Movie horror stories as studios struggle to raise finance

Film studios are cutting staff and taking fewer risks with releases as recession bites, says Nick Clark reports

Wednesday 28 January 2009 01:00

Hollywood is recession-proof, the old adage goes. But industry insiders are not convinced by the conventional wisdom that the Great Depression was a golden age for film-making, and they are even less sure it will emerge from the current recession unscathed. This year, studio executives are facing up to the reality of slashing jobs, dropping risky projects and an increased struggle to raise finance.

Britain and the US are officially in recession, yet in the past the cinema has avoided the worst economic disintegration. This time round, box-office spending has remained flat for three years and, according to accountants at Deloitte, "the movie theatre is likely to face some of the toughest trading conditions in years during 2009".

Kurt Scherf, an analyst at Parks Associates, said: "The studios are suffering the same issues as everyone else. It is frightening to see what is happening. It all depends on consumer spending and at the moment the wallets are slammed shut. There is no way cinema will avoid this impact."

General Electric, which owns the media and entertainment giant NBC Universal, announced on Monday that its profits had plunged 44 per cent in the last quarter of the year. This followed news it is shedding 7,000 staff to save $2bn (£1.4bn), with cuts likely at its NBC network. It is by no means alone.

Hollywood is often perceived as a dream factory insulated from the wider world's problems, but these days all the major studios are part of diversified multinational corporations, which have felt the economic chill in other parts of their businesses. Michael Gubbins, the editor of the film industry journal Screen International, said the attitude of studios towards new projects was changing dramatically. "They are now concentrating on film-making for profit. Historically, that hasn't been such a focus. It is getting tougher out there." GE's announcement came shortly after Warner Brothers, which made last year's Batman blockbuster The Dark Knight, said it would cut about 800 staff, or 10 per cent of its workforce, in response to the disintegrating market. Executives at its parent company, Time Warner, said: "Based on the global economic situation and current business forecasts, the studio will have to make staff reductions in the coming weeks in order to control costs."

Barry Meyer, the Time Warner chairman and chief executive, added: "The changing entertainment business landscape, shifting consumer demand and the overall state of the economy have affected companies around the world, and Warner Brothers is not immune to these factors."

Paramount, owned by Viacom, announced 150 job cuts last month, while the problems at Sony Pictures' parent company continue to mount. On Thursday, Sony forecast annual losses of Y150bn (£1.2bn), which followed news that it would lay off 8,000 workers in its electronics business. The studio is likely to suffer in the coming months.

Mr Gubbins said: "Faced with economic realities, the studios have to look at the mundane things of running a business, such as staffing levels."

Cinema admissions are expected to fall as film fans stay at home, content to watch television or play computer games. Indeed, game sales soared by 40 per cent in the US last year, and Mr Scherf also predicts an increase in video-on-demand services from providers such as Virgin Media and BT.

DVD sales are also beginning to slow. Ann Daly, the chief operating officer of DreamWorks Animation, admitted last month: "The home video market is maturing and has recently been hurt by the economic downturn. The current recession and lack of consumer spending domestically are having a dramatic impact."

As a result, film companies are dropping expensive projects. The number of movies released by Warner Brothers fell from a peak of 40 per year to 25 in 2008. Last month, Walt Disney Pictures withdrew its backing for the third Chronicles Of Narnia film, The Voyage Of the Dawn Treader, citing "budgetary and logistical reasons". The production remains in limbo, even though Disney's first Narnia film made $745m and the second, Prince Caspian, earned $420m worldwide. "Studios are now focusing on fewer franchises that they believe will make money," Mr Gubbins said. "Companies are taking very hard-headed financial decisions." Disney makes the popular Pirates Of The Caribbean and High School Musical series, while Warner has Batman and Harry Potter.

As the credit crisis has intensified, so financing options have weakened. Banks are refusing to lend on anything but safe options, which is bad news for independent film-makers. Warner, which has forecast its first annual loss for six years, has already shut Warner Independent Pictures and Picturehouse, and brought New Line Cinema in-house.

In recent years, hedge funds have invested $12bn in movies. The fourth film in the Terminator franchise, Terminator Salvation, starring Christian Bale and due for release this year, was backed by hedge fund money, but the well appears to be running dry.

"The banks aren't lending, while hedge funds and the multi-billionaires who fancied operating in the movie world has slowed," Mr Gubbins said.

He predicted that the industry could polarise to mega-budget franchise films and micro-budget independent features.

Mr Gubbins said: "There will be more cuts and, added to the prospect of an actors' strike around the corner, there could be a perfect storm brewing for the studios. It is a period of change and real consolidation around a tough business. It is a very precarious time."

So what has changed since 1929? The Great Depression did see American audiences flocking to the pictures, driven by the novelty of talking films, a desire for escapism and the scarcity of televisions at home.

But by 1933, as unemployment soared, cinema attendances had fallen by 40 per cent. One industry source said: "It was a bit of a myth that cinema did really well out of the Depression. Theatres were closing down the whole time. People stopped going."

Fighting back: British film site launched to tackle piracy

The UK Film Council has launched a website providing the release dates for every new film and DVD in the UK, and where to obtain legal DVDs and downloads. It hopes the site will combat the piracy that costs British television and film-makers £486m a year in lost revenue., which is launched today and is described by the council as "Google for films", has been in development since 2004.

The project is backed by Lord Puttnam, the British producer of such classics as Chariots Of Fire and The Killing Fields, who said he was delighted that the site would "help people to find films in a digital age".

Visitors to the site can enter a title and be told its cinema release date and where to see it, or when it is coming out on DVD and where to buy it. "This is the first time anything like this has been delivered on the internet in the UK," it said.

Peter Buckingham, the head of distribution and exhibition at the UK Film Council, said he believed that if customers knew where to download or buy a film legally, many would stop pirating material. He added: "There is increasing concern from the film industry about illegal downloading. Some will genuinely not know whether the material they are downloading is legitimate or not. This will help."

Nick Clark

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