Specialty labels a balancing act

Smaller divisions rethinking strategies

What does it take to make a successful specialty film label? With the shuttering of Warner Independent Pictures and Picturehouse last month, followed by Paramount bringing its Vantage label into the mothership after only two years, it would seem the studios are losing faith in the specialty film business.

Some specialty divisions seem to get it; others don’t.

Knowledge and experience count for plenty in this field, especially when it comes to the boss.

From the start, Viacom then-chief Tom Freston directed Paramount studio head Brad Grey to shake things up, throw out the old and reinvent the wheel.

So Grey hired Endeavor star John Lesher to make a splash and establish a specialty film division more robust than Paramount Classics. Lesher did just that, with a high-profile slate led by Oscar-winning eco-doc “An Inconvenient Truth,” “Babel” starring Brad Pitt, “A Mighty Heart” starring Angelina Jolie, and former client Paul Thomas Anderson’s “There Will Be Blood.”Ex-Paramount execs Jonathan Dolgen and Rob Friedman are having the last laugh, though, because while unassuming also-ran Paramount Classics may have skimmed by on wafer-slim profit margins — as has 16-year specialty veteran Sony Pictures Classics — their economy specialty model may be a better class to be in, long-term, than the midsize one.

At the recent Sundance and Cannes fests, modest films like the Israeli animated doc “Waltz With Bashir” and the French family drama “Christmas Tale” were scooped up by buyers SPC and IFC, respectively, while bigger-budget movies with stars — Steven Soderbergh’s “Che” starring Benicio del Toro, Charlie Kaufman’s “Synecdoche, New York” starring Philip Seymour Hoffman, and James Gray’s “Two Lovers” starring Joaquin Phoenix and Gwyneth Paltrow — remained unsold.

When Picturehouse prexy Robert Berney was negotiating with Warner Bros. on merging his label with WIP, he argued for a more aggressive specialty approach that could ride the waves with deep pockets, producing high-quality pics with stars, backed by robust marketing. He was afraid that a slate of small-budget, no-name films might not thrive. (Berney may have been recovering from the failure of such pics as “Rocket Science” that were greenlit with HBO in mind, rather than the demanding theatrical marketplace.)

Admittedly, small films are a tougher sell. But the cost of producing, marketing and distributing specialty films has skyrocketed as so-called “indie” divisions come under increased scrutiny from corporate parents. With narrow profit margins becoming narrower still, the good reasons for staying in this business have become harder to argue with fiscally demanding bosses.

The advantages are clear for experienced indie execs with enlightened management — from Fox Searchlight and Sony Pictures Classics to Miramax and Focus Features — who understand the vagaries of the indie market, which has been bloated with easy money and is now undergoing its own harsh reality check.

Economies of scale yield smaller P&A budgets, too. While indie distribs envy studio specialty firms their output deals, they also covet movie stars and promo budgets. But that’s what often prevents these high-end films from selling: the fear of how much it will cost to ferry stars on promo tours (Scarlett Johansson was rumored to have missed Cannes because of her hair and makeup demands)and, God forbid, support an Oscar campaign.

While “No Country for Old Men” became a must-see on the way to its Oscar best picture win, Miramax prexy Daniel Battsek, who distributed Miramax pictures in the U.K. for Disney for years before he took over the label, admits that “The Diving Bell and the Butterfly” was more a prestige item.

Under Grey’s direction, that’s the business Paramount Vantage was in. Oscar contenders “Babel,” “There Will Be Blood,” and “Into the Wild” appeared to be winners. But they did not make money.

With the exception of Al Gore’s “An Inconvenient Truth,” which Lesher acquired out of Sundance for no upfront cash (releasing it in partnership with Participant Prods. to a $23.8 million gross) and “Son of Rambow,” which cost almost $7 million to acquire but scored big in the U.K. and Australia, the rest of the Vantage slate will barely break even — if the films don’t actually lose money.

Not having a smart business plan can lead to failure. But spending money to establish a label and then letting it go doesn’t make sense either.

Warner Bros. may have been so overwhelmed with absorbing New Line Cinema that when confronted with the WIP/Picturehouse dilemma, studio execs decided to cut bait. When Universal Pictures picked up Good Machine seven years ago, led by the team of James Schamus and David Linde, they gained two veteran execs who understood the intricacies of the indie sector. Focus Features is run conservatively, says Schamus, whose now-boss Linde not only has his back, but knows “which nits to pick.”

In other words, it’s a balancing act. Schamus, like other specialty execs, ultimately has to continue making money, not just winning awards.

“I had to be able to say ‘no’ to a movie that might have won eight Oscars,” says Schamus, whose Colin Farrell comedy “In Bruges” has scored $16 million worldwide so far. “I was not willing to lose eight figures. Nor did I want to become a crappier, cheaper version of a studio.”

Fox Searchlight is also famous for insisting on running the numbers. Peter Rice consults with his marketing and distribution team before committing to any picture. If the numbers don’t compute, no deal. And yet Searchlight had the sense to invest upfront in the $7 million “Juno,” with no stars and an ultimate $228 million global upside.

While Sony Pictures exec Amy Pascal may have been unhappy that she had no specialty label willing to back “Synecdoche, New York,” wasn’t it better for the studio to let that picture go than to invest $20 million, plus P&A costs for an uncommercial release?

The downside of the well-run specialty labels is that their conservatism means they aren’t taking the risks they once did. When Viacom’s fiscally demanding execs in New York forced Paramount’s Grey to adjust his bottom line, he took a whack at his most vulnerable division, bereft of charismatic leader Lesher, who in January parlayed his Oscar heat into the job of running the Paramount Film Group.

That said, Paramount execs insist they are invested in staying in the specialty business and will keep the Vantage label alive. Despite rumors to the contrary, Vantage prexy Nick Meyer, an expert at foreign distribution, is sticking with the company and has ambitions for what he can do on the world stage. Unfortunately, Vantage will not be able to carve out its own identity separate from the parent studio.

Paramount’s merged marketing department will be led by worldwide marketing prexy Gerry Rich, with Vantage execs Megan Colligan and Josh Greenstein reporting to him; they will continue to supervise Vantage’s projects going forward, such as Ed Zwick’s Nazi fighter drama “Defiance,” doc filmmaker Nanette Burstein’s Sundance pickup “American Teen,” Keir Knightley starrer “The Duchess” and Sam Mendes’ “Revolutionary Road,” a DreamWorks picture.

Meyer will continue to develop, produce and acquire movies, and has a staff and budget to do so — but it won’t be the originally planned 12 movies a year. It will be more like six, and they will more likely be commercially accessible, less arty films. Paramount wants to keep the label alive while saving several million dollars a year. Execs insist they want to stay in the specialty space and will not pursue Warners-style draconian cuts.

But Vantage is in jeopardy. If Paramount operates in good faith to make a go of it, there’s a slim chance it will survive in some form. But I wouldn’t bet the farm on it.

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pson’s blog here