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Studios play deal or no deal

Hollywood slashing producer pacts

Hollywood’s tough times have hit writers, actors, directors and below-the-line workers, but few other bellwethers show the industry’s austerity more than the dwindling of the long-term producer pact.

Once a gravy train in which studios paid overhead in exchange for first dibs on choice projects, the producer pacts have shrunk by 40% over the past decade, as Oscar winners, proven boxoffice performers and other famous names have found themselves shut out of the studio gates. Studios have been cutting all but the most essential deals — 50 pacts in the last three years alone, and the lowest tally ever in Variety‘s 11-year Facts on Pacts surveys.

It’s telling that among those without a home on a studio lot is the president of the Producers Guild of America, Marshall Herskovitz.

“It’s very difficult for producers, and I’m not ashamed to use my own company as an example,” says Herskovitz, whose company with Ed Zwick, Bedford Falls, recently ended its deal with Warner Bros. “I don’t take it personally, but I think it’s shortsighted, and that it adds to a process of creative decay in the film business. As PGA president, I’m very concerned about it.”

Eager to cut overhead and spend development coin elsewhere, studios still hire producers for each pic. And they maintain lucrative relationships with selected producers and directors: Scott Rudin, John Davis, Jerry Bruckheimer, Brian Grazer, et al. (Just last week, Universal pacted with Gore Verbinski’s shingle.)

But, as is so often the case in corporate America, it’s those in the middle range who seem to have been hardest hit. Their solution has been to pursue other opportunities in TV, videogames and the Web — or to leave the business altogether.

Variety has been doing its Facts on Pacts surveys since 1997. As long as films are being made, producers will get deals, but it’s increasingly rare for a studio to fork over money for an office, assistant and a seven-figure development fund.

Not that anyone needed proof, but the sharp cuts are confirmation that the business has undergone fundamental changes, with the slashing of film-producer deals being mirrored in the TV industry.

To the companies, the cutbacks are a smart trimming of financial excesses at a time when they are making fewer films. And the three-month Writers Guild strike led to across-the-board belt-tightening, which everyone in the industry is feeling.

Studio execs say that the overhead-deal system was filled with vanity and unproductive pacts. They add that losing overhead deals is hardly a death sentence.

“We are buying projects every day from producers, we’re just not paying their overhead,” one studio president says.

More fallout is expected as Paramount prepares for the expected departure of DreamWorks, and Warners digests New Line. Ongoing labor uncertainty could take a further toll.

Among others without film deals: 1492’s Chris Columbus, Dan Jinks and Bruce Cohen, Sean Daniel and Curtis Hanson . Betty Thomas, who’s attached to direct “Dallas,” lost her deal during the writers strike. Veterans such as Richard Zanuck and Irwin Winkler no longer have studio deals, either.

Although some have set up shop elsewhere — Jinks-Cohen and Mark Gordon are among those relying on TV pacts to pay overhead — others haven’t been as lucky. And equity money, which several producers flirted with last year, no longer seems like a viable alternative to the traditional studio deal.

Many producers whose deals ended are also directors and/or writers, including Zwick and Herskovitz, Columbus, Frank Darabont and Wolfgang Petersen. The studios pay them big bucks in those nonproducer capacities, and routinely include their companies in the deal. So the studios feel that paying them to develop projects is a nonessential expense.

“We are all under enormous pressure from our corporate parents to make our numbers, and if you can trim $5 million from your budget by dropping overall deals, it is the easiest place to take out money,” one studio president says.

“The trend is established by the studios,” says Lakeshore Entertainment topper Tom Rosenberg, whose company has been happily operating without a deal for two years. “They were putting out too much money.”

Studio execs say they prefer to do more pics with fewer producers who’ve proved themselves reliable. Studios benefit financially, since rich overhead deals paid to the likes of Lorenzo di Bonaventura, Working Title, Marc Platt, Scott Stuber or Neal Moritz are advances that get worked off the top of producing fees and first dollar gross.

Herskovitz says that after watching the Bedford Falls deal get slashed 75% over three years, neither he nor his partner were surprised it was cancelled.

“In television, networks have assumed all creative control and ownership of the programs they produce, and that has taken the creative and entrepreneurial initiative away from producers,” Herskovitz says. “We’ve seen what’s happened in motion pictures. As far as I’m concerned, producers are under siege.”

The trend may be alarming, but it’s not new. In 2000, Variety reported that due to widespread cuts, producers were “hustling for financiers with deep pockets or running off to any number of dot-coms.” (At the time, it seemed like a good option. …)

In a memo to producers, Peter Bart wrote that the numbers and the Variety story “confirm a fact you don’t want to know: Namely, that the major studios don’t want to be in business with you. At least, they don’t want to pay for the privilege.”

Back then, producers lamented the cutbacks — little realizing that in only a few years, the 2008 levels would make 2000 seem like boom times.

Jinks and Cohen, who produced Oscar-winning “American Beauty” for DreamWorks, learned their pact with Par was expiring during the writers strike, while shooting “Milk” in San Francisco. Since they had a TV pact at Warners tied to their “Pushing Daisies” skein, they just moved everything into their Burbank offices.

“The nice thing is we have a healthy enough deal with Warner Bros. that we have the benefit of having the best of both worlds,” Jinks says. “We’re on the lot, but we’re not tied to one studio.”

However, it’s not nearly as comfortable if you don’t have overhead covered elsewhere — or other access to coin. Producers need to earn a living and to pay their staff. But they don’t have any contractual minimums or health benefits, and don’t get money until the pic goes into production.

“These days, you’d better be rich if you want to be a producer, just to be able to survive between pictures,” says Michael Manheim, whose current project is a stage adaptation of “Leap of Faith” that Taylor Hackford will direct on Broadway next year.

Producers aren’t necessarily getting the $25,000 option fee that traditionally kept them afloat until studios or financiers decided to make a project or cut it loose. Some companies now pay a fraction of that amount — if they pay it at all.

“Minimajors don’t even pay the option fee anymore, or they’ve cut it to $10,000 or less,” says attorney Karl Austen, who regularly negotiates producer deals. “That $25,000 fee has remained static, while the value of a house in Westwood has gone up tenfold.”

One Oscar-nominated producer explains that everyone tends to get paid before the producers.

“Say I come up with an idea. I work with a writer to develop it, and then after six months, we sell it to a studio for $600,000,” the producer says. “The studio gives me a take-it-or-leave-it offer. If I’m lucky, I get $12,500, which is probably just enough to pay my lawyer. The writer, his agents, everybody gets paid but me, because my fee doesn’t start until preproduction. When we go out to dinner to celebrate the deal, guess who’s expected to pick up the check?”

PGA exec director Vance Van Petten says, “There is no question that it has become harder than ever for producers, who are being squeezed right along with the writers who lost TV deals in the horrific aftermath of the strike, so I don’t
feel we’re being singled out. Money available to producers is down dramatically, and what is frustrating is that in May, we saw one of the healthiest upfront ad markets and a booming summer box office.”

The best case scenario, producers say, is to have overhead covered by other means, because that frees them from having to take projects to their own studio first. Especially since many studios are cutting back on the number of their productions.

“You’re much better off being able to go anywhere,” Lakeshore’s Rosenberg says. “In the last two years, we’ve made eight movies without it.”

“There are some real disadvantages to having a studio deal,” Jinks concurs.

Producers below superstar level say that finding projects is more difficult than ever, because agencies steer hot specs and books.

“Do you think agencies want to commission a $700,000 fee, or someone else’s first-dollar gross deal?” asks one.

Young producers say they have become subcontractors to studio-funded producers, bringing projects to producers who break off a piece of their large studio fees.

Often, they pray they aren’t shut out of the process, but Fox-based producer John Davis is one who’s known for keeping young producers involved.

“These producers, who have no net under them, have the most interesting entrepreneurial energy, and they find nuggets that require time to discover,” Davis says. “I’ve always tried to provide safe harbor for them, because there is no established career track for producers right now.”

But not everyone is like Davis, as Matt Weaver, the son of former Paramount marketing exec Gordon Weaver, discovered. Weaver got tired of developing through a studio and then being sidelined.

“I worked on ‘The Heartbreak Kid’ from the start,” Weaver says, “and by the time it got into production, I was so pushed out of the process that I didn’t meet the star of my movie, Ben Stiller, until the premiere.”

Weaver is now partnered with Scott Prisand in Corner Store Entertainment, which is funding Mark Ruffalo’s directing debut, “Sympathy for Delicious.”

Peter Newman, who produced 28 films over 30 years, became a teacher at the Tisch graduate film school and the Stern MBA program, both at NYU. He teaches class while shepherding projects like the long-gestating Janis Joplin biopic.

“The respect and acknowledgement for the role of true producers has diminished radically in the last 20 years,” Newman says. “Everybody is hurting right now, and agents, studios and everybody else are clawing into revenue streams that once went to the producer, and the only person not protected in the equation is the producer.”

Newman acknowledged his pessimism doesn’t jibe with teaching the next generation of aspiring producers, but he sees a silver lining. Many of his students come from other countries, where, he says, opportunities are better.

“It is really bad now for old-time independent and Hollywood producers, but there is tremendous opportunity overseas, where the marketplace is strong and government subsidies open up possibilities,” he says. “I encourage them to make connections in school, and if they’re from a foreign country, don’t necessarily look to Hollywood or New York, because there is fresh capital and opportunity back home.”

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