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[FILMS] Expectations & WB Having Down a Year / Superman Returns Disappoints

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  • madchinaman
    Picture This: Warner Bros. Having a Rare Down Year Underperformers such as Poseidon have given the studio and investors a sinking feeling. By Claudia Eller,
    Message 1 of 1 , Aug 24, 2006
      Picture This: Warner Bros. Having a Rare Down Year
      Underperformers such as 'Poseidon' have given the studio and
      investors a sinking feeling.
      By Claudia Eller, Times Staff Writer
      http://www.latimes.com/entertainment/news/la-fi-
      warner18aug18,1,2791941,full.story


      -

      But it quickly became clear that "Superman Returns," which cost $209
      million, wouldn't bring the profit that Warner Bros. was hoping for
      in reviving the Man of Steel as a franchise.

      Even the profitable "Superman Returns," which Warner hoped would be
      one of the summer's biggest blockbusters, underperformed by Horn's
      own admission.

      It hasn't helped Warner that none of the six profitable movies it
      has released this year — including "V for Vendetta" and "Superman
      Returns" — has been a blockbuster.

      Horn declined to divulge figures, but a person familiar with the
      studio's internal projections said Warner's cut of the "Superman
      Returns" profit was expected to be $50 million to $60 million. The
      film cost $209 million to produce and more than $100 million to
      market worldwide.

      Horn expects "Superman Returns" to eventually gross about $400
      million worldwide, more than last year's hit "Batman Begins."
      Nonetheless, "Superman" fell at least $100 million short of his
      expectations.

      -


      Last year Warner Bros. President Alan Horn was at the top of his
      game.

      Boy wizard Harry Potter, eccentric candy maker Willy Wonka and crime
      fighter Batman catapulted Warner to its most profitable year.

      But the hot streak ended with a thud. Not even Superman could
      prevent a crush of movie losses that has shaken the venerable
      Burbank studio and its affable leader.

      The costly disaster movie "Poseidon," director M. Night Shyamalan's
      fantasy thriller "Lady in the Water," the computer-animated "The Ant
      Bully" and the urban drama "ATL" could lose more than $120 million
      combined for Warner and its financial partners, according to one
      person familiar with the films' finances.

      "The price of failure is high," Horn said. "It's not just the
      financial cost. It's reading about it in the newspaper."

      The gusher of red ink is especially painful for a studio so used to
      success. In 18 of the last 20 years, Warner has ranked among
      Hollywood's top three distributors in box-office revenue.



      In an interview in his office on the Warner lot, Horn spoke frankly
      about the cold streak, his most disappointing since joining the
      studio seven years ago after running the production outfit Castle
      Rock Entertainment. Even the profitable "Superman Returns," which
      Warner hoped would be one of the summer's biggest blockbusters,
      underperformed by Horn's own admission.

      Merrill Lynch analyst Jessica Reif Cohen said Warner was having "an
      unusually bad year." But, she added, Horn and his boss, Chairman
      Barry Meyer, are still considered top-notch executives.

      "They've been incredibly consistent and stable, and the management
      team is well-respected," she said.

      Still, the two are under the gun from parent Time Warner Inc. to
      grow the studio's businesses as they struggle with such industrywide
      issues as rising production and marketing costs, a cooling DVD
      market and changing consumer demands. Late last year, Warner slashed
      400 jobs worldwide.

      "I think there's a huge amount of pressure," Reif Cohen said. "Time
      Warner stock isn't performing, and for Warner Bros., which has been
      so successful, it becomes harder to grow the business."

      Warner's flops also underscore the inherent risks for investors
      behind the torrent of private equity money flowing into Hollywood.
      Warner and other studios increasingly rely on outside financing from
      hedge funds, private equity firms and other sources to spread their
      risks.

      Warner's recent losses will be shared with equity players Legendary
      Pictures and Virtual Studios, each of which has committed hundreds
      of millions of dollars to co-finance the studio's movies.

      Increasingly starry-eyed Hollywood investors are feeling the sting
      of failure when expected blockbusters go bust.

      "All I can say to our partners is the same thing I say to our people
      here at Warner Bros.: It's painful to lose money on a movie," Horn
      said. "We are in the business for the long term. We are producing a
      slate of movies and some will work and some will not."

      Warner is especially dependent on the outside money to protect its
      downside. Except for its lucrative "Harry Potter" series, the studio
      has partners on virtually every film.

      Although the partners split costs with Warner, the deals are
      particularly good for the studio because it winds up making far more
      on the hits and losing less on the flops than its investors. That's
      because it takes an off-the-top distribution fee of more than 12%
      before sharing any revenue.

      But independent media analyst Harold Vogel wonders whether access to
      such easy private equity money has clouded Warner's movie choices.

      "Maybe Warner Bros. got a little inebriated, and it distorted their
      normally good judgment," Vogel said.

      "Everyone can have a bad year. Just the same, I don't understand how
      a smart management team like Warner Bros. could have made 'Poseidon'
      or 'Lady in the Water.' "

      Horn said Warner wasn't just going on a spending spree using other
      people's money.

      "The decision to bring in a partner always helps us in the risk
      analysis," he said. "But I would never say I wouldn't
      make 'Poseidon' without a partner."

      Still, Horn knows financiers have only so much patience. But he
      believes they still consider Warner a good long-term bet.

      "I know that if a partner loses money over time, that partner will
      be gone," he said. "I am confident that we are picking movies that
      will give us a slate that will make money."

      Neither Virtual's nor Legendary's top executives returned calls
      seeking comment. Typically, such investors spread their money and
      risks over a slate of studio movies.

      It hasn't helped Warner that none of the six profitable movies it
      has released this year — including "V for Vendetta" and "Superman
      Returns" — has been a blockbuster. Horn said the half-dozen would
      make "from a lot to a little" money.

      Horn declined to divulge figures, but a person familiar with the
      studio's internal projections said Warner's cut of the "Superman
      Returns" profit was expected to be $50 million to $60 million. The
      film cost $209 million to produce and more than $100 million to
      market worldwide.

      Horn expects "Superman Returns" to eventually gross about $400
      million worldwide, more than last year's hit "Batman Begins."
      Nonetheless, "Superman" fell at least $100 million short of his
      expectations.

      "I thought it was a very successful movie, but I think it should
      have done $500 million worldwide," Horn said. "We should have had
      perhaps a little more action to satisfy the young male crowd."

      Still, he's betting Warner has firmly reestablished the "Superman"
      franchise and is planning another installment for summer 2009.

      Horn is more blunt about his disappointment with "Poseidon," a movie
      that critics skewered and audiences avoided. Warner and its
      financial partners sank $160 million into the remake about a
      capsized cruise ship, figuring that arming "The Perfect Storm"
      director Wolfgang Petersen with today's state-of-the-art special
      effects would wow moviegoers.

      Then, Horn said, "I heard a 15-year-old girl say, 'I've seen a
      luxury liner go down. I saw 'Titanic.' "

      To date, "Poseidon" has grossed only $60 million domestically and
      $120 million internationally. Horn said Warner and its partners are
      expected to lose about $50 million on the movie.

      " 'Poseidon' was an event movie for us and we had high hopes for
      it," Horn said. "The audience didn't show up."

      Horn's top production executive, Jeff Robinov, concurred that the
      studio miscalculated.

      "Between Wolfgang and the scale of the picture, we felt we didn't
      need more than that," he said.

      But in hindsight the studio should have cast bigger stars, Robinov
      said. It also didn't help that its May 12 release date was
      sandwiched between the premieres of Paramount Pictures' "Mission:
      Impossible III" and Sony Pictures' "The Da Vinci Code."

      Horn and Robinov also had high hopes for Shyamalan's $70-
      million "Lady in the Water," which sources estimate could lose $20
      million to $30 million.

      The movie was panned by critics. Some observers also question
      whether Shyamalan, known for such hits as "The Sixth Sense,"
      inadvertently sabotaged his movie by participating in a tell-all
      book published one day before the film's release.

      Critics said he came off as whiny and spoiled in lambasting his long-
      term allies at Walt Disney Studios for passing on his movie.

      Horn said the book didn't help the movie but he defended his
      decision to greenlight "Lady."

      "I thought it was a good bet," Horn said. "Night Shyamalan is
      extremely talented, and my respect, affection and commitment to him
      is unchanged."

      "The Ant Bully," Warner's attempt to capitalize on Hollywood's
      computer-animation obsession, is expected to lose $40 million, one
      Warner executive said, even though it was made for less than $50
      million.

      Horn said he was giving serious thought to cutting back on the
      number of films Warner releases, following in the footsteps of a
      similar decision by Walt Disney Co.

      Warner typically releases 18 to 22 movies a year, Horn said, and is
      now leaning toward the lower end. However, he said, he has no plans
      to scale back on the four big-budget movies it releases each year.

      "You don't abandon the strategy," Horn said. "That's just crazy."

      Horn said he was excited about the remaining four months and 10
      movies left in 2006 and what's ahead in 2007, when Warner has
      another "Harry Potter" sequel, "Oceans 13" and "I Am Legend"
      starring Will Smith.

      In the coming months, Warner is releasing Martin Scorsese's gang
      drama "The Departed," starring Leonardo DiCaprio, on Oct. 6, the
      animated comedy "Happy Feet" on Nov. 17; the action adventure "Blood
      Diamond," also with DiCaprio, on Dec. 15; and the sports drama "We
      Are Marshall" on Dec. 22.

      "I actually think that we'll finish out the year — and I could be
      wrong — doing over $1 billion in domestic box office," Horn said.

      Which is why he doesn't want to be judged just yet on 2006.

      "It's like being in the middle of a basketball game," Horn
      said, "and my team's down 30 points and you say, 'Game's over.' "

      *

      (INFOBOX BELOW)

      Big duds

      Here are the Warner Bros. movies that will lose the studio and it's
      investors money this year:

      Title:Poseidon

      Release date: May12

      Est. cost (in millions): $160

      Est. loss (in millions): $50

      --

      Title: The Ant Bully

      Release date: July 30

      Est. cost (in millions): Under $50

      Est. loss (in millions): $40

      --

      Title: Lady in the Water

      Release date: July 21

      Est. cost (in millions): $70

      Est. loss (in millions): $20-$30

      --

      Title: ATL*

      Release date: March 3

      Est. cost (in millions): $20

      Est. loss (in millions): over $10

      *No longer in theaters

      --

      Source: Times research


      ==================


      Nice Movie Opening, but Did You Beat the Forecasts?
      Studios define success as a "strong" premiere — and jockey for it by
      managing expectations.
      By Josh Friedman, Times Staff Writer
      http://www.latimes.com/business/la-fi-
      boxoffice6aug06,1,6755074,full.story


      In a recent episode of the HBO series "Entourage" about a fictional
      Hollywood star and his posse, actor Jeremy Piven, playing fast-
      talking agent Ari Gold, contemplates what would happen if his
      client's "Aquaman" movie falls even a hair short of its projected
      $95-million weekend box-office opening.

      "Expectations — you beat 'em by a dollar, life is great," Piven
      said. "Under by a dollar, put a gun to your mouth and make sure I'm
      standing behind you."

      Those who work in the film industry in real life know the feeling.
      Whether a movie is liked by audiences, or eventually makes gobs of
      money for a studio, is secondary in Hollywood to whether Monday's
      lunchtime crowd at the Grill thinks it made its numbers.

      "On Friday afternoon everybody in town is already gossiping about
      how much business your movie is doing," said former 20th Century Fox
      studio chief Bill Mechanic. "By Monday everybody is asking, 'Did you
      beat expectations or disappoint?' "

      The process is similar to evaluating a football team's performance
      not on the outcome of the game but on whether it beat the point
      spread set by oddsmakers. An amorphous group of Hollywood executives
      and box-office pundits mulls over how much a film should gross.
      Hollywood buzz then sets a line of demarcation defining success.

      Studio executives often work overtime weeks before a movie's opening
      to downplay projections. In the run-up to last month's record $135.6-
      million weekend opening of "Pirates of the Caribbean: Dead Man's
      Chest," Walt Disney Co. and the filmmakers refrained from making
      even innocuous comments on whether it could beat previous box-office-
      opening champ "Spider-Man."

      "The industry is always giving you high benchmarks because
      competitors want to make you feel bad when you fail," "Pirates"
      producer Jerry Bruckheimer said. "When they started talking about
      how we could open as high as $125 million, I said to myself, 'Uh-oh,
      here's the game again.' "

      Internet pundits and rival studios had been forecasting — correctly,
      as it turned out — a record-breaking opening.

      As much as studios say they don't like the expectations game, they
      play it like political strategists spinning poll numbers behind the
      scenes. That's because moviegoers often use box-office performance
      as a filter in deciding which movies to watch. Wall Street also pays
      close attention to perceived success on an opening weekend.

      "Anybody who ignores the need to manage expectations does so at
      their own peril," said Tom Ortenberg, president of Lions Gate
      Entertainment Corp.

      Last week, Universal Pictures had to sweat out the prospects for its
      costly adaptation of the 1980s cop show "Miami Vice." The studio's
      honchos were relieved when it won the weekend with a haul of $25.7
      million, a new high for director Michael Mann.

      When this weekend's grosses are estimated today, the pressure will
      be on Sony Pictures, whose NASCAR comedy "Talladega Nights: The
      Ballad of Ricky Bobby" is widely expected to finish No. 1 with a
      total above $30 million.

      For studios, releasing a movie that has fallen short of expectations
      spells trouble, especially in an era in which the media are obsessed
      with handicapping and analyzing the box office. Box-office pundits
      offer their takes each week on TV shows, in newspapers and on the
      Internet. The likes of BoxOfficeMojo.com provide daily updates via e-
      mail.

      "This industry has become the world's biggest spectator sport," said
      Adam Fogelson, Universal Pictures' marketing chief. "You have as
      much pregame and postgame analysis as you will find with any
      sporting event."

      Studio executives may talk up the prospects for their rivals'
      upcoming releases while downplaying their own films, hoping to
      create the impression of a surprisingly strong opening. Like a
      losing candidate in a political primary who does better than the
      polls predicted, a film can be proclaimed a winner even if it
      doesn't finish first.

      "The Devil Wears Prada" opened to $27.5 million in June, the same
      weekend the more heavily hyped "Superman Returns" drummed up $52.5
      million. The couture comedy was pronounced a surprise hit, but the
      latest superhero installment was labeled "unspectacular"
      and "disappointing" in articles.

      A bigger-than-expected premiere also gives films momentum. The Tyler
      Perry comedies "Diary of a Mad Black Woman" and "Madea's Family
      Reunion" from distributor Lions Gate were lauded for attracting
      surprisingly big crowds.

      "When a picture opens better than expected, we get a publicity bump
      from that," Ortenberg said.

      "Fahrenheit 9/11," Michael Moore's documentary attack on President
      Bush, expanded to 2,000 theaters from 868 thanks to its surprising
      opening in 2004.

      Expectations have their origins in weeks of market research that, to
      its credit, is often accurate. Hollywood buzz correctly predicted
      that "Poseidon" would sink while "Pirates" could set records.
      Besides moviegoer surveys, analysts look at such variables as the
      number of theaters screening a movie, whether the running time will
      limit daily showings, historical performance of similar pictures,
      the track records of the filmmakers and stars and the weekend's
      competition.

      But the methodology has grown increasingly suspect in recent years.
      Traditional research methods such as calling people at home have
      become harder in an era of cellphones and do-not-call lists. That
      means there are more potential surprises that can hurt or help a
      movie.

      In 2000, Hollywood was stunned when "The Perfect Storm," starring
      George Clooney, crushed the Mel Gibson film "The Patriot," which had
      been expected to be that weekend's top draw. Lions Gate's Ortenberg
      said research for "Diary of a Mad Black Woman" vastly underestimated
      the strength of Perry's fervent fan base of adult African American
      women.

      Even the holy grail for movie distributors — a chart-topping opening
      weekend — can translate to failure if a film doesn't meet the
      predictions of industry sages.

      In addition to "Superman Returns," that fate recently has befallen
      the likes of "King Kong" and "Mission: Impossible III."

      Rob Moore, Paramount Pictures' president of worldwide marketing and
      distribution, noted that "Mission: Impossible III" opened at $47.7
      million, better than the studio's "Failure to Launch" and "Nacho
      Libre." Yet the Tom Cruise thriller was tabbed disappointing,
      whereas the comedies were sleeper hits.

      "The obsession with expectations has become so great that of our
      last three movies, the one that had the biggest opening weekend is
      the one that got beaten up by the press," Moore said.

      Escalating film production costs on such films as "Mission:
      Impossible III" are one reason opening numbers get so much scrutiny.
      Box-office pundits view the opening in the context of how much was
      spent to make the movie and whether the studio will make a profit.

      "Prada," which cost a relatively modest $35 million to produce, was
      deemed a hit partly because it would yield a juicy return on
      investment for 20th Century Fox. But it quickly became clear
      that "Superman Returns," which cost $209 million, wouldn't bring the
      profit that Warner Bros. was hoping for in reviving the Man of Steel
      as a franchise.

      Producers and studio executives grumble that because of Hollywood's
      short attention span, the expectations game focuses exclusively on
      opening weekends. They say that movies with staying power don't get
      their due, and instead can be prematurely branded flops.

      Two years ago, the computer-animated holiday picture "The Polar
      Express" was labeled a dud when it opened at $23.3 million rather
      than the $40-million-plus that some had forecast, said Dan Fellman,
      distribution president at Warner Bros. But the film showed stamina
      at the box office, ultimately generating $298 million worldwide.

      Universal's "King Kong" remake was creating strong buzz before it
      opened last December. The show business paper Variety predicted that
      the film's grosses were "destined to be huge," potentially the size
      of blockbusters "Titanic" or the "Lord of the Rings" trilogy.

      News reports labeled "King Kong" a disappointment after it grossed
      $50.1 million its opening weekend. Nonetheless, the film ultimately
      reaped $218.1 million in the United States and Canada and $549.2
      million worldwide.

      "The minute that movie opened, all we were reading about was how
      it's not going to beat 'Titanic,' " Fogelson said. "People should
      have been reading about how 'King Kong' was one of the best-reviewed
      special-effects movies ever made. It was not an underperformance —
      it was a fantastic result."

      When a movie disappoints, the Monday morning quarterbacking can test
      the patience of even jaded industry veterans.

      Mechanic, while chief of Fox Filmed Entertainment, once hung up on
      his mother when she asked about one of his studio's movies falling
      short.

      "I get that from everybody else," he said. "I don't need it from
      her."
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