Studios take a beating in the backend

Biz takes different direction, with H'wood getting cautious about rich slices for stars

As studios seek new ways to hedge their bets, one risk-sharing target is especially skeptical: the top-tier talent that has been a studio’s greatest piece of opening-weekend insurance.

Despite published reports in the Los Angeles Times and the Wall Street Journal that studios are steering talent to deals that allow companies to recoup costs before stars and directors cash backend checks, agents and executives say such instances are far from the norm. Reports have the same studios pledging to cap so-called “first-dollar gross” deals on films at 25%. Agents say the studios — led by Sony — have used that figure for several years, and that these guidelines usually last only until some studio head sees no tentpole on his schedule and finds a high-priced package to fill the slot.

“It always comes down to leverage and need,” says one top dealmaker, who did not want to be identified. “Studios are opportunistic, but there will always be that gambler mentality that drove Mark Canton to pay Jim Carrey $20 million for ‘The Cable Guy,’ the move that gave an immediate 25% raise to every top star making $15 million.”

Agents and studio execs say that in some cases, talent has agreed to forego first-dollar gross only with a big tradeoff: Studios agree to give them a greater share of the DVD revenue, an area that has been held as sacrosanct.

With rising production costs and declining box office, studios have reason to question the time-tested practice of paying first-dollar gross star salaries as a tradeoff for getting a marquee name who guarantees a big opening weekend. The star system slumped last year, and Hollywood hasn’t seen an influx of new bankable stars, outside of the comedy genre. And since Julia Roberts went on maternity leave, is there any actress who packs a movie house just because she’s in the film?

“The top guys will always get first-dollar gross, but that’s not going to be the case for the middle list at every agency, those actors who don’t open movies but have fat quotes that don’t reflect the changing realities of the business,” the dealmaker says. “They’re the one who’ll have to agree to more inventive and creative deals, or they’ll be unemployed.”

Last year, too many weekends saw star-driven films eclipsed by pictures with edgier concepts and no gross players. There were more than a few examples where actors made more money than studios on star-driven flops, while hits like “The Notebook,” “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe,” “The 40-Year-Old Virgin” and “Saw II” poured profits to financiers even without highly paid talent. Who realized stars not only don’t provide any guarantees, sometimes they aren’t even necessary?

“There was no sense on anybody’s part that we needed a star for ‘Narnia’ or that ‘The Notebook’ would fail or succeed based on having a star,” says Mark Johnson, producer of both films. “Our mindset was, if a movie star wanted to make an appropriate deal, we’d listen. But it wasn’t worth the kind of money it normally takes to get these people.”

Naturally, talent reps are strident in demanding that their clients’ salaries be preserved, even as they are anxious to show they can still be flexible. That’s easy when an actor like George Clooney wants to make a passion project like “Good Night, and Good Luck” — for which he took no salary as a way to get it made — but trickier when it’s a commercial franchise pic.

But there are a few examples where talent has budged.

In 2003, Peter Jackson signed a precedent-setting $20 million deal against 20% of the gross to do “King Kong” — a payday that stood to realign directors’ salaries in general. But when Jackson and Universal agreed to a longer length and a $207 million budget, the filmmaker shared the added costs with the studio.

And deal flexibility does have a proven track record for big payoffs, either in dollars or accolades. Jerry Bruckheimer and his “Pearl Harbor” director Michael Bay deferred compensation until Disney recouped on that film, but still wound up with huge windfalls. Disney also set up deals to recoup its costs before paying Bruckheimer, director Gore Verbinski and star Johnny Depp on the upcoming “Pirates of the Caribbean” sequels.

But studios would love no better than to do away with or further limit first-dollar gross deals, in which talent starts collecting money when the first returns come in at the box office.

Last summer, incoming Paramount chief Brad Grey withheld a greenlight until “Mission: Impossible 3” star-producer Tom Cruise made concessions. Grey was concerned, after inheriting a deal that gave Cruise 30% of gross, that the superstar stood to personally pocket more than $100 million before Paramount recouped any of its costs on a film budgeted at $150 million going in. Under the new terms, Cruise cut his gross, and the studio gets a chance to make hefty returns as well.

As was reported in the Los Angeles Times, on Columbia’s upcoming ensemble comedy “Holiday,” directed by Nancy Meyers, talent agreed to a “cash break-even” deal, in which talent starts collecting their gross points only after the studio recoups its costs.

But “Holiday” was an exceptional case. Meyers wrote the picture for Hugh Grant, but when he declined to star, and attempts to find a co-financing studio partner proved unsuccessful, the studio would not greenlight the romantic comedy starring Cameron Diaz and Kate Winslet. Only when the budget was dropped by $100 million to $72 million, and the talent agreed to take the cash-break-even terms, did it go into production.

There are many reasons these deals are still not commonplace. One is concern that, by paying out when it “recoups its costs,” studios are simply reverting to the much-maligned practice of awarding net profits, which became an industry joke with the byzantine nature of studio bookkeeping.

Talent reps nevertheless are watching these cash break-even deals closely, if only because they may, in the end, offer more lucrative terms.

As a tradeoff to taking such a deal, agents say studios have shown more flexibility in giving up a larger portion of DVD revenue. They have traditionally put just 20% of homevid sales into the pot available for talent with gross points. According to agents, they’re now willing to contribute well beyond that, even up to 100% in certain cases.

And as a safeguard against studio accounting, some reps say they are convinced that deal points can be more strictly defined to show exactly when a project breaks even, such as when returns cover production and marketing costs.

Says manager Erwin Stoff: “If the role is extraordinary and an actor can see that a studio has made a substantial financial commitment to a risky, exciting project, talent will generally be agreeable to going at risk with them.”

“Holiday” accumulated a high-quote cast in Diaz, Winslet, Jude Law and Jack Black, thesps drawn more by the strong script than a desire to cash in. And Disney has poured so much cash into its back-to-back “Pirates” sequels — $400 million, by some estimates — that the studio had reason to seek to recoup before Bruckheimer and Depp cash humungous gross checks.

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