Biz focus on new metrics

B.O. vs. profitability hot topic at film summit

The question of box office vs. profitability, the changing landscape of film financing and the frustration that bizzers have with the media’s focus on opening weekend performance were among the topics parsed Tuesday at Variety’s Future of Film Summit.

Box office is no longer the most important factor in determining a film’s overall success, Relativity Media topper Ryan Kavanaugh saidflatly in the opening sesh of the confab, held at Hollywood and Highland’s Annex Space.

Other bizzers were also critical of the media’s intense scrutiny of a film’s opening weekend perf.

“When studios were first created in the 1920s and ’30s, all you had was box office,” Kavanaugh said. “All you had to report on, and all you had to judge on was the box office. The practical reality is — box office is 20% of the pie and it’s somewhat irrelevant.”

Kavanaugh, who spoke to Variety’s Peter Caranicas in the keynote address at the confab co-produced with Digital Media Wire, pointed to a lack of transparency in the film financing world. Noting the decline in home video revenue, the economy, and the new models of film financing, Kavanaugh said that bizzers need to look beyond the box office to really gauge a film’s performance.

Tax incentives and output deals — the latter of which Kavanaugh says Relativity has in all but three major territories — help mitigate that risk. Relativity tries to have three-quarters of a film’s risk covered before it goes into production, he said.

Kavanaugh also noted that paying creative talent scale — as opposed to gross participation — can help a lot. He noted that was the tack Relativity took with helmer Steven Soderbergh on the upcoming pic “Haywire.”

“Our motto from day one was always that the idea of gross participation don’t make sense,” Kavanaugh said. “And the reason they don’t make sense is that you’re basically saying, ‘Even if I lose money I’m going to pay you a bonus.’ And there’s really no other business that we could find that does that.”

“The media focuses on the weekend box office way too dramatically,” said Rick Nicita, co-chairman and COO of Morgan Creek Prods. “A movie can be seen in many different ways.”

Endgame Entertainment CEO Jim Stern echoed Nicita’s sentiment.

“It’s got to be about the profits, it’s not about this constant horse race,” said Endgame Entertainment CEO Jim Stern during the panel moderated by Variety editor in chief Timothy M. Gray. “If you come into the film and you have a small exposure and the film does $30 million, you have an enormous success. We don’t measure the performance of Chrysler by gross revenue, we base it on profit.”

Stern and Nicita, along with panelists David Glasser, chief operating officer of the Weinstein Co., and Mark Sourian, co-prexy of production for DreamWorks Studios, argued that bizzers need to rethink the categorization of more modest performers — especially if they were made for a price.

“They did it with ‘Insidious” and ‘Paranormal’ … there have been some very smart price points,” Glasser said. “Dimension, for years, would make movies for $10 million or $12 million dollars and we do $30 million box office … we’re running around the office high-fiving each other.”

These smaller budgets, coupled with the current economic climate and new digital revenue streams, are contributing to an increased willingness at the studios to the opportunity to finance smaller pics.

“Without those entities, studios are going to make fewer and fewer movies,” Sourian said.

Bankers and private equity players said they’re keeping close tabs on all the changes in the biz, particularly the shifting moviegoing habits of the younger auds that drive so much of the B.O.

“I have a 16-year-old son, and he’s going to the family room with the big TV and video game console,” said Christa Thomas, managing director and senior film advisor, sports and entertainment group with SunTrust Bank. “He and his friends start after school on Friday and they’re there all weekend.”

All those options, combined with the credit crunch and decline in traditional homevideo revenue, has spurred the exodus of banks and equity concerns from the film financing market — some of which has only started to trickle back in. Banks, for example, have begun loosening up their purse strings for the right kinds of deals.

“I think it’s a good time for bank financing for certain companies, for companies that have the right ingredients,” Thomas said. “I think there is definitely money and we’ve seen a lot of transactions this year, including several above $500 million.”

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