Nurturing the niche: Fox Searchlight

A year ago, rivals in the specialty-film business said they wanted to emulate the Fox Searchlight model. The 10 films on its 2004 slategrossed a highly profitable $216 million, and the division captured buzz and awards with stalwarts including “Napoleon Dynamite” and “Sideways.”

And then Fox Searchlight practically fell off the map.

The ’05 box office plunged to $65 million, most of which was generated by two projects that started out at parent company Fox, “The Ringer” and “Roll Bounce.”

How much of last year was due to the cyclical nature of the film biz? “All of it — we hope,” says Searchlight president Peter Rice.

The company is planning a major comeback this year, with a record 15 releases — its previous record was 10 — a reconfigured management structure with Rice overseeing a separate unnamed youth division that is aimed at creating films and tapping into new media platforms.

It’s also increasing the number of in-house productions, with eight this year, including Richard Linklater’s adaptation of “Fast Food Nation,” Kenneth Longergan’s “Margaret” (starring Anna Paquin and Matt Damon) and Danny Boyle’s untitled sci-fi pic.

Though it paid an eye-popping $10.5 million for “Little Miss Sunshine” at Sundance, the company realizes that the proliferation of niche divisions is driving up prices, making acquisitions an ever-riskier business. The beauty pageant pic is slated for a release later this year, as is high-profile Toronto pick-up “Thank You For Smoking.”

In all, Searchlight is expecting its busiest year yet. “In the second half of last year we wish we’d had had more movies,” Rice says. “Things dropped out of the slate, and a couple films underperformed. There is an ebb and flow in acquisitions and production.”

The major film that “dropped out of the slate” was “Eucalyptus,” the ill-fated Oz pic starring Russell Crowe and Nicole Kidman. Searchlight was forced to pull the plug days before principal photography commenced, thanks to script battles between Crowe and director Jocelyn Moorhouse.

Rice had spent much of his time in Australia dealing with the problematic picture, diverting his focus from Century City. The exec declined to comment on the episode.

This year, Rice will begin to split his time running a new youth division that enjoys the strong support of News Corp. chief Rupert Murdoch.

As part of the transition, Nancy Utley and Stephen Gilula have been upped to chief operating officers after serving as prexies for marketing and distrib, respectively, and Claudia Lewis was promoted to run production.

Since Rice took over in 2000, he, Utley and Gilula have run Searchlight as a troika — before any greenlights are given, all three have to agree. Until the recent promotions, all three had prexy titles, even if Rice was more equal than others.

Part of this year’s test will be working out a dynamic as Rice splits his time. “We’ve always shared decisions,” Rice says. “The company is going to run exactly as it has to date.” But he adds, “There are certain things that Nancy and Steve will be handling day-to-day.”

Although Rice would not elaborate on plans for the new youth division, he says it will be treated as a “blank slate” upon which to experiment with new marketing ideas in multiple media platforms, including the Internet and mobile-based technology.

The division will also work synergistically with MySpace.com, the social networking website that News Corp purchased last year. The fact that MySpace.com attracts more than 50 million unique monthly viewers will help Rice not only target young adults, but online advertisers.

Even if the new division runs separately from Searchlight, Rice says there will be some cross-pollination when it comes to marketing.

Part of Searchlight’s breakthrough strategy is to be more innovate in allocating marketing dollars by spending more on more narrowly targeted new media and Internet campaigns. But with concerns of about rising marketing costs, Utley says she is working to make sure that Searchlight isn’t simply spending money on new media on top of its traditional media spend. “It’s challenging not to make (the new marketing opportunities) additive.”

Marketing strategies are made on a pic-by-pic basis, but she predicts that Searchlight will likely cut ad buys in traditional media like newspapers and TV.

The label is also taking on strategic partners. On the upcoming “Water,” a pic written and directed by Deepa Metha about a young Hindu girl forced to live in a home for widows, Searchlight has teamed with human rights advocate org Amnesty Intl.

In the case of last December’s “The Ringer,” Special Olympics CEO Tim Shriver was an exec producer on the pic and the org promoted the pic to its members and supporters.

And the company also turned to its new corporate sibling MySpace.com to pitch the pic, creating profiles for the movie and the Johnny Knoxville character on the site.

MTV, which has a close relationship with the pic’s star Johnny Knoxville, also was a partner, supporting the pic on its cable nets. Rice says that arrangement was a “business” deal but declined to reveal terms.

It was the second time MTV and Searchlight had teamed up. Searchlight beat out the Viacom unit for “Napoleon Dynamite” at Sundance in 2004, but it later split the film with MTV Films and in return received ample marketing support on the MTV cable nets.

Agents say Searchlight is one of the most aggressive marketers in the biz. “They spend real money,” says one. “They really get behind your film.”

Searchlight toppers share a good relationship with Fox chairs Tom Rothman (who started the specialty label) and Jim Gianopulos.

The company has an unusual relationship with the parent company, since it shares product with Fox, releasing pics like “The Ringer” and “Roll Bounce” when execs conclude its marketing apparatus may be better suited to the title.

Though Searchlight has always produced pics — its first release was “The Brothers McMullen” and its first break-out hit came with another production “The Full Monty” — it is working to cope with the increasingly competitive specialty market with an expanded production slate.

When Searchlight launched in 1995, specialty film was still a new business for the majors. Today, the studios are home to no fewer than six specialty banners, such as Paramount Classics and Warner Independent Pictures, which compete with indies like The Weinstein Co. and Lionsgate.

It still has seven acquisitions for this year, but execs say they no longer rely on fests to fill their pipelines.

Searchlight was aggressive last fall at the Toronto Film Festival, ponying up $8 million each for Bart Freundlich’s romantic comedy “Trust the Man” and Jason Reitman’s satiric “Thank You For Smoking.” (The label is hardly alone in making big fest buys; Paramount Classics paid $9 million for “Hustle & Flow” at last year’s Sundance.)

“It’s supply and demand,” says Utley.

But as Gilula adds, the increased competition at fests is also being fueled by the past commercial success of specialty titles. “The market moved even before (this year’s) Sundance. There are more of us trying to have the next ‘Sideways’ or ‘Crash,’ but if you look at the numbers, the vast majority don’t achieve that kind of success. The challenge is breaking though and being distinctive.”

Then there are pics like “Nightwatch,” a pic that has shattered box office records in Russia, outgrossing Hollywood blockbusters like “Lord of the Rings” and “The Matrix” pics in that territory.

Fox is producing the pic through its international arm. But since its likely to have more specialized interest in the U.S., the pic is going out via Searchlight.

But aside from Alexander Payne, who last year set up a first-look deal, and the U.K.’s DNA Films, which has a $50 million co-venture with Searchlight (the companies are partnering on “The History Boys,” “The Last King of Scotland” and the Danny Boyle pic), Rice says he’s not looking for more production deals.

“We’re a low overhead company,” he says. “We keep it lean so we can take more risks on films.”

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