Bankers quake over Hollywood’s soaring costs

EACH YEAR THE VAST EXHIBITORS convention called NATO/ShoWest begins with the same odd ritual. On day one, Jack Valenti delivers his annual admonition that the cost of making and marketing motion pictures is soaring to new heights. On day two, each distributor parades out its superstars as if to dramatize how the money was spent.

True to form, Valenti last Tuesday warned that Hollywood’s average movie now costs $ 30 million to produce, compared with $ 23.4 million only five years ago, and that marketing costs over that span have leapt from $ 9.2 million to $ 14 million. The next morning, right on cue, Warners trundled out Beatty, Gibson, Michael Douglas, Cruise, Costner, Jodie Foster, Demi Moore and Macaulay Culkin to highlight its megapix.

It was quite a show, but it left a few people scratching their heads. Only a couple of years ago, the studios were boasting that they had gotten the filmmaking process under control — indeed, the average cost of a studio movie actually declined in 1991.

Clearly, that was an aberration. Though “the suits” still try to project a bottom-line mentality, the hard fact is that the spendaholics have taken over the business.

And Wall Street is worried. Talk to top bankers or investors and you hear dire prognoses of Hollywood’s malaise. “When you learn the real numbers of some studios, you realize that moviemaking, per se, is a lousy business,” says one Wall Street seer. “Movies may fuel the machine that generates the theme parks, retail outlets and ancillary rights of various types, but filmmaking itself has become a glitzy fiasco.”

While the number of productions keeps rising, he notes, only 28 of the 156 films released by major companies last year earned $ 20 million or more in rentals — the smallest number since 1988. All these concerns may strike an odd chord at a time when billions pour forth to acquire Paramount and when Sony is looking for billions more to spin off some of its holdings. Indeed, while the “pot of gold” still glows temptingly at the end of the information superhighway, the economics ofgrinding out the product to pave that highway still confounds the masterminds.

WHY DO MOVIES COST SO MUCH? Union contracts have held the line; there have even been some rollbacks. Every studio has number-crunchers scrutinizing its budgets; one company has even set up a computerized gauntlet of criteria that each project must satisfy to gain its greenlight. Studio toppers are keenly aware that a high percentage of their megapix — witness “Last Action Hero” and “Demolition Man”– are proving accident-prone.

Examine the budgets of some recent films and you find a microcosm of trends afflicting the economy as a whole. For one thing, the rich are getting richer and the blue-collar types aren’t making much headway at all — a true hangover from ’80s America. Above-the-line players account for the biggest escalation of costs. There are more directors making $ 7 million a picture and more superstars making $ 15 million.

While studios are resigned to paying big bucks to the Harrison Fords and Arnold Schwarzeneggers, however, they’re irked by the prices being asked for midrange actors. “Suddenly the agents are demanding $ 1 million to $ 4 million for character actors,” fumes one production chief. In the halcyon days of the studio system, he points out, a star would be surrounded by high-quality, if modestly paid, contract players on the order of Claude Rains or Sydney Greenstreet. Not today. Such venerable players as Hackman and Duvall are being offered $ 3 million a shot.

There are other pockets of inflation aside from the actors. Composers who a few years ago were asking $ 75,000 to score a film are now getting $ 300,000. Cameramen who would work for $ 7,000 a week are demanding $ 20,000.

“A domino effect sets in,” says one senior production exec. “Once you get people making that kind of money, there’s all the more pressure to expand a 50 -day schedule to 80 days. Suddenly nothing can be shot in seven weeks anymore.”

IT SHOULD BE NOTED THAT SOME studios have resisted these pressures more effectively than others. The average negative cost of the 22 films produced by Disney’s Touchstone and Hollywood labels last year, for example, was $ 18 million — well below the industry average. But even Disney’s costs are pushing upward.

Some skeptics would also point out that Disney didn’t exactly have a banner year in 1993, despite its more stringent cost controls. One “Fugitive,” they would argue, is more important to a studio than a dozen anonymous middle-budget films.

There’s no getting around Hollywood’s basic dilemma, however: As studios ramp up production, the agents are deftly manipulating the talent pool. The only companies in town showing record profits these days are CAA, ICM and a few big law firms.

Jack Valenti is a man who enjoys extravagant metaphors. “I am clanging the alarm bells,” he said last year in announcing the numbers. Then he added, “But like an uninhabited forest, there is no sound to be heard when the tree falls.”

I think I know what Jack means, but I wouldn’t swear to it.

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