NEW YORK — Conventional wisdom says the Hollywood studios will be hard-nosed in union negotiations in 2001 because their income is down due to disappointing box office this year. But B.O. grosses are not exactly the whole picture when it comes to studio profits.
Though theatrical box office is the engine that drives ancillary income, the backend for movies has become a bonanza:
- In sales to domestic broadcast and cable TV, 21 of the summer’s movies will bring $385 million to the studios — who will not have to spend a penny.
- Overseas, Hollywood is hitting paydirt from burgeoning pay TV outlets: Successful movies as diverse as “You’ve Got Mail,” “Mrs. Doubtfire” and “The Rock” rake in $30 million each from foreign TV outlets.
- Even more spectacularly, the majors will haul in an estimated $8.8 billion from domestic homevideo this year — with minimal outlay for marketing and promo. Foreign should bring in roughly half that sum.
It may have seemed like an impossible mission, but the major studios have triumphed like gladiators.
While showbiz analysts were hanging crepe over the disappointing grosses for the movies released this summer, the studios pocketed record sums in license fees from four broadcast networks and six basic-cable webs.
calculates that the studios raked in $385 million for the 21 movies that scored at least $50 million in the theaters between April 21 (when Universal released “U-571″) and Labor Day.
The studios managed to extract more money, on average, than ever from the U.S. networks for two key reasons:
First, successful movies, marketed as event programming, attract masses of viewers for broadcasters during the crucial sweeps periods when Nielsen publishes the ratings of all the network affiliates.
Second, cablers’ aggressiveness has transformed every sale of a hit movie into a fevered auction. By writing fatter checks, cable networks keep coming away with more big movies each year, even though the transactions usually involve shared windows between broadcast and cable.
For the first summer ever, a cable operation — Turner Broadcasting’s combined TBS and TNT — has bought more hit movies than any of the Big Four broadcast nets.
In the mid-’90s, networks paid, as a rule of thumb, about 13% of domestic box office for a high-grossing movie. But this year, hit movies like “Mission: Impossible 2″ and “The Perfect Storm” have driven that percentage to 16%-17%.
“The lull of five or six years ago has turned into a massive run-up of movie prices forked over by the networks,” said Dave Davis, a partner in investment bankers Houlihan, Lokey. “Broadcast and cable revenues have created a real boon for the major studios over the last three years or so.”
Robert Bucksbaum, prexy of RealSource, which analyzes box office returns, said the networks are elbowing one another with particular ferocity this year to pony up the biggest bucks for the most popular movies.
“That’s because series like ‘Survivor’ and ‘Who Wants to Be a Millionaire’ have reinvigorated the primetime ratings and funneled more advertising revenues into the networks’ coffers,” he said.
Meanwhile, blockbuster American movies are increasingly hauling in the foreign dough, though Hollywood studios are notoriously tight-lipped about their revs from TV outlets abroad.
Sales of movies to mainstream terrestrial stations like Britain’s ITV, Germany’s RTL or France’s TF1 probably have peaked, but the pay TV biz is growing by leaps and bounds abroad while video-on-demand is just getting off the ground.
Movies that gross $100 million at the domestic box office routinely reap upwards of $30 million in toto
from over-the-air TV stations and pay outlets abroad.
Franchise pics and megahits — “Jurassic Park,” “Titanic,” the James Bond pics, “Star Wars” and “Batman” — can pull in even higher sums.
Several German stations, for example, got into a bidding war for a Steven Spielberg package topped by “Jurassic Park” a few years ago, while Warner Bros.’ “The Matrix” went for a stunning $8 million in Japan some months ago.
Even old movies are getting a new lease on life through the creation of round-the-clock movie webs abroad: All the majors, including MGM, are in this business; everything from Hitchcock classics to Judy Garland musicals can be seen by subscribers from Brussels to Bangalore.
Figures for specific films are hard to ferret out because the Hollywood majors traditionally sell their movies in packages or as the drivers of huge output deals that involve TV series and library material as well as firstrun movies.
But that is changing. Broadcasters in top markets like the U.K., Germany and France are more likely to cherry-pick the few U.S. films they really want — and eschew the rest. Pay TV players are increasingly becoming the high-paying outlets for features.
Moreover, the deals that the Hollywood majors have inked with these pay TV players — Canal Plus, BSkyB and Kirch’s PremiereWorld are the most prominent — typically have price escalators for B.O. grosses over and above a set base and for subscriber numbers.
As for homevideo, cassettes continue to be an extraordinary stream of ancillary revenue for movie studios while DVDs are just beginning to catch on big-time.
Revenues from these ancillaries are like found money. Even when growth is stagnant, as in recent years, profits remain high.
With no production costs to worry about and most of the marketing and promotion dollars spent when the movie is released in theaters just a few months earlier, a much larger percentage of every dollar spent on videos goes directly to the bottom line of movie suppliers. That’s great news for suppliers since many titles generate nearly as much consumer spending on video as they did at theaters.
“The Sixth Sense,” for example, has spawned more than $150 million in video sales and rentals.
Paramount and Fox generated far more profits from the more than $1 billion in worldwide consumer spending on videos of “Titanic” than they netted from the $1.6 billion in box office receipts.
Videos fill vaults
In the U.S. alone, videos generate about $10 billion more in domestic consumer spending each year than theatrical releases. Consumers spent more than $17 billion on the purchase and rental of videos last year, according to Adams Media Research and VSDA VidTrac.
While studio revenue from the sale of videos has hung steady at about $7 billion the last couple of years, the growing popularity of the DVD format is already bringing the studios considerable additional revenues.
Although there have been swings up and down in spending on video in individual overseas markets, overall spending internationally has generally followed the domestic trend, remaining relatively flat.
Many countries have only recently introduced DVD, so it’s still hard to calculate its impact abroad.
(Elizabeth Guider and Scott Hettrick in Los Angeles contributed to this report.)