Say goodbye to economic immunity.
Last week, amid deepening signs that the country is headed for a serious recession, Paramount and NBC Universal began to dramatically retrench their operations in preparations for a major slump. And more cutbacks are expected as showbiz companies of all sizes cope with fallout from the imploding global economy.
No one, it seems, will remain immune from the widening meltdown, which has already triggered a dramatic drop in consumer spending. Showbiz sectors that have prided themselves on being recession resistant in the past look more vulnerable now.
This is largely due to the economic underpinnings of the congloms that control the industry. The companies, while supposedly more resilient than their predecessors, are more exposed to economic downtrends. And they’re run by cost-conscious CEOs determined to keep their companies in good standing on Wall Street.
The numbers crunch is impacting release dates as well. Paramount’s decision to push “The Soloist” to March of ’09 stemmed principally from financial issues. The film, starring Robert Downey Jr. and Jamie Foxx, originally was scheduled for a Nov. 21 release along with an Oscar campaign.
Paramount basically did not have the budget to support the film in the last quarter. The delays will save $60 million to $70 million in prints and advertising costs. DreamWorks, Par’s partner on the movie, was not able to convince another distrib to pick it up for that time period.
Despite rumors, however, Paramount Vantage will move ahead with its plan to distribute “Defiance,” starring Daniel Craig, in December. That film is financed by outside funding.
Par and NBC U execs cited the need to contain costs in this fragile economy for their other moves last week. Paramount on Wednesday said it would trim its slate 20% to 20 pics a year, and 25 employees, to meet targets set by parent Viacom. NBC U topper Jeff Zucker on Friday asked division heads to trim $500 million for the company’s budget next year for a 3% reduction in the overall 2009 budget; He said NBC U needed to take these precautionary steps despite eight consecutive quarters of economic gains.
CBS and Viacom, meanwhile, have already warned of a shortfall in third-quarter earnings; Chair Sumner Redstone was forced to sell off chunks of his holding company to pay down debt. Daughter Shari, who heads the family’s National Amusements theater chain, defended that company’s performance after he sold the stock.
Other retrenchments: Disney has put its makeover of Fantasyland at Walt Disney World’s Magic Kingdom in Florida on hold, and JP Morgan has suspended efforts to raise DreamWorks coin for now. Playboy Enterprises shuttered its DVD division last week to focus on online distribution. And Myriad Pictures topper Kirk D’Amico said he has decided to hold off a slate deal with a distrib until the markets calm down.
“Market conditions are obviously on our mind every day,” a studio topper said. “That’s why we’re trying to be as efficient as possible. The volatility of the market reminds us every day that we need to be as prudent as possible.”
Congloms have taken to bragging about how big their war chest is (in the case of News Corp.’s Rupert Murdoch) or how low their exposure to ad markets is compared to rival congloms (Time Warner). Those that have locked down financing are breathing a little easier than those that will need it soon. Credit, already tight before the Lehman Bros. collapse last month, has grown even scarcer in recent weeks.
“There’s no credit out there at all,” said a vet producer with his own financing, who believes MGM is the most vulnerable to the credit crunch, given its high debt. He also predicted that certain cash-poor indies will go out of business, but studios will be fine.
“There is a massive reshaping of the landscape,” said another producer with his own financing, who predicts that indies will swing from making too many movies to making too few.
Theme parks are also considered vulnerable now that economic woes have spread around the globe. So far, tourists taking advantage of the weakened dollar have bolstered attendance the past year, as has the addition of new attractions. The question is how long it will last. Parks are making contingency plans, increasing ticket plans and hours, to bring in more coin.
Financial jitters have already scuttled Broadway shows: A few have been postponed due to investor pullouts, and producers pulled the plug on “Legally Blonde” and “Hairspray,” citing uncertainty over the economy. Although box office has been largely unaffected so far, legiters are concerned that belt-tightening consumers will decide to stay away from Broadway and its always-rising top ticket prices.
The tough economy might actually help the ailing homevid biz, which has been struggling to maintain previous sales levels for the aging DVD format. Execs expect rentals to rise, but the impact on the Blu-ray format is less clear. This holiday shopping period was supposed to be the one where the pricier next-gen format finally broke through, but it’s not clear how many consumers will pop for a player and pricier discs in the current economy.
For this reason, many in the biz were heartened by record first-week sales for “Iron Man” on Blu-ray this month; the pic quickly became the year’s top seller on DVD. But some big hits, most recently “Sex and the City,” have bowed below industry expectations, in another sign that consumers have become choosier about their disc purchases. Homevid sales were down 3.5% through the third quarter, according to Video Business.
The picture’s a little brighter for booming sectors like videogames and online entertainment, which are still expected to grow, albeit at reduced levels than they might have under a robust economy.
“It’s very hard in this environment to be protected,” said one network digital topper. “Everybody is going to be affected in some way.”
On the other hand, online entertainment is less vulnerable than other, costlier, forms of entertainment. The low price to consumers will undoubtedly increase the audience for such programming, the exec said. “The question is, will ad dollars be there?
And unlike their DVD counterparts, these execs don’t have high revenue targets to meet.
So far there’s not a hint that the videogame biz has been hurt by the economic downturn. In the first nine months of the year, in fact, overall industry spending is up a boffo 26%, reflecting the surge of interest in new properties and technologies like the Nintendo Wii, “Guitar Hero” and “Grand Theft Auto IV.”
“We’ve never found evidence of a correlation between the industry performance and the economy,” stated Anita Frazier, an analyst for industry tracker NPD Group.
But with the economy entering uncharted territory, no one claims to know for sure that the rules will continue to apply. Revenue may be surging by double digits, but for a still-young industry riding the wave of three new consoles launching in the past three years, three’s no way to know whether growth could be stronger in a healthier economy.
The theatrical biz likes to trumpet low ticket prices and the box office track record in previous recessions. But the aud is clearly in the mood for comedies right now, as evidenced by the strong B.O. for “Beverly Hills Chihuahua” and weak bow of star-laden “Body of Lies,” which Warners attributed to its off-putting subject matter. This may not bode well for darker movies on their way to theaters in coming months.
One studio head believes his company is well positioned for the deepening downturn, but admits Hollywood has entered uncharted territory.
“No one’s ever seen a market like this,” he said.
(Ben Fritz, Anne Thompson, Jill Goldsmith, Gordon Cox, Tatiana Siegel and Marc Graser contributed to this report.)