Friday, August 18, 2006

The New York Times

August 19, 2006

Caught on Film: A Growing Unease in Hollywood

LOS ANGELES, Aug. 18 — For many here, Stacey Snider was the Hollywood executive who had it all. As chairwoman of Universal Pictures, she hobnobbed with celebrities at the Academy Awards. She was feted at charity events as well as in the fashion pages of Vogue. But after General Electric acquired Universal Pictures in 2004, the bright lights lost their brilliance.

Films like the Peter Jackson “King Kong” were considered disappointments, despite bringing in $547 million at the worldwide box office. And like many of her industry peers facing similar oversight, she regarded the scrutiny of the studio’s quarterly returns as, at times, oppressive. So much so that Ms. Snider quit her job in February to become chief executive of DreamWorks, now a division of Paramount Pictures, to work with the director Steven Spielberg on far fewer projects.

“It’s not like I view this as a private, artistic enterprise,” Ms. Snider, 45, said in a recent telephone interview. Still, she said: “I certainly felt the pressure. I felt the uncertainty. It galvanized the angst. We went from making movies to making product and content. I didn’t want to make franchises. I wanted to make movies.”

Hers is a common refrain in Hollywood these days. Despite a domestic box-office surge after years of declining attendance, 2006 is shaping up to be a time of Hollywood discontent. Studio executives have waged war on actor salaries, as high-profile projects with stars like Jim Carrey have been put off. Movie production deals, like the one Tom Cruise has at Paramount, are being renegotiated. Studios are also making fewer big-budget movies.

But while Hollywood has undergone periodic shifts like this before, many people here agree that there is something different this time, a permanence to Hollywood’s new austerity plan. Executives are facing too many unknowns, among them, changing moviegoer habits, rising costs and the threat of piracy.

“In this Wall Street and corporate world, the discussion has become: What is the proven, unique selling property of this product?” said Warren Beatty, the actor, who is upbeat about the industry’s prospects.

But he, too, agreed the industry was in transition. “The problem is you can’t sell entertainment the way you sell cars or air-conditioners,’’ he said. “Entertainment is dependent, to some extent, on surprise.”

The concern so far seems largely psychological, although many here predict dark days ahead. Movie-making is no longer a growth business, and has lost its luster among investors. Even the most well-run large movie studios often return only 5 percent to 7 percent annually. And other forms of entertainment — the Internet, sports and video games — are fiercely competing for consumers’ attention.

“When you hear what people are afraid of, it’s that movies are not special anymore,” said Terry Press, who runs worldwide marketing at DreamWorks Animation. “It’s the single issue no wants to think about or say out loud.”

The tipping point, many here agree, was Walt Disney’s announcement last month that it would eliminate 650 jobs in its movie division, fire its production chief and sharply reduce the number of films it makes to a dozen or so a year from as many as 20.

What’s more, the company said it would focus mostly on Disney-branded films like the popular “Pirates of the Caribbean” franchise, which it can exploit across all divisions.

“Where Disney may have sent ripples, it begged the question, Who knows what others will do?” said Leonard Goldberg, the movie producer and former business partner of Aaron Spelling who was known for television shows like “Charlie’s Angels” and “Fantasy Island.”

Slow-growing movie studios are wilting under Wall Street’s demands to deliver a box-office hit like the “X-Men” series or “Pirates” every time out. Executives say the decline in DVD sales, which began in early 2005, is taking a toll on budgets. And to complicate matters, studios have not figured out a money-making digital strategy to deflect piracy while, at the same time, appeasing fickle consumers who want movies online.

“Stress is a function of fear,” said Alan F. Horn, who has been in the movie business three decades and is president of Warner Brothers. While he says he is optimistic about the future, he conceded that running a studio “has never been tougher.”

Warner has had one of its worst summers in years, with disappointments like “Lady in the Water” by M. Night Shyamalan, the big-budget remake of “The Poseidon Adventure” and the animated “Ant Bully.” But even profitable Warner movies are cause for anxiety because Hollywood is quick to label anything a loser that does not meet prerelease expectations.

For example, “Superman Returns” by Warner cost $209 million to make and Mr. Horn predicted it would garner $400 million at the worldwide box office (a respectable sum), which he said ensured a profit after DVD and television sales. But many in Hollywood expected it to bring in at least $500 million given Superman’s popularity and the publicity around the movie’s release. Mr. Horn said, “People are asking, ‘Are you disappointed?’ I don’t know how to relate to that. I don’t know what to say.”

There are few economic indicators that reflect Hollywood’s apparent unease. Art dealers who cater to studio executives, actors and producers said buying had not slowed. Nor have sales of homes that cost $5 million to $10 million, several real estate agents said. And despite layoffs at all the major studios, the number of film and television production jobs has increased.

In the first six months of 2006, 130,000 people were employed in entertainment in Los Angeles, compared with 127,200 in 2005, according to the Los Angeles Economic Development Corporation. That growth is being fueled largely by an explosion in independent film production. Jack Kyser, the group’s chief economist, said 23 of the 30 films being made here in mid-August were from independent production companies.

But those statistics reflect only part of the story.

Robert Shaye, the founder of New Line Cinema, a division of Time Warner that will celebrate its 40th anniversary next year, said a fundamental driver of Hollywood’s unease was the high cost of making and marketing films. (The average in 2005 was $96 million.) Investment funds have poured money into movies, reducing the sting of studio cost-cutting. But investment funds are not immune to losses, either. A newcomer, Legendary Pictures, invested in “Lady in The Water” and “The Ant Bully,” Studios are also under attack from digital pirates who distribute illegal copies online. As a result of the piracy, studio executives can no longer depend on waves of re-releases for steady income. “Once it’s out there, it’s out there,” Mr. Shaye said.

With digital pirates and the pressure from Wall Street to produce predictable profits, the dialogue about what movies are made and marketed was bound to change.

If there is fear among some in Hollywood that brand managers are taking over, it is because two studios recently filled top creative jobs with executives whose expertise is movie marketing. At Disney, Nina Jacobson, the well-respected president of production, was fired and succeeded by Oren Aviv, the marketing chief. Ms. Snider, who joined DreamWorks, was succeeded in March by two executives, including Universal’s top movie marketer, Marc Shmuger.

Tom Staggs, Disney’s chief financial officer, argues that the concerns are unfounded. “The suits aren’t running the studio,” he said. “I think Hollywood has to constantly challenge itself to remain relevant.” Still, he added: “If we let it become a cookie-cutter, brand-flapping exercise, it is not going to work. We have to focus on the creative side.”

Some promising young executives are seeking to pursue creativity outside the studio. Last year, Mary Parent, 39, and Scott Stuber, 37, set in motion an option in their contract that allowed them to quit their jobs as presidents of production at Universal Pictures to become producers. Both said they did not leave the studio because they were unhappy; their producing deal is at Universal. Instead, they wanted the opportunity to flex their creative might before they got too old or started families.

“It reaches a point where it is hard to enjoy it,” said Ms. Parent, reflecting on being a studio executive. “Just the sheer volume of meetings between phone calls. You are trying to cut through the tide. It was grueling. You were at a test screening every night until midnight; you have scripts to read. You don’t want to be that person just scratching the surface.”

Of course, being a producer, particularly a new one, is no less demanding. In the last year, Ms. Parent has made five weeklong trips to New Zealand where she is a producer for the film “Halo.” Mr. Stuber has spent much of the summer in Arizona on the set of “The Kingdom,” where temperatures have spiked to as much as 110 degrees. “It’s not like it’s less busy,” Mr. Stuber said. “But you get to spend three hours in an editing room if you want to. You can’t lose sight of the fact that the job is to entertain.”

Whatever the challenges ahead, Mr. Goldberg, the producer, said Hollywood would adapt as it did when silent movies became talkies, and three decades ago, when the VCR was perceived as a threat.

He had no sympathy for those who do nothing but complain. “Let them get a real job,” he said. “They get paid a lot. They go to great parties. They fly around in jets, not only for business reasons, but for personal things, too. I think there are worse jobs to have.”