As budgets soar and DVD levels off, film studios rethink fiscal blueprints

It took 90 years for the film business to cross the unthinkable threshold of the $100 million budget. It’s taken only 10 years to reach the next watershed.

Director Bryan Singer acknowledges that the budget of “Superman Returns” is hovering near $250 million, though Warner Bros. execs are mum.

Other studios are working on mega-pics with budgets north of $150 million: Disney’s back-to-back “Pirates of the Caribbean” sequels, Paramount’s “Mission: Impossible 3,” Sony’s “Spider-Man 3,” Universal’s “King Kong” and two other pics from WB, “Harry Potter and the Order of the Phoenix” and a remake of “The Poseidon Adventure.”

Production budgets are hard to pinpoint (thanks, in part, to currency exchange rates and complex tax rebate deals), and the final costs are fiercely protected by the studios. The result is a “Rashomon” effect, as enormous budgets are spun differently by the studios and the press.

Most of the execs working on the above pics profess their budgets are just $150 million. But some say they’re significantly higher.

All of these films can plausibly be justified in advance as sound investments.

But given the changing state of the ancillary market, does Hollywood’s current fiscal strategy still make sense?

In computing breakeven, number crunchers assume that a tentpole’s profitability won’t come chiefly from theatrical box office: The all-purpose savior for films these days is DVD. But it’s not clear if this economic model is still valid, since the DVD market for films is no longer displaying the explosive growth of the last few years.

Hollywood is beginning to wonder if there will be a breaking point — and the question doesn’t affect only tentpoles. As studios funnel funds into mega-pics, they have less coin for other movies, which frustrates filmmakers and squeezes mid-budget pics out of the pipeline.

That means more cartoons, spinoffs and remakes — with more special effects — and fewer serious-minded studio projects for adult auds.

In theory, a high pricetag for the right movie makes perfect sense.

Say a studio spends $200 million on a film and another $100 million for marketing. Assume the film grosses $400 million at the global box office (with half of that returned to the studio), $100 million net for homevideo and $100 million for worldwide TV.

Allowing for first-dollar gross participants — virtually every $200 million film has at least one, with the director and maybe a star or two — the studio is at breakeven.

The problem comes if the film doesn’t hit those figures. Last year, eight pics grossed more than $400 million worldwide. This year, only four so far have reached that benchmark.

A few franchises justify such colossal budgets: The next “Spider-Man” and “Harry Potter” will tap into a vast pre-sold audience. But for other films, Hollywood may soon realize that $200 million doesn’t make sense.

In the past, the budgets for a few films have crept up to astonishing levels. The pricetag of Fox and Paramount’s “Titanic” (1997) kept rising until it reached the neighborhood of $200 million.

The 1995 “Waterworld” was pegged at $175 million. Disney’s “Dinosaur” (2000) cost a bundle, but a lot of that was for research and development on technology for merging animated characters with live-action backgrounds.

“Titanic” hit a record $1.9 billion globally; “Waterworld” grossed $264 million worldwide; and “Dinosaur” grossed $356 million.

Though star salaries get plenty of media attention, they’re not the real culprit in the rising costs. Many expensive pics, including “Superman” and “Potter,” don’t have a star with anything close to a $20 million payday. And below-the-line workers are earning what they did 20 years ago.

Many in the film biz say that the cause is visual effects, whose results are eye-popping — and budget-popping.

With a $150 million movie, one-third often goes to effects. Director Sam Raimi estimates that f/x accounted for “at least 40% of the budget” on Sony’s “Spider-Man” films. And some effects extravaganzas can take that figure higher.

The solution is careful preparation.

Jim Gianopulos, co-chairman of Fox Films — well known for its cost containment — says, “In theory, effects should be cheaper these days. It’s a growing field with a lot of emerging talent. The problem with overages is a lack of proper planning.”

Most filmmakers have sufficient experience at lighting a scene or editing a sequence. But with effects, Gianopulos says, “The biggest challenge is getting a handle on something you can’t see. If a scene in camera doesn’t turn out the way they’d visualized it, they shoot it again. When you experiment with different choices in the world of effects, things get expensive very quickly.”

Experts in the f/x community argue that filmmakers aren’t making it easy to plan effectively.

But efficiency gains can’t make up for rising demands for more and better effects, driving overall effects budgets to the point where they can approach $100 million.

“There’s just so much that has to be spent on the R&D for the CG technology,” explains Raimi. “It’s like (‘Spider-Man’ visual effects supervisor) John Dykstra says: ‘Never mind raising the bar; you can’t even see where the bar is going to be in 2007 in order to wow people in the theaters.’ “

The number of effects shots in the “Spider-Man” films bears this out: In the first pic, Raimi notes there were 470 effects shots. In the second there were 850. And the estimate for “Spider-Man 3″? More than 1,000. “King Kong” will have more than 1,200.

The market for CG-animated movies, which are essentially 80 straight minutes of special effects, is illustrative. Basic CGI pics, like Vanguard’s “Valiant,” which Disney released in August, can be made for $40 million.

But when a Pixar or DreamWorks wants to push the limit with something auds have never seen before, costs can shoot up over $120 million — and that’s for a movie with relatively low talent costs and no expenses like sets, location shoots or a union crew.

But the appetite among moviegoers for new CGI f/x appears insatiable. When it comes to investing money in new CG technologies, studio don’t necessarily save money. They’re merely meeting the higher standards of an increasingly jaded audience.

Even when a movie fails to connect, its special effects could raise expectations for all the studios. James Cameron’s “The Abyss” grossed just $54 million in U.S. theaters but introduced the industry to morphing, which later became a staple of sci-fi actioners.

“If we are going to compete with the Internet and videogames and everything else that is out there distracting people,” explains the manager of one director, “then we damn well better give ‘em something they’ve never seen before.”

There is a certain irony here, given the rising costs and the worries over revenue streams.

The $200 million budget is becoming more common — but if the next crop of $200 million pics don’t pan out at the box office, such films could become an endangered species.

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