Report Claims Movies Don’t Make Money Anymore

LOS ANGELES, November 12:
According to a report by Global Media Intelligence in association with its
partner Merrill Lynch, movies no longer make money in large part because of the
ever-growing participation deals studios make with stars, directors and
producers.

The study, entitled Do
Movies Make Money, claims that
participation arrangements—giving an actor, director or producer a share
of the gross revenue of a film, not of the profit—amounted to some $3
billion last year. These deals have changed the movie business, which was
profitable a few years ago, into one that is losing money.

Under these participation
deals a studio can give away as much as 25 percent of a film’s receipts. Roger
R. Smith, a former film executive, worked on Do Movies Make Money?. He and his team studied all the films distributed
in recent years by the major Hollywood studios, including DreamWorks, which
prior to being acquired by Paramount, operated as an independent studio.

The study estimates that
all studio movies released last year would yield a combined loss of $1.9
billion after collecting revenues from the entire first cycle of sales. These
are sales to domestic theaters, foreign theaters, home video, pay television
and all other sources of income.

Total sales for last
year’s slate of studio movies, according to the study, will ultimately be about
$23.7 billion, down about 4.6 percent from 2004. Total costs, meanwhile, rose
to $25.6 billion, up 13.2 percent.

One contributing factor to
the decrease in movie revenues is the decline in foreign DVD sales, which
dropped 15.5 percent, while domestic DVD sales fell at half that rate.

The results of this report
come at a time when members of the Writers Guild are on strike demanding, among
other things, a larger share of DVD and new media revenues. According to a
report from the Writers Guild of America West, movie residuals were just $121.3
million in 2006, a fraction of the $3 billion in participation deals. A major
movie star, by contrast, whose movie brings in $600 million to the studio from
all sources, might easily wind up with a $20 million salary with an additional
$50 million on the back end, while an A-list director and producer could take
in tens of millions more.

According to Do Movies
Make Money?, a few years ago
studios could count on DVD sales to take their movies into profitability in a
five-year period. Once fully paid for, the movies would provide a smaller but
nearly endless stream of income from library sales over the decades.

Now, however, those same
movies are joining the library carrying multibillion-dollar losses. Plus, they
are weighed down by gross participations that never stop.

—By Anna Carugati