Sequels click, but small films are driving profits

A big market share is great: It gives studio execs bragging rights and, in many cases, determines their bonuses. But market share is far from the whole picture.

As summer 2007 winds to a close, the big winners are the studios that avoided the mega-budget pics and instead focused on a more diverse, moderately budgeted slate.

“In Hollywood, it’s not about gross, it’s about profit — a movie doing its negative cost many times over at the box office,” says Fox Filmed Entertainment co-chairman Tom Rothman.

He should know. When the final tallies are in, Fox — under Rothman and co-topper Jim Gianopulos — is clocking in at No. 5 in terms of summer domestic box office receipts to date. By any other reasonable measure, Fox is one of the big winners of summer, with all three of its pics (“The Simpsons Movie,” “Live Free or Die Hard” and “Fantastic Four 2″) returning high multiples of their costs.

“Simpsons” is pegged at $75 million, and the other two cost less than $120 million. The three defy popular wisdom that a studio needs a megabudget tentpole for the summer season.

Paramount DreamWorks has both share and profitability. It’s No. 1 in market share for the summer (though, without product from DreamWorks and DreamWorks Animation, Par would be No. 9 for the summer). “Transformers” and “Shrek the Third” account for the majority of Par’s $688.8 million summer haul.

Early in the summer, it looked like Universal would take the crown for profitability, due to “Knocked Up.” But “Evan Almighty,” the priciest comedy ever made, at $175 million, was a setback. Still “The Bourne Ultimatum” is proving such a hit that U will end up with plenty to crow about.

With the summer turning out to be the best on record and with no tentpole flops, every major has reason to glow. How much is the question. Six majors have double-digit market shares, but their rankings don’t always reflect their profitability.

Last summer, $200 million-plus pics became the new Hollywood benchmark. All of them grossed handsomely. But tentpoles come with high costs for production, marketing and distribution, and often hefty backend payouts.

Studios over-reliant on franchise properties that are in their third generation or beyond could find themselves exposed. Likewise for studios that rely on labels or outside production companies to supply their slates.

Sony has enjoyed huge grosses for “Spider-Man 3″: The pic has grossed $336.4 million Stateside for a whopping worldwide cume of $890 million. Sony says it cost $258 million to produce — the first time a studio has admitted to a pricetag so high. And since most sequels cost more than their predecessors, it’s hard to say what will happen to “Spidey” 4 and 5.

But Sony Pictures co-chair Amy Pascal and Sony Pictures chair Michael Lynton say they will have a profitable summer, pointing out that “3” outperformed previous installments.

The studio doesn’t see itself walking away from mega-budget fare any time soon. Indeed the studio is working on several future “Spider-Man” installments.

“Yes,” she says of all the studios, “we all spend too much.” But even though “Spider-Man’s” profit margins may not be the summer’s highest, the film will provide plenty of cash for the studio.

Though “Spider-Man” was the biggest domestic title of the year, Sony ranks No. 6 in market share, reflecting the fact the studio had no other breakout summer films so far. Its toon “Surf’s Up,” which cost as much as $100 million to produce, grossed only $58.4 million domestically.

Sony could add to its coffers with the raunchy laffer “Superbad,” produced by comedy maestro Judd Apatow, which bowed over the Aug. 17 weekend. Sony is looking to the low-budget pic, which cost just $18 million to produce, to shore up its margins.

While “Spidey” took the domestic B.O. prize, Disney’s “Pirates of the Caribbean: At World’s End” is the highest-grossing pic of the year worldwide, with a cume of $954.7 million ($307 million of that earned Stateside). Mouse House is No. 2 in summer market share.

As with “Spider-Man,” it’s impossible to know exactly what sort of profit the Mouse House will reap, after talent payouts and a pricey production budget.

Walt Disney Filmed Entertainment prexy Mark Zoradi reminds that, despite rumors of huge backend payouts, “Pirates 3″ will turn a profit.

“It absolutely will make money. It’s going to gross almost $1 billion and then, of course, the DVD will come out in December, and that will be incredibly successful,” Zoradi says. “What more could you ask than to have the biggest movie of the year?”

Disney-Pixar’s “Ratatouille” has been a strong performer, both critically and at the box office. Zoradi says the toon, which has grossed $316.6 million worldwide, is on track to make more than the last Pixar release, “Cars,” which grossed $462 million worldwide.

Disney’s third summer release, “Underdog,” was made for under $25 million. Based on the 1960s cartoon series, Zoradi says the film is doing just fine.

“You are going to see this consistently from us … three to four movies during the summer, one at Thanksgiving, one at Christmas, one or two in the spring and one or two in the fall,” Zoradi says.

After a tough 2006, Warner Bros. is intent on balancing out bigger pics with smaller films. Reflecting this revamped strategy is the summer slate. “Harry Potter and the Order of the Phoenix” has raked in more than $824 million to date worldwide and WB also had the starry “Ocean’s Thirteen.” And then there were several modestly budgeted female pics.

“It gives us the freedom to make different kinds of pictures. Obviously, we are a big studio. We are really trying to make movies for all segments of the market,” says Warners prexy of production Jeff Robinov.

Laffer “License to Wed,” which cost less than $40 million to make, has grossed more than $43 million domestically. Romantic dramedy “No Reservations,” with a production budget of $25 million, has grossed $33 million so far in its relatively early run. “Nancy Drew,” with a production budget of $22 million, has grossed $25 million domestically.

Robinov stresses that “Reservations,” “License” and “Nancy Drew” have yet to really unspool overseas.

On the downside was Warners’ long-on-the-shelf gambling drama “Lucky You.” In terms of market share, WB is closely followed by Universal, which is under a new regime trying to instill a new ethos.

U is placing a heavy focus on comedies. Its “Knocked Up” grossed nearly $150 million to date domestically after costing $40 million to produce, while Adam Sandler laffer “I Now Pronounce You Chuck and Larry” has grossed more than $105 million domestically.

Tension was running high on the U lot as the studio got ready to bow “Knocked Up,” directed by Apatow, on June 1. U had a bummer summer last year, and needed to redeem itself.

“We had a big challenge,” says Universal chair Mark Shmuger, who runs the studio with co-chair David Linde. ” ‘Knocked Up’ was the first movie to brave the marketplace after ‘Spider 3,’ ‘Pirates 3′ and ‘Shrek the Third.’ You have to be wary of these giant juggernauts and deftly steer around them.

“Ultimately, the marketplace proved that you could come in after the mad rush and find a great audience,” Shmuger adds.

Shmuger doesn’t try to gloss over the sting of “Evan Almighty,” a follow-up to the box office hit “Bruce Almighty.” “Evan,” which the studio says cost $155 million to produce, has grossed $97.9 million to date domestically.

“Of our summer titles, it is the one that hasn’t gotten to the absolute number we’d like, but is still doing decent business. It will be hard to get a return on that movie, but on balance, we couldn’t be happier with our summer,” Shmuger says.

“Bourne” is a big part of that success, having opened bigger than the first two films. Pic cost under $130 million to produce, and has already grossed $145 million worldwide in its first two weeks of release.

Also still going strong is “The Simpsons Movie,” which is close to crossing the $400 million mark worldwide, while
“Live Free or Die Hard” is north of $336 million globally. “Silver Surfer” has grossed more than $255 million worldwide.

In retrospect, the Fox lineup seems like a slam dunk, but in fact it was the opposite: A bigscreen version of an 18-year-old TV series, the resurrection of the long-dormant “Die Hard” franchise and a sequel to a pic that even some fervent comicbook geeks dissed, “Fantastic Four.”

And the studio was without a mega-tentpole like its former “X-Men” hits.

“Obviously, it was a lot harder than it looked,” says Rothman. “But it’s been a very profitable and successful summer for us. We have diversity to our slate, and we serve multiple audiences and we do try to be efficient.”

Efficient is one word for it. Among agents, talent and producers, Fox is known as being the most hard-nosed of studios when it comes to money. Rothman and Gianopulos agree their mantra is fiscal discipline, but say the studio spends on what matters most: scripts.

“This has been a summer of extremes,” says Paramount prexy of worldwide and distribution Rob Moore. “The rewards of success have been bigger, and the movies that didn’t work, really didn’t work.”

Certainly Par’s “Stardust” was a major disappointment, but otherwise the studio had a hot summer, thanks largely to DreamWorks.

“I think we have targeted films that are well-executed,” DreamWorks CEO/co-chair Stacey Snider says. “But that doesn’t mean the execution was mechanical. The content has to be fresh and creative. I think there is a very good balance between our business brains and our creative hearts.”

Snider gives a loud shout-out to Moore and his team, including marketing chief Gerry Rich, for their handling of pics.

(Diane Garrett in Los Angeles contributed to this report.)

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