Torrid B.O. temps could bring nasty fever

With more than $3.1 billion generated in the domestic marketplace in the first six months of 1998, there’s reason for celebration in distribution and exhibition circles.

The figure is 8% better than any other year for the span, while summer B.O. so far is 11% ahead of 1997. Since this is a backloaded season — with more than the usual quota of big pics skedded for post-June release — it looks like a summer to shatter last year’s $2.2 billion B.O. record for the season.

There’s no question that the B.O. temperature is torrid. But that also can presage a nasty fever, and the stats for the half year have frankly confounded the people trying to diagnose the industry’s health.

- Costs are skyrocketing. The five top-grossing films in the first six months of 1997 cost $350 million collectively to produce compared to the $620 million of this year’s top five — a jump of more than 75%. Even with “Titanic” factored out, the budgets of this year’s other four are still a sizable jump.

- While box office and attendance were significantly up, there were more wide releases, meaning the average gross of movies has slipped to the worst return of the decade.

- Potential franchises failed to take off: “Godzilla” and “The X-Files” have had sizzle but little commercial substance. “Godzilla,” in particular, reinforced the troubling wake-up call that began last year with “Batman & Robin”: A once-magical $100 mil gross is sometimes not enough.

- More “event” pictures are being released, i.e., pics with hefty production and P&A budgets. Yet this year’s initial batch has failed to produce a single film destined to gross $200 million. As the season progresses, prospects decline for any film to reach that vaunted B.O. level.

But the outlook is not completely dire.

With the summer yet to unveil “Armageddon,” “Lethal Weapon 4,” “The Mask of Zorro,” “Saving Private Ryan,” “Small Soldiers” and “Snake Eyes,” there are some bright prospects ahead.

“A year ago, no one would have predicted a record first quarter for 1998,” said Randy Hester, Cinemark USA circuit VP of marketing and communications.

“There was no ‘Star Wars’ or ‘Liar Liar’ in the lineup and no one could have anticipated the success of ‘Titanic’ or the strength of ‘As Good as It Gets’ or ‘Good Will Hunting.’ We tend to be short-sighted and react to a small setback as if it were a catastrophe.”

July and August will see the usual number of big-budget movies that launch during the period double. Sheer volume is apt to create a surge in moviegoing, and if one or two click, it’s certain to translate into record attendance.

The July 4 barrier

However, there’s never been a $200 million domestic grosser among summer pics released after the July 4th weekend. The explanation generally given is that late-season openers have fewer prime days to draw in an audience to push box office to blockbuster levels.

Warner Bros. distribution president Barry Reardon is not convinced that’s the only reason.

“Don’t forget there’s a lot of positioning going on in June and that the pictures that work play through,” he said. “So, there’s actually more competition to get people to see your movie as the summer progresses.”

And summer ’98 will set a new high for competition.

In the seminal 1989 season — which featured the original “Batman” and high-profile sequels to “Lethal Weapon,” “Ghostbusters,” “Star Trek,” “Indiana Jones” and James Bond — there were eight event pictures spread evenly through summer’s 17-week span. In 1995, the high-ticket movies grew to 12 titles, with only three opening post-July 4th. This year, one can cite 15 event movies, six debuting during the second half.

Event movies typically have budgets of at least $80 million and ad campaigns that can add $30 million to a studio’s risk. They aren’t a guarantee against failure, as “Speed 2″ proved last year.

Unpredictability factor

The highs and lows in filmgoing for the first half of the year share one thing in common: unpredictability. A three-hour period romance, in which everyone knew the ending, wasn’t supposed to flaunt all conventional thinking to become the biggest box office hit of all time.

Conversely, a monster film shamelessly designed to be a blockbuster by dint of talent, promotion and studio conviction, is apt to disappoint when it takes in roughly 60% of a hoped-for $250 million domestic box office.

The sense of B.O. anxiety is further heightened by mergers (where changes in the corporate culture are still to be determined) and success stories that fly in the face of logic.

Paramount, the industry market-share leader with roughly one quarter of the domestic theatrical gross, is riding high on “Titanic” and “Deep Impact,” films it released but did not develop.

The company is now rarely involved in projects to which it retains foreign rights — which goes counter to industry wisdom that the international marketplace represents the new revenue frontier.

Par’s the B.O. star

Yet, Par has racked up almost double the box office of its closest rival, Sony, making it seemingly impossible for another studio to catch up and overtake Par for the 1998 market-share crown.

Limiting its upfront stake has enabled Paramount to release more movies. Again, it’s something that runs counter to the prevailing industry trend.

Most studios are scaling back (or professing to do so). In fact, in the first six months of 1998, national debuts increased from 65 to 79, a gain of 21.5%, from the prior year.

Exhibitors prefer a crowded field because it fuels megas, which can easily consume three or four new pictures a week. The behemoth structures have the flexibility to capitalize on hit pics and spin off losers with less injury to their relations with major suppliers.

“I don’t really see any significant drop in the number of releases despite what anyone says,” observes Phil Smitley, assistant VP and comptroller of Carmike Cinemas. “With so many ways to exploit movies, the incentive is to produce more pictures.”

However, more hasn’t always been better for the key suppliers. Though box office climbs, it hasn’t proportionally increased the audience.

In the past year, the average box office gross for a wide release has shrunk by 11%, slipping from $33 million in 1997 to a present norm of $29.4 million.

And that’s occurring as the average cost to produce and market a studio film has risen to $75.6 million by the Motion Picture Assn. of America — a boost of 26% from last year and the biggest annual increase in the organization’s two-decade history of tracking.

In the first half of 1997, the top-five grossers were “Liar Liar,” “Star Wars,” “The Lost World,” “Jerry Maguire” and “Scream.” This year’s handful consists of “Titanic,” “As Good as It Gets,” “Godzilla,” “Good Will Hunting” and “Deep Impact.”

Though the latter group boosted grosses by 28%, their production budgets were cumulatively 77% greater. The winnowing profit margins of recent years have caused distribs to devise new rental formulas, but rarely can terms improve by more than 5%.

And though domestic B.O. performance has become an increasingly smaller part of a film’s overall revenue, the irony is that it remains the fuse that ignites and determines such key ancillaries as paycable fees and videocassette sales.

“The basic economics of exhibition haven’t changed much,” Hester says. “You sell movies and you sell food and you need the pictures that will induce the public to do both.”

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