and becoming more volatile. Look for conservatism over a kind of stabilizing period."

"Short term, everything is still OK," adds Sony's Mr. Blake. "But long term, there is lots of concern and evaluation of how and what we do."

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