Edition: U.S. / Global

Taming Hollywood's Spending Monster

Published: April 14, 1991
(Page 2 of 3)

Today, Hollywood's back lots are littered with the financial wreckage of the resulting big-budget flops. Paramount is reeling from losses on "The Godfather Part III" and "The Two Jakes." Warner Brothers is awash in red ink from "The Bonfire of the Vanities." Robert Redford's latest movie, "Havana," was a disaster for Universal Pictures. Walt Disney Studios executives insist that "Dick Tracy" made money, but almost no one believes them. Pressure on Profits

Because the major studios are part of larger corporations or are owned by foreign companies, it is difficult to track their bottom lines, but analysts and industry executives say the downward trend is clear. Profits from Disney's studio in 1990 were the lowest in three years, according to a recent internal memorandum from Mr. Katzenberg, although Disney was the year's box-office leader.

Paramount's box-office troubles have depressed results at its parent company, Paramount Communications, which lost $7.3 million in the quarter ended Jan. 31. Martin S. Davis, the company's chairman, told analysts earlier this month that he expects a loss in the current quarter, blaming in part "the weak performance of our motion picture releases."

Paramount Pictures' string of flops clearly undermined the position of Mr. Mancuso, who had headed the operation since 1984. While he might have been responsible for Paramount's failures, Mr. Mancuso, in their wake, enacted the industry's most far-reaching program to hold down costs -- one that has continued since his departure. In the months before he left, Mr. Mancuso and the studio's other top executives decided to reverse their strategy of concentrating on big-budget films and sequels and work primarily on films that could be made for around the industry average of $27 million.

Paramount has let it be known that it would no longer pay to sign top stars like Tom Cruise, who can command $8 million or more per film. The studio cut the number of films in development in half, to about 125. And executives tried to take a stricter line on production expenses, pressuring directors to stay on their shooting schedules, for example.

"It's become relatively clear that other studios have gone through similar examinations of their practices and have also concluded that things must change," Mr. Mancuso said in an interview last month before losing his job. A New Caution

At Disney, for example, Mr. Katzenberg has said the studio will be much more hesitant to take on big-budget extravaganzas like "Dick Tracy," and another top executive says Disney will no longer pay to have two big stars in a film, as it did recently with "Scenes from a Mall," with Woody Allen and Bette Midler. Columbia Pictures has recognized that on a financial basis, "more and more projects don't add up for us," said Frank Price, the chairman.

Even Carolco Pictures, which in the past has concentrated almost exclusively on big-budget films with stars like Arnold Schwarzenegger and Sylvester Stallone, now wants to produce a few less high-cost films each year and a few more moderately budgeted movies. And virtually every studio is developing more romantic comedies -- a genre considerably less expensive than action films.

Some studios have also responded by laying off more of the financial risk, limiting their financial exposure and their profits. Warner Brothers, for one, is making deals with independent producers and foreign entertainment companies under which it will put up the money for marketing and distribution, but not for producing movies. It is to some extent following a strategy used by Disney.

Despite the tougher bargaining posture that studio executives say they are taking, their willpower in negotiating with highly paid stars and their powerful agents is suspect. Some studio will almost certainly give in to Macaulay Culkin, the 10-year-old star of "Home Alone," who industry executives say is asking as much as $4 million for his next film.

In the view of frustrated studio executives, the problem lies primarily with agents who, they argue, push constantly for the last possible dollar that can be wrung from a deal. Agents disagree, saying that deals come down to what studios are willing to pay. But to hear agents tell it, the industry's big problem is not rising costs but that studio executives, with their multimillion dollar salaries and private screening rooms, have lost touch with the public. Looking Inward

The dismal results of the last year have certainly prompted a greater degree of self-analysis among executives, producers, directors and others in the industry. Mr. Katzenberg, Disney's studio chief, wrote in an internal memo earlier this year about the need for his company to focus less on big budgets and hype and more on developing good stories capable of grabbing audiences emotionally. The memo, which was widely circulated throughout Hollywood, gave voice to the uneasiness about creative bankruptcy and excessive costs as studios chased frantically and fruitlessly after the next "Batman."