As Hollywood sweats out the labor standoff, another villain has entered the scene: soaring oil prices.
The great crude spike of 2008, which has seen prices shoot up almost 50% in six months to highs well above the previous 1970s peak, has not yet eviscerated the media and entertainment business as it has airlines or Federal Express. But there will be blood, especially given studios’ reliance on petroleum-based fuel to run generators and vehicles ranging from trailers to limos to jets.
Consumers have already spoken, flocking to Amtrak and even Segways and driving less than they have in a generation. General Motors, with its stock trading at Eisenhower-era levels, has slashed production of SUVs, citing lax consumer demand. The bright spot, if there is one, can be seen in surprisingly healthy B.O. this summer.
But how will the industry respond to the oil crisis and reshape the way it operates? Companies can’t exactly cease producing or promoting entertainment; they have no choice but to adapt.
Here are some of the pressure points:
- Travel Trips considered routine as little as six months ago, when crude oil was half the $139 a barrel it costs today, will be under increasing scrutiny. Up for debate: Agents flying to sets to check on clients and drum up business; location shoots trying to work in a few extra setups; or even the more mundane but essential aspects of everyday life on the lot.
“When we get into Academy season and the fall festivals,” says one publicity vet at a major firm, “it will be interesting to see the battles over budgets. Nobody took gas prices into account a few months ago when they came up with budgets.”
Even attendance at a non-Oscar event like Comic-Con, a popular promo stop in recent years because of its marketing potency and proximity to L.A. talent and execs, is no longer a foregone conclusion.
“It became such a popular destination for movie marketing in part because it was so close to L.A.,” says one publicist who works with major studios and top indies. “Everyone would say, ‘Of course we’ll travel there. It’s San Diego!’ But now it’s, ‘Wait a minute, it’s gas. I don’t think so.’ ”
- Lot operations Already-tight studio budgets are going to be tightened anew. “It’s a long way from the glitz and the glamour, but things have reached a tipping point,” says Jack Kyser, senior VP and chief economist at the Los Angeles Economic Development Corp. “It would behoove studios to set up an energy operation that’s looking at ways to change consumption.”
While the SAG situation has been the top priority, energy is definitely creeping into the discussion. Fuel and commodities prices are silently putting the squeeze on operations in a year already affected by the WGA walkout and credit turmoil.
Vendors of trailers, limos, production vehicles and the like are doing an awkward dance with studio clients. Their actual costs have skyrocketed, but because of competition and relationships, many are reluctant to pass along the increases. One that has, Avalon Transportation, added a fuel surcharge of 10%, which is triple what it was 10 years ago.
“It’s hard in this industry. Clients don’t like surcharges,” says Robert Palmieri, owner of Big Shot, which provides dressing rooms and mobile homes costing about $150,000 apiece. He has upped his prices by 5%, but clients often try to talk him back down to his original rate. “It’s cutting into whatever profit we did have. You have to stop and think if it’s even worth running a business like this.”
AMS/Pacific Limousine & Transportation, which makes almost half its money from Hollywood, has seen business dive 20% in the past two months. Prexy Jack Nissim says studios have cut back a bit. In response, he’s tried introducing hybrid vehicles and teaching his drivers how to drive more efficiently.
- Location shooting In the past few years, the U.S. has reclaimed a lot of film and TV production that had fled north to Canada and across the pond to Romania and elsewhere.
But the states trying to lure film shoots with tax incentives that can reach 40% of above-the-line costs will likely take a hit compared with the local soundstage option. The ultimate cost-saver would be movies modeled after “300.” Computers don’t require a lot of diesel fuel.
- The green scene. Most lots have already been ramping up environmental initiatives, and that will only pick up speed as prices rise.
Warner Bros. points to its eco-programs, given a push by hybrid-driving chief Alan Horn well ahead of the oil crisis. For the past year, more than half of the Burbank lot’s courier fleet has been comprised of hybrid vehicles — though, for what it’s worth, Ford Escapes will be replaced in coming weeks with Toyota Priuses.
Disney says that budgets across the lot have been adversely affected.
The wave of new costs is coming in a tense period as media companies seek to shed costs and jobs. Time Warner eliminated hundreds of positions in its film operation with the New Line fold-in and the Picturehouse and Warner Independent liquidation. Paramount pulled Vantage in under Par’s aegis and ditched a couple of positions.
“There’s an austerity anyway,” says one vet exec at another studio. “So you’re taking a harder look at who’s flying where, who’s accompanying whom on what trip, who’s shooting what where. That’s a fact of life now. And the gas prices have just put an exclamation point on it.”
The drumbeat of negative news, especially in the battered airline sector, tends to have a ripple effect. Companies are less likely to loosen travel restrictions as long as they keep hearing about baggage surcharges and $1,000 coach flights from Gotham to L.A.
The greening of Hollywood, spoken of in choral tones of reverence by some (especially after “The Inconvenient Truth” racked up massive B.O.), may well take on a new urgency now.
Sony is in the midst of a consolidation and environmental construction project that will consolidate operations formerly scattered around Los Angeles Carbon credits are common on a lot of big productions.
One vendor, Apache Rental Group, recently bet big on biodiesel, switching its entire fleet to the alternative fuel. “Studios have been very receptive,” says owner Jim Krauskepf. “It’s creating quite the little buzz.”
Paola Capo-Garcia contributed to this report.