Wednesday, September 2, 2009

'Shutter' move underscores economy


Hollywood feeling the heat as Paramount displays

It's Hollywood bookkeeping gone nuts: A studio can increase its profits by not releasing a film.

Hollywood was stunned when Paramount chair-CEO Brad Grey abruptly announced that Martin Scorsese's Leonardo DiCaprio thriller "Shutter Island" -- set to open in six weeks -- was being pushed back from Oct. 6 to Feb. 19. Grey was willing to risk angering DiCaprio and Scorsese, a personal friend, if it meant keeping fourth-quarter costs in check.

Grey's decision immediately kicked up speculation that "Shutter Island" is troubled. That's always possible, but either way, the move underscores the level of economic pressure Paramount is facing. Though TV spots hadn't started, Par had already spent money on the outdoor campaign, and some magazines featured "Shutter Island" in their fall previews.

"Nobody is going to move a movie six weeks prior to release if you don't have to. But by moving it, your earnings immediately go up because of all the money you aren't spending," a rival studio topper says.

Paramount has had a banner year in theaters, with roughly $1.2 billion in domestic B.O. revs (only Warner Bros. is ahead at $1.4 billion). Yet theatrical market share doesn't necessarily equal profitability as costs are obviously a big factor.

Studio creatives and corporate bean counters are naturally suspicious of each other, but in perilous economic times, the bean counters' grip gets stronger. It's one thing to deliberately cut back on the number of titles a studio releases; it's another to make such a big change so late in the game. Talent billing doesn't get much bigger than Scorsese and DiCaprio.
Accounting rules put in place a decade ago require studios to absorb the full cost of prints and marketing of a film in the quarter the pic is released.

They're also required to absorb 20% of the production budget. Since "Shutter Island" would have been released in the final quarter of the fiscal year, Par wouldn't see any DVD or pay TV revenues until fiscal 2010.
In the case of "Shutter Island," the writedown could have been at least $26 million. Assuming the movie grossed $100 million at the box office, the studio would get $50 million back. But if the movie cost $60 million to market, Par's writedown would be $10 million plus 20% of the film's $80 million production budget.

Paramount chair-CEO Brad Grey didn't mince words in announcing the pushback of "Shutter Island."

"Our 2009 slate was greenlit in a very different economic climate and, as a result, we must remain flexible and willing to recalibrate and adapt to a changing environment. This is a situation facing every single studio as we all work through the financial pressures associated with the broader downturn," Grey said in a statement.

"Like every business, we must make difficult choices to maximize our overall success and to best manage Paramount's business in a way that serves Viacom and its shareholders while providing the film with every possible chance to succeed both creatively and financially," he continued.
Move means that Paramount has only one film officially dated for the rest of the year: Peter Jackson's "The Lovely Bones," set to open Dec. 11.

Unofficially, Par has decided to throw its support behind George Clooney dark comedy and awards hopeful "Up in the Air," directed by Jason Reitman. That film isn't yet dated. Rumors are that it will be released in early December, but Par says a date won't be decided upon until after the film makes its world premiere at the Toronto Film Festival.

"Up in the Air" cost only a fraction of what "Shutter Island" did to produce, so Par insiders say the writedown would be less. Plus, the studio can use the fest circuit as a key part of its marketing campaign and awards push.

After years of overstuffing the pipeline, all the studios are having to reassess how many films is the right number, but Paramount's lineup through the end of the year is by far the leanest at any of the studios.
In moving "Shutter Island" out of 2009, Par is borrowing a page from its own playbook: It made last-minute shifts last year, pushing back the release of Joe Wright's Robert Downey Jr.-Jamie Foxx drama "The Soloist" from Nov. 21, 2008, to March of this year. Par and DreamWorks knew the film wasn't an awards contender.

Some assumed that a Scorsese-DiCaprio film would be certain kudos fodder. Released the same weekend in 2006 as "Shutter Island's" original October date, Scorsese's "The Departed" went on to win the Oscar for best picture.

Other studios were stunned by Par's "Shutter Island" decision.

"It's a bold move. We are talking about Martin Scorsese and Leonardo DiCaprio," says a rival studio exec.

No one has been as aggressive as Paramount about abruptly pulling a film so late in the game to shore up financials. But there have been other dramatic moves in recent years.

Last August, after it had struck box office gold with "The Dark Knight," Warner Bros. announced it was pushing back the release of "Harry Potter and the Half-Blood Prince" from November 2008 to July 2009. Warners took a drubbing from fans upset over the decision but did it anyway.
Releasing a movie in the fourth quarter of the calendar year always carries risk because of the accounting rules.

"You have to be very careful about releasing adult dramas, especially when DVD revenues won't come in until the next year. Movies like 'Alvin and the Chipmunks' or 'Meet the Parents' are different because you'll build huge grosses quickly," the studio topper says. "All you get are two weeks of revenues."

Disney, 20th Century Fox and Sony don't have the same end-of-the-year crunch because their parent congloms don't go by the calendar year. Disney's and Fox's fiscal year runs Oct. 1-Sept. 30, while Sony Corp.'s runs April 1-March 31.

Like Par, Universal and Warner Bros. go by the calendar year.

Interestingly, Viacom will switch to an Oct. 1-Sept. 30 calendar beginning in Oct. 2010, helping to alleviate the end-of-the-year dilemma.

For now, Par is hoping that the February release date that proved so fruitful for "Silence of the Lambs" will be just as lucky for "Shutter Island," a macabre period thriller set in an insane asylum.

"Following a highly successful 2009, we have every confidence that 'Shutter Island' is a great anchor to lead off our 2010 slate, and the shift in date is the best decision for the film, the studio and ultimately Viacom," Grey said.

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