Cablers, nets offer discounts, keep it in the family for movies
Columbia Pictures’ “A Knight’s Tale” — whose 14th century English landscape rocked with the music of David Bowie and Queen — bowled over the movie buyers at NBC and Turner’s TBS/TNT early in May, galvanizing them to plunk down a king’s ransom of $10 million to share the TV rights.
Since the frenzied “Knight’s Tale” negotiations, however, the economic ground has collapsed under the buildings along Madison Avenue.
Three-and-a-half months later, there’s no way Columbia or any other movie company would be able to duplicate such a humongous license fee from TV — the $10 million representing about 18% of the domestic gross of “Knight’s Tale” — for a theatrical movie.
In the scramble to get advertisers to pry open their checkbooks during the upfront selling season, broadcast and cable networks have typically had to offer fire-sale discounts on ad spots that, in a few cases, have hit 30%.
Diminished ad revenues have given the networks far less money to play around with in their movie buys than at any other time in the last decade. The result: Instead of 18%, even hit movies are struggling to generate 15% of domestic box office in sales to broadcast and cable nets.
The dismal advertising upfront has forced the movie companies into complicated, creative dealmaking.
MGM, for example, will pile up slightly more than 15% of domestic for “Legally Blonde,” but it took three separate deals in the five-year network window for the studio to nail down that amount.
The way MGM has structured the five-year deal for “Blonde,” the Fox net gets one year exclusively to play the first two runs, beginning in May 2004.
Then Turner Broadcasting’s TBS and TNT jointly pick up the movie for some shared multiple-run bursts in a one-year exclusive window. “Blonde” jiggles back to Fox for one run over six months, after which TBS and TNT chalk up some final bursts in their second one-year window.
With 18 months remaining in the five-year license term, still another cabler, Comedy Central, gets a chance to engineer multiple runs of “Blonde,” with Fox taking one more run before the movie shifts to Showtime for its second pay window.
Byzantine deals like the one for “Blonde” may start becoming the norm if the advertising economy stays soft for the next few years.
“The networks have tempered their enthusiasm for movies somewhat — and the amount of money they’re willing to pay,” says Jim Packer, exec VP of domestic TV sales for MGM, the official who devised the deal for “Blonde.”
MGM, like Col and — to a lesser extent — Universal, has to scramble to get its movies sold because it’s not part of a vertically integrated conglom that includes a broadcast or cable network that runs movies. (The qualifier for U is that it has a minority ownership stake in Barry Diller’s USA Networks.)
One trend stimulated by the enfeebled economy is a retreat by such networks as ABC, Fox, TBS, TNT, FX and Disney Channel into reliance on movies distributed by their major-studio siblings. The parties negotiate competitive prices for the movies — 15% of domestic is the benchmark in the current climate — to keep profit participants in the films from speed-dialing their litigators to file sweetheart-deal lawsuits.
Just in the last couple of months, the following pacts have resonated like hymns to the virtues of vertical integration:
- Fox and FX locked up the shared window to 20th Century Fox’s “Planet of the Apes,” “Dr. Dolittle 2” and “Kiss of the Dragon.” The movies will shift between the two nets throughout the course of the five-year network window.
- ABC and the Disney Channel agreed to share the broadcast/cable rights to Walt Disney Pictures’ “The Princess Diaries.” The pic is tailor-made for the Disney Channel; ABC, which gets the first play in May 2004, will schedule it in the Sunday-night “Wonderful World of Disney” showcase.
- TBS and TNT will get the first plays of “Rush Hour 2,” from New Line, a sister company. The “Rush Hour” contract is part of an extensive output deal that could funnel as many as 14 New Line titles to TBS/TNT over the next year and a half, including the first part of the “Lord of the Rings” trilogy and “Austin Powers 3.”
New Line also has the right to sell these movies to a broadcast network, which would share the window with TBS and TNT, helping them to shoulder the cost of a hit movie. “Rush Hour 2” could fetch a license fee of $25 million or higher, depending on its final gross in U.S. theaters.
Other recent deals that fit the vertical-integration model are ABC’s purchase of “Spy Kids 2,” which is in pre-production, and of “Scary Movie 2” — both from Miramax’s Dimension Pictures, a division of Disney — and the Fox/FX claim on “America’s Sweethearts,” which is part of an output deal between Fox and Revolution Studios.
One deal that goes against this trend is Paramount’s sale, as revealed two months ago, of the network-window rights to a package of movies highlighted by “Lara Croft: Tomb Raider,” “Save the Last Dance” and “Along Came a Spider” to rival AOL Time Warner’s TBS and TNT.
The industry expectation is that Par’s CBS sibling will pick up the broadcast rights to “Raider,” “Dance” and “Spider” in a shared window with TBS/TNT. But CBS is buying very few theatricals these days, having canceled its Wednesday night movie timeslot, so there’s no guarantee that Paramount will be able to find a broadcast buyer at the price it is seeking.
Broadcast networks tend to be even more skittish than cablers about buying theatricals. Cable nets have a cushion against the slump in ad dollars: They pocket about a third of their revenues, on average, from the monthly carriage fees funneled into their coffers by cable operators. Broadcasters don’t have that insulation; advertising is their sole source of revenue.
Broadcast’s economic disadvantage may be one reason why ABC is hoping that Disney finds a cable buyer for the last two years of ABC’s five-year “Pearl Harbor” license term. But Disney’s $10 million asking price is probably going to have to come down somewhat to lure a cable buyer to take the plunge.
Nevertheless, cable networks can receive steady jolts of Nielsen adrenaline from a well-promoted theatrical, which is why they’re still actively scouring Hollywood for fresh movies despite the falloff in ad dollars.
TBS generated a 5.9 rating in cable homes with the first play of “Rush Hour” on July 1, making it the highest-rated individual program on all of basic cable for the entire quarter. And USA Network scored a higher audience total — 4.2 million households — for the debut of Adam Sandler starrer “The Waterboy,” on June 12, than for any other theatrical in the web’s history.
“The networks still have an appetite for good movies,” says MGM’s Packer. The job of the studios, he adds, “is to create the kind of windows that make the networks love it when they buy our movies.”