As Layoffs Sweep Movie Studios, Hollywood Fears for Its Future

By Claudia Eller and Richard Verrier
Times Staff Writers

July 20, 2006

Never mind that movie ticket sales are picking up and that "Pirates of the Caribbean: Dead Man's Chest" could become the biggest hit in motion picture history. As studios slash jobs and restructure to boost profits, Hollywood's creative and executive ranks are having a collective anxiety attack.

Walt Disney Co.'s move this week to lay off about 650 employees and revamp its Burbank studio to make fewer films only confirms what many in the entertainment industry have been stressing over for months: The movie business is shrinking.

Disney's firings, which started at the top with the studio's production chief, are the latest in an industrywide contraction that has cost more than 2,000 jobs worldwide. In Los Angeles, particularly, the economic effect is being widely felt.

Here, in an industry built on bravado, people are suddenly talking openly about being afraid.

"I think we're moving into uncharted territory, and there's great unease about where we're headed," said Oscar-winning producer Doug Wick, whose credits include "Gladiator" and this year's "RV." "Occasionally, this fear turns into panic."

Producer Brian Grazer, a multiple Oscar winner whose current release "The Da Vinci Code" has racked up more than $700 million worldwide, went further.

"It's as if the managerial elite has made a secret pact to adhere to certain business principles that they want to enforce on agents and artists," said Grazer, who sees studios as more rigid today about how far they'll stretch to compensate even the biggest stars, directors, producers and writers on movie projects.

"That's never happened in the 25 years I've been producing."

Disney is not the only media conglomerate over the last year to cut, and cut deeply. Financial pressures recently forced the owners of two major movie studios, Metro-Goldwyn-Mayer Inc. and DreamWorks SKG, to sell once-vital operations to deeper-pocketed players. Those moves resulted in about 1,350 lost jobs.

Another formerly robust supplier, Revolution Studios — an independently financed production company that counted Sony Pictures among its investors — has significantly downsized its ranks and ambitions after too many box-office misses.

Disney dramatically scaled back its Miramax Film specialty unit from the mini-studio that it had been under its founders, Bob and Harvey Weinstein. And Time Warner Inc.'s Warner Bros. cut about 400 jobs.

As DVD sales level off and soaring talent, production and marketing costs slice into profits, most studios have opted to hedge their bets by taking outside financiers as partners on many of the movies they make.

Another sign of belt-tightening: Sony is in the throes of severing a number of producer deals at its Culver City lot.

"We're running into some pretty choppy waters, and so you trim your sails," Sony Pictures Chief Executive Michael Lynton said, adding that the studios in general were having to be more prudent because "some of the cushions that were there in the past are no longer there."

Among those cushions, he said: "More-predictable DVD sales, a much bigger TV network market for films, and reliable audience reaction to the TV marketing of our movies."

Media analysts agree that in watching their bottom lines, entertainment companies are simply doing what is necessary to raise sagging stock prices and earnings. But they acknowledge that the conglomerates that own studios appear to be losing some confidence in the movie business.

"The media companies don't like it as much as they used to," Wall Street analyst Harold Vogel said.

"They don't see it as a prime engine of growth anymore, so they're farming out as much of the risk as they can to private-equity and hedge-fund partners. They are just not as interested in throwing additional capital into the business."

Lowell Singer of Cowen & Co. said that though job losses were "devastating for the industry, it doesn't suggest that the film business is no longer attractive."

"These companies just want to be more economically sensible about how they're competing in the film business," Singer said.

That's no comfort, of course, to the devastated.

The rollback in production will have consequences well beyond the major Hollywood studios, squeezing a range of service industries that cater to entertainment companies, experts say.

"The layoffs will ripple through the economy because the motion picture and TV production industry has a multiplier impact," said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. Every new job in the entertainment sector produces two more jobs in the local economy, he said.

"You have location scouts, caterers, the people who sell caps and jackets and rent equipment," he said. "They'll all be affected."

The economic effect will be mitigated by a continued increase in local television production and the overall health of the Los Angeles economy, where unemployment is running at its lowest levels in years, Kyser added.

Still, the current contraction is sure to have a far-reaching effect, including on talent agencies, which procure jobs not only for actors, directors, and writers but also for so-called below-the-line workers such as costumers, script supervisors and camera operators.

"It's not doomsday by a long shot," said Jim Wiatt, chief executive of William Morris Agency. "But our agency is keeping a close eye on all these companies and how it affects our clients and how we run our own business."

Steve MacDonald, president of FilmL.A. Inc., which issues film permits in the city and unincorporated areas of the county, said the studio cuts would hurt local film crews that have already suffered as Canada and other places have lured productions away with tax incentives.

Lance Sorenson, president of 24/7 Studio Equipment in Burbank, which leases aerial equipment to film crews, said the cuts at Disney were bad news.

"It absolutely has a big-time effect on us," said Sorenson, whose firm employs 27 people. "It's the old trickle-down theory."

Add to this concerns over possible labor disputes during the next two years. Studios are girding for potential strikes as leaders of the Writers Guild of America, West and the Screen Actors Guild vow to take a harder line in negotiations.

Even film schools are being affected.

"The professional landscape which our graduates are entering is one in which feature films are going to play a smaller part," says Charles Merzbacher, who heads Boston University's Department of Film and Television. In the fall, he noted, the school will offer a course in producing content for iPods and cellphones — a way of ensuring "that our students have a future."

Wick, the producer, said he wasn't ready to give up. Not yet.

"Having survived a lot of these cycles, there's a pattern of the whole town overreacting," he said.

"People go into a free-fall anxiety that the movie business as we know it is somehow going to dematerialize. I'm more optimistic."