Medium-budget films caught in crunch

LAS VEGAS — “There’s a Texas expression,” says Warner Independent Pictures distribution prexy Steve Friedlander, “the only thing you find in the middle of the road is a dead animal.”

But the mid-level picture is precisely where so many outside investors in Hollywood have flocked, and where constriction and consolidation are already squeezing distribs such as Lionsgate, Yari Film Group, MGM, the Weinstein Co., just as newcomers Summit and Overture enter the already crowded field.

Some distribs say consolidation will eventually be beneficial, giving films more time to breathe. They also caution that theatrical grosses don’t tell the whole story for profitability of mid-range titles.

While MPAA chairman Dan Glickman raved at ShoWest last week about what a great year 2007 was — with 28 pics grossing more than $100 million domestically, including four over $300 million — the sector of the market that got killed in 2007 was movies in the $20 million to $60 million budget range.

In 2002, about 450 films were released in the U.S. In 2007, the tally was about 600. “All of that growth is independent film,” Glickman trumpeted.

But those 150 extra pics mean distribs are fighting for smaller pieces of the box office pie, and it’s gotten tougher and more expensive to grab moviegoers’ attention.

“We’d like to get the titles spread out better over the year,” admits NATO prexy John Fithian. “If we didn’t have four blockbusters competing on the same weekend, the titles would spread out and the theaters would put in a smaller art picture and not keep eating each other’s lunch.”

More than ever, major studios are keenly focused on growth in the international market.

“We are making more movies today with an eye toward international distribution,” says Glickman. “It now stands at twice the U.S. box office.”

But this too adds more pics to the domestic market, further pinching mid-level players.

“The market has gotten much tougher for smaller films,” says Paramount vice chairman Rob Moore, “because so many people are trying to take the same path.”

The market can’t sustain all these distributors, all with release slates big enough to justify their business plan and overhead.

Studio specialty divisions are adapting to the overcrowded, competitive market by making more commercial, accessible, bigger-budget movies, often with stars — thus competing for smaller slices of the box office pie with the other distribs in the same universe.

Focus Features prexy James Schamus admits that he can’t play in the arthouse playpen as much as he’d like. “Ninety percent of the movies I love I can’t acquire,” he says. “We’re keeping things sane. Same head count.”

Schamus hopes electronic media’s precision targeting may help Focus get back into that tricky niche: “As marketing gets more nuanced and we hone our messages to specific audiences, we may take back the specialized beach.”

Some fallout in the indie sector has already begun. Warner Bros. is paring back New Line Cinema and folding it into the parent company as a label; the company’s new mandate is still to be delineated. Picturehouse and Warner Independent, too, are likely to merge, yielding one specialty label where there were two.

Industry observers speculate about the fate of real estate mogul-turned-filmmaking entrepreneur Bob Yari, who was perhaps cursed by two early hits (“Crash” and “The Illusionist”) and is now finding heavy sledding, and MGM and two of its key indie suppliers, Sidney Kimmel Entertainment, which will withdraw from the release pact at year’s end, and has pared back on production, and the Weinstein Co., which is still seeking some breakout hits.

In the meantime, Overture and Summit are jumping into choppier waters than they may have anticipated when they finalized their financing and business plans. Both will have to spend more to achieve awareness for their films, more in the $12 million-$18 million range of P&A that can kill a movie if it doesn’t perform domestically, even if Overture does have a lucrative Starz pay TV deal, or Summit pre-sells foreign territories, where P&A expenditures are far less.

“If they don’t capture the public imagination enough, they can’t sustain themselves in the market,” points out one studio exec. “There’s a waterfall in DVD if they underperform.”

“We’re trying to play between the lines,” says Summit CEO Rob Friedman, who has worked at the studio level at Warners and Paramount, where he also supervised Paramount Classics. “We’re keeping lean and mean. Depending on the movie, we’re still spending. On ‘Never Back Down,’ we’re spending at studio levels as we target under-25-year-olds. Our realistic goal is a $7 million to $9 million opening in 2,729 theaters. It’s a great video aftermarket movie with excellent foreign sales, and the production allocation was not that great.”

Per Friedman, Summit is saving money on overhead and frills, but will expand as the distrib ramps up to 12 releases a year. So far the thriller “P2″ starring Wes Bentley and the arthouse pickup “Penelope,” starring Reese Witherspoon, Christina Ricci and James McAvoy have not scored at the box office, to say the least.

“It’s most difficult because so many titles and so much marketing money are bombarding the consumer, that’s the big challenge,” says Friedman, who acquired Rian Johnson’s “The Brothers Bloom”; and has high hopes for Alex Proyas’ “Knowing,” starring Nic Cage; as well as Catherine Hardwicke’s film version of the young adult vampire novel “Twilight,” which starts production at the end of March for a 2009 release. “Over the long haul hopefully there will be less movies in the space, which will give them all a better chance of finding their audiences.”

According to Overture CEO McGurk, “We set up the company because we felt a shakeout was coming in that sector. In the next three years, there will be less competition, not more. What we saw was MGM downsizing, DreamWorks folding into Paramount. Now New Line is leaving, Kimmel is scaling back. There’s an increasing edginess as hedge funds and investors scrutinize studios and independents.”

You don’t have to live or die in theatrical, insists McGurk, whose pics are a combo of fest acquisitions like “Sunshine Cleaning” and “The Visitor” and productions that cost less than $30 million — unless Overture partners with a financier like Avi Lerner on a pic like “Righteous Kill,” starring Robert De Niro and Al Pacino.

“We have a different model than the studio model. We can do $15 million to $25 million at the box office instead of $40 million to $50 million. We have a strong secure pay TV deal with Starz, and we raise 60% of our budgets through Paramount Vantage foreign sales. Others don’t control video, are selling one-off titles internationally, they have tougher road to hoe. It’s a portfolio business.”

“You can’t count on hitting high with a ‘March of the Penguins’ or ‘Juno’,” cautions one specialty distrib who is not sanguine about the prospects for start-ups in this climate.

More and more it’s not a theatrical business, points out ThinkFilm distribution prexy Mark Urman, who kept Sidney Lumet’s “Before the Devil Knows You’re Dead” in theaters for four months.

“A lot of these films are not meant to be strong theatricals. Movies that didn’t get the box office they deserved, you catch up with them later.”

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