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Legendary Stumbles With Big Writedowns on ‘Seventh Son,’ ‘Blackhat’ (EXCLUSIVE)

For someone who isn’t used to failure and admittedly is a sore loser, Thomas Tull is so far having a nightmare year at the box office.

His company, Legendary Entertainment, was forced to take a $90 million writedown on Michael Mann’s $70 million cyber thriller “Blackhat,” which has earned just $14.5 million worldwide since its release last month, sources close to the company tell Variety. And after anticipating that Legendary’s upcoming release “Seventh Son” was headed for potential disaster, Tull took an early $85 million writedown — in 2013 — on the long-troubled movie, which debuts nationwide on Friday.

Seventh Son,” a fantasy action film that cost $95 million to produce and tens of millions more to market, is tracking to open between $7 million and $10 million this weekend. Overseas, the movie, which stars Jeff Bridges, Ben Barnes and Julianne Moore, has already earned $82 million, including $25 million in China, and another $15 million in Russia.

It’s no secret that Legendary has struggled with “Seventh Son” for years. The film, which started production under the direction of Sergei Bodrov in March 2012, has had four different release dates, beginning with Feb. 15, 2013. It landed on two other dates after that — Oct. 18, 2013, and Jan. 17, 2014 — the first due to post-production delays after visual effects facility Rhythm & Hues declared bankruptcy, and the second when the picture became orphaned after Legendary split with longtime studio partner Warner Bros.

All eyes have been on Legendary since Tull moved the company off the Warner Bros. lot in 2013 and struck a new distribution deal at Universal, financing tentpoles like “Jurassic World” and hits like “Unbroken” and “Dracula Untold.” It’s also on the upcoming N.W.A biopic “Straight Outta Compton.” Legendary’s first film under the Universal partnership was the low-budget thriller “As Above So Below,” a $5 million feature with no notable names that scared up $40 million worldwide.

Whereas Legendary covered half the budget of Warner’s films, it does not have the same arrangement with Universal, which lowers its eventual returns. For example, Legendary is said to have funded around 20% of “Jurassic World,” which stomps into theaters June 12.

Universal’s deal with Legendary is also unique in that the studio doesn’t cover marketing costs for its partner’s films; Legendary shoulders those on its own, with Universal merely collecting a distribution fee. In the case of “Blackhat” and “Seventh Son,” the arrangement meant Universal didn’t take the hit; the studio has essentially protected itself from Legendary’s creative choices.

Under its arrangement with Universal, Legendary gets distribution for a growing slate of films that it is now financing on its own, but also access to theme parks and a vast TV business through which it can set up shows and further promote its projects — a deeply-discounted “Seventh Son” commercial aired on NBC during the pre-game show for the “Super Bowl,” for example.

Tull, who had a lot of success at Warner, having backed the “Batman” and “Superman” franchises, “The Hangover” comedies and fanboy fare like “300” and the rebooted “Godzilla,” has a lot of stake when a film tanks, and loses sleep when they do, according to those close to him. He’s the company’s largest shareholder, so failures hit hard.

To help offset losses at the multiplex, Tull has been looking to expand the company into other areas — namely, television and digital platforms, with sources noting the moves are meant not only to find new sources of revenue but also to evolve the company at a time when audiences are turning to more sources for entertainment.

The company’s TV side already has several shows in development and others picked up to series, including “Colony,” which will air on USA Network and star “Lost’s” Josh Holloway.

On the digital front, there’s a lucrative Netflix deal through which Legendary is producing shows with Judd Apatow, and it will soon release a live-action feature adaptation of videogame “Dead Rising” produced exclusively for Sony’s Crackle. It also owns Chris Hardwick’s Nerdist Industries, and Felicia Day’s Geek & Sundry.

Legendary also is making strides in China, where its Legendary East will produce big-budget fantasy film “The Great Wall,” another project that’s long been in development.

And when it comes to marketing its films, Legendary is turning to a new analytics group it has formed in Silicon Valley — a way to use big data to spend marketing dollars more effectively. That arm slashed the budget for “Seventh Son’s” campaign when the movie wasn’t tracking well in the U.S.

Some observers feel that Legendary could spend more time developing the scripts of its fanboy-focused films. There have been a few exceptions that drew a better critical reception. Yet Legendary, which had success with its self-financed baseball biopic “42” and with a 25% stake in Christopher Nolan’s space drama “Interstellar,” is sticking with its formula.

Another pricey Legendary production is “Warcraft,” based on Blizzard Entertainment’s fantasy game franchise, which comes out in March 2016; a film based on Mattel’s “Hot Wheels” cars is in development. The company has just one other picture on the slate for the rest of the year that it produced and financed on its own: Guillermo del Toro’s Gothic horror “Crimson Peak,” debuting Oct. 16. It stars Tom Hiddleston, Charlie Hunnam and Jessica Chastain.

For now, Tull is smarting over “Blackhat” and holding his breath over “Seventh Son,” which is estimated to gross between $125 million and $150 million globally.

That film’s multiple release dates gave Tull reason to worry in 2013, which is what prompted him to take the hefty writedown back then. But when trying to raise money from investors, including Japan’s SoftBank, Tull recognized that “Blackhat” and “Seventh Son” could be problems when paired with “Skull Island,” featuring King Kong, sequels to “Godzilla” and “Pacific Rim,” and “Crimson Peak,” since they didn’t have the same kind of built-in brand awareness or were based on already established properties.

Tull has long prided himself as being as transparent as possible to his investors. If a film isn’t going to perform, he’s going to own up and give them fair warning.

Given its performance internationally, Tull is hopeful that “Seventh Son” won’t turn out to be the disaster he anticipated, though domestically it’s clearly headed for box office misery despite heavily promoting the film at two Comic-Cons, in San Diego, and hyping it to its target audience of younger males through sports broadcasts.

“‘Seventh Son,’ as with all fantasy films, generally faces a challenge because it’s such a specific genre that you really have to entice that segment of the audience that enjoys that type of cinematic experience,” said Paul Dergarabedian, senior media analyst for Rentrak. “And that can be tough and often requires some sort of fanboy or fangirl enthusiasm for the title, and that can be elusive at best.”

Still, Legendary was able to offset some of the cost through a partnership with China Film Group, which committed production dollars. Legendary also recouped some costs through Canadian and Malaysian tax rebates, and deferred incentives it received from converting the film to 3D and f/x work completed in Vancouver.

“Blackhat” didn’t benefit as much from those kinds of deals despite having filmed in Hong Kong.

http://youtu.be/0CpsXi3atQw
http://youtu.be/5i90Qr0Qi6w

“Historically, cyber-thrillers have mostly met with audience indifference,” said Dergarabedian, referring to films like “Hackers” and the similarly themed Julian Assange film “The Fifth Estate,” even with Benedict Cumberbatch in the lead.

It’s also rare for dungeons & dragons fantasy fare to break out, with the exception of “The Lord of the Rings” and “Hobbit” franchises, both of which are based on classic books.

“Of course audiences are fickle, and the tastes of the ticket buying public are wildly unpredictable,” Dergarabedian adds. “Look at the recent war movie successes after a long period of stagnancy.”

“Seventh Son” isn’t the only anticipated misstep this weekend. Warner Bros.’ equally risky Wachowski siblings fantasy film “Jupiter Ascending,” which cost $175 million, is likely to open at around $20 million, with “The SpongeBob Movie” expected to top both.

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