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March 31, 2009

Why MPAA Blinked On Reporting Costs

I am fascinated that Dan Glickman, in giving his annual State of The Union report to reporters and then exhibitors at ShoWest, did NOT give a number for costs of production and marketing.

His excuse - which is not unreasonable on its face - was that there are so many co-production deals now that these numbers were inherently incorrect. But this was true last year and the year before as well.

What's the truth?

Fewer of the highest production cost films were made last year. The middle class of productions were about the same. And the biggest dip in the number of films released by studios last year were in the Dependent sector... the cheapest group. As a result, even with some improvement on the big overspending, the average for the industry would have to be significantly higher for the loss of the low end.

Between WIP, Searchlight, Focus, and Rogue, there were 7 fewer films, plus New Line/Picturehouse had 13 fewer releases and MGM has 7 fewer releases. That's the entire drop of 27 films released by studios from 2007 to 2008. Miramax released 8 films both years.

Sony Classics and Paramount Classics added 2 films to the 2008 list of releases from 2007.

WB actually cut its release slate by 8 films... though it released 6 New Line films, so the studio's reduction ended up being, on paper, only 2 films.

Paramount had 2 fewer releases. Sony had 5 fewer releases. Fox had 4 more releases. Disney had 13 releases both years. Universal had 18 releases both years.

Somehow, I seem to be missing a reduction of 3 films somewhere... what would be really interesting would be if MPAA wasn't counting the two Marvel movies and LucasFilm's animated release, both of which were self-funded by the producers. But I don't know if that is the case.

Anyway... you get my drift...

These numbers have been artificially low for many, many years. The real number for the average cost of a major studio release, both in production and in P&A, have seemed to be at least 50% lower than reality for as long as I can remember.

And Glickman/MPAA biting the bullet this year makes sense, because it is going to be even weirder next year, when you see another drop in the number of titles released by the majors… which as you probably know, is what the MPAA is and is all the MPAA numbers represent. WIP, New Line/Picturehouse, MGM, and Paramount Vantage will all see a big dip or complete disappearance of releases. So again, even as the studios cut budget, the average will not drop in a commensurate way.

In addition, if the number was even or up, primarily because of the dump of these lower budgeted divisions – especially on the P&A side – it would not look good for the parent companies of all of these studios. And while it might not draw a direct problem with Wall Street, the cash flow issues that all of the studios are having would be put under greater pressure… not unlike the way that bonuses as AIG have become a cause célèbre.

Posted by dpoland at March 31, 2009 09:31 PM

Comments

Wall Street is already very cognizant and worried about the film divisions of the majors. Over the last few years, many analysts have focused on the low return on investment and margins. The data is a little difficult to analyze as TV and Film an sometimes other stuff are lumped together for reporting purposes.

The bigger worry is that on top of the realization that movies are not a great business model (consistency or margins) is the slowing of movie DVDs and what the next distribution model is. Library content will always have value and refreshing it with new productions is smart but digital downloads or some other delivery mechanism is almost surely going to mean less revenue per unit. Will it be offset by more units?

Separately, all the majors are focusing on bigger movies as far as budget and presumably box office goes. Given the track record of hits and misses this is a risky strategy. But DP correctly notes that cost per prodcution across enitre slates are going up as the mix shifts in favor of supposed blockbusters.

Posted by: Direwolf [TypeKey Profile Page] at April 1, 2009 08:40 AM

Perhaps the studios might want to start reporting the "net" cost of a production less tax incentives & rebates and product placement fees? Of course that makes it tricky when it comes time to calculate a participation statement where they most likely WANT to include those costs.

Posted by: samguy [TypeKey Profile Page] at April 5, 2009 08:55 PM

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