I Know What You Did Last Weekend

Last summer, “Speed 2: Cruise Control” debuted at the top of the weekend box-office charts. To the casual observer, the sequel’s $16.2-million opening weekend made it seem like a sure winner, topping the opening of the huge moneymaker “Speed.”

But among financial analysts and in movie studio warrens around Los Angeles, the truth of the matter was understood: “Speed 2” cost at least $145 million to make, almost five times the original film’s budget, and the modest size of the opening weekend assured that the film would be as much of a disaster on Fox’s balance sheet as critics said it was on screen.

In the end, the loss for the studio came to between $65 million and $85 million, sources said.

Every weekend, studio analysts pore over the latest box-office figures with the knowledge that a movie’s destiny is typically revealed in its first few days of business. From there, executives make projections of worldwide box office and revenues from such secondary markets as video and cable and network TV.

Though domestic theater box office accounts for only about 20% of a film’s total revenue, the U.S. opening weekend is regarded as crucial to a movie’s overall profitability. Without a significant first weekend gross, the trailing revenue streams quickly dry up for major studio releases. In other words, a film has to prove it can make money in order to make more money.

“It’s simple, single-line math,” one top studio executive explained. The projections of future revenue for a movie are keyed to how well the film performs in the U.S.

Being No. 1 doesn’t necessarily mean a film is a hit. Look at two of the summer’s big disaster entries that opened to similar weekend receipts: “Deep Impact” had a $41-million three-day debut. “Godzilla” took in $44.5 million in the first three days of the Memorial Day weekend.

What the raw numbers don’t show, however, is that Paramount/DreamWorks’ “Deep Impact” will reap a much larger profit than “Godzilla.”

“Deep Impact,” which cost $100 million, has already grossed more than $200 million worldwide and should end up topping $300 million, meaning it will cover most of its production and marketing costs in advance of ancillary income.

Sony’s “Godzilla” cost $120 million to produce and had higher advertising costs than “Deep Impact.” “Godzilla,” part of a planned trilogy, desperately needed a power launch to propel it theatrically overseas and to kick off a heavy merchandising and promotional push. In the end, the film will make only a modest profit, performing no better than “Deep Impact” around the world.

“Godzilla” also is encumbered by profit participation from its creators, further eroding the studio’s return. Sequels at this point are unlikely.

In recent years, the opening weekend has come to represent a larger percentage of the total domestic box office, in part because of a deluge of studio films and intense competition for screens.

“Twenty years ago, with the marketplace not as crowded as it is, it was easier for films to maintain a position in theaters for longer with less competition,” said New Line President Michael Lynne. “With a more crowded marketplace, the process works faster. Films are now going through their theatrical window in a much quicker time frame and, therefore, judgments about profitability can be made more quickly.”

The opening weekend numbers have a direct effect on a film’s ancillary revenue.

Cable TV rights are typically calculated on a sliding scale, based on a film’s ultimate gross. Videocassette orders are also charted according to box-office performance, as are network TV sales.

Had it opened as well as anticipated, “Godzilla” would have sold to network TV for more than the $25 million NBC paid for it. Had first weekend grosses indicated the film would gross $175 million or more, Sony would have gotten its $35-million asking price, maybe more.

Thus, a difference of about $20 million in U.S. rentals would have brought an additional $10 million from network television alone. Video and cable revenue would have similarly spiked.

While many films follow typical patterns based on genre and size, there are always exceptions. Based on its first weekend, no one could have predicted that “Titanic” would gross almost $600 million in the U.S.--not even Paramount, which sold the TV rights for what is now seen as a ridiculously low $30 million. (Last year’s “The Lost World: Jurassic Park,” which took in less than half as much as “Titanic” in the U.S., was sold to television for $80 million.)

It also would be impossible to calculate a $45-million gross for Fox Searchlight’s “The Full Monty” based on the independent film’s early limited release. The movie is one of the most profitable of the decade. Produced for just $3.5 million, it has grossed $250 million worldwide.

Still, all of the studios have constructed their own financial models that apply in most cases, based on the cost of the movie and average marketing and distribution expenditures. Those models suggest generally that if worldwide box-office returns (about half of the gross) match the cost of a $75-million movie, the studio should break even, assuming that additional income from ancillary sales will absorb marketing and distribution costs and any profit participation by stars or directors.

The models also take genre into account. A good teenage horror movie, for instance, will usually get off to a bang-up start and then lose almost half its business in the second weekend, because teens tend to run out to see movies right away. A 50% second-weekend decline would be disastrous for a movie aimed at the adult audience (where a 35% second-weekend drop is the norm).

Because first-weekend returns tell so much of the financial story today, studios often make critical decisions based on their profit models. It’s how budgets are set and overall film division revenue flows are planned.

Yet studios almost universally carp that the media are obsessed with box office performance. Studio marketing machines work overtime trying to deflect interest away from these figures.

The studios have even less interest in public scrutiny of movie profitability and rarely reveal cost figures or other financial information that would shed light on movie finances. One reason for this is that behind all the hype, roughly seven out of 10 studio films end up losing money, said entertainment analyst Harold Vogel of Cowen Co.

But Vogel cautions that in the studio world, profitability is a slippery term. “Profitable or unprofitable to whom?” he asks. Even on flops, studios collect distribution and overhead fees that help pay for their continuing operations.

The studios by and large aredivisions of publicly held, multinational conglomerates that turn out products in the same way Procter & Gamble does, spending $90 million to $100 million on average to make and market each major release. And the success or failure of each of these enterprises has an impact on the overall health of the entertainment divisions of these giant media corporations.

There are other variables that make estimates of movie profitability difficult. The average $30-million marketing budget for a studio movie can go well over or under that.

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Freelance writer Scott Collins contributed to this report.

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* MOVIE MONEY

A new chart is designed to shed light on film profitability. D12