Wednesday, November 26, 2008

The movie business isn't recession-proof, after all. Hollywood is hurting.


Judging by the box office--a record-setting $70 million opening for Quantum of Solace, fans camping out for Twilight and a blockbuster holiday season ahead--things seem great in Hollywood. But look away from the glow of the screen, and Tinseltown gets a lot darker.

All of the 10 highest-grossing studios, which control 91% of U.S. market share have scaled back or combined their operations in recent months. This year's top-grossing studio, Warner Brothers Entertainment, shuttered two of its independent arms, Picturehouse and Warner Independent Pictures, and absorbed a third, New Line Cinema, in an effort to cut costs. Their total film output will drop to 20 films this year, down 25% from last year's slate. Paramount and 20th Century Fox made similar cuts.

It isn't the terrible economy--yet. People are still going to movies. The big problem is Wall Street. Without money from private equity and big investment banks, which injected an estimated $10 to $18 billion into Hollywood in the last four years, studios have had to change the way they do business--fast. "I would be very dubious for Hollywood as we know it surviving," says David Thomson, film critic and author of Have You Seen ...?

In Pictures: What's Hurting Hollywood

The American film industry "can't sustain much higher growth rates or attract capital at the same low rates the way they could a year or two ago," says Harold Vogel, CEO of Vogel Capital Management and author of Entertainment Industry Economics."All the risk has been repriced."

As financing costs escalate, so will production costs. That means fewer films. Though the reduction ripple won't hit the box office until 2010, the number of productions will be down 5% to 10% over the next few years, predicts Vogel. The total number of feature films in wide release climbed from 478 in 2000 to 631 last year, a 32% increase. The number of movie tickets sold increased by only 1% in that same period.

The independent film industry may shrink even more. According to remarks made by Mark Gill, CEO of The Film Department, at the L.A. Film Festival last June, of the 5,000 films submitted to Sundance last year only "maybe five" would make money. There were 477 independent films made in 2007, according to the Independent Film & Television Alliance, each costing an average of $16.5 million to make.

"There's been an open spigot of money flowing into Hollywood, and the pictures are killing each other," says John Fithian, president of the National Association of Theatre Owners. "We can't handle the number of movies we're getting right now."


More on this Story 

Hollywood in Pictures


Home
RSS Feed
Email Subscribe
Tell a Friend

0 Comments: