Ancillary benefits hit home

FOX HAD TWO OF THE summer’s biggest movies — “Star Wars: Episode II — Attack of the Clones” and “Minority Report”– but will only reap video profits from one of them: DreamWorks has domestic vid rights on “Report,” while Fox only has those rights for “Clones.”

The situation represents just one of the many changing economic dynamics of the film industry relative to the homevideo market.

DVD/videocassette revenue represents 50% of total returns on an average movie; TV represents 25%. This means that home screen entertainment has become a factor in determining what films get made.

THE HEAD OF Pandemonium Films, Bill Mechanic, says without video revenue, “the cost increases in film production and marketing would not have been absorbable.”

That’s a good thing and a bad thing, according to the exec, who oversaw international theatrical and global homevideo for Disney in the late 1980s and early 1990s. “You could say that the revenue growth provided by video has allowed the industry to stupidly keep increasing the costs instead of pocketing the profit.”

As for divvying up video rights to a major theatrical release, Mechanic says it has become a necessary evil that may not be in the best long-term interests of the industry.

MECHANIC, OF COURSE, has a unique perspective on the issue, having been the head of Fox Studios when it was forced to bring in Paramount as a partner to save “Titanic” from sinking in cost overruns. For just a fraction of the total cost of the film, Par enjoyed a record-setting theatrical run and the biggest sales ever for a live-action video.

“Although I am taking advantage of the trend in the marketplace with Pandemonium, the rise of partnering — risk-sharing — isn’t the healthiest thing in the film business,” Mechanic says. “I was told to sell ‘Titanic,’ and perhaps because of the huge cost overruns we experienced, that might have been a prudent thing to do. But in the end, the picture was so successful; it cost the studio hundreds of millions of dollars in profit.”

NONETHELESS, STUDIOS have taken to adopting this paradigm of minimizing exposure and video profits for financial reasons as well as creative opportunities. Fox has been particularly active in partnering with DreamWorks.

“The predilection of almost all the studios today is to play for the downside,” Mechanic says. “None of the companies like the impact of a failed movie on their bottom line.”

He notes that “Minority Report” and “Cast Away” were split with DreamWorks for creative reasons, not economic, which he says is “evidenced by the so-called trades to Fox of two of their films, ‘What Lies Beneath’ and ‘Road to Perdition,’ as conditions to the split.”

Mechanic acknowledges that failure is endemic to the making of movies and subscribes to the industry truism that your hits pay for your losses: “I lost money for Fox on ‘Titan A.E.’ but wiped out all those losses and created a phenomenal profit in animation overall with ‘Ice Age.'”

HE SAYS PANDEMONIUM’S business plan takes the “portfolio” approach to the business as its foundation. That portfolio includes the potential audience for every film in ancillary markets.

“It’s impossible to ignore how a movie will work in each market since almost no movies make back their money in a single market, as was the case prevideo and pay TV with theatrical,” he says.

“If a movie might have trouble traveling overseas, if it doesn’t have the characteristics that will make it play better in video or be sellable to television, then one of two things have to happen: Scale down the budget to reflect its potential, or just don’t make it.”

Mechanic’s five favorite movies on DVD:

1. “Terminator 2”

2. “The Matrix”

3. “The Godfather (I & II)”

4. “Bridge on the River Kwai”

5. “The Wild Bunch”

(Mechanic talks more about global day-and-date theatrical releases, D-VHS and high-def DVD, video-on-demand, marketing, and market share in Variety sister publication Video Business on Monday.)

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