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richard natale

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Richard Natale is a freelance economic reporter who covers the film industry for The Los Angeles Times. Here, Natale discusses the economics of "star power," and the shrinking influence of studio bosses within the media conglomerates that now own their companies. "There is usually a great robber baron like Rupert Murdoch or Sumner Redstone running all of those divisions," says Natale. And studio bosses, he says, must understand the hierarchy: "You better plug into that agenda or you'll be gone, because you're middle management."

This interview was conducted in June 2001.

How long have you been covering the film business?

I've been covering for it about the past 15 years now.

What kinds of changes have you seen over the years?

Well, the business has changed a great deal over the past 15 years. It's gone from being a ... big company town, to a global corporate company town.

What has been the biggest change?

The biggest change I would say has been the fact that all the major studios have been swallowed up into gigantic corporations. So they become a small, yet significant part of an overall entertainment media conglomeration. ...

How small of a division is the entertainment division in an overall company?

Depends on what you mean by the entertainment division, because the movie division has gotten smaller in terms of the overall company. But once you start factoring in DVD and home video and the selling of those movies to television and the use of those movies to create a movie channel, it starts to get larger. So the movies being released in theaters is maybe, like, 20 percent or 15 percent of the business.

But once you start adding all of those other things, it's like an engine. It becomes the engine that drives the rest of the company. You sell a soundtrack to that movie and that feeds your music division. You have merchandise or books that are related to that, and that feeds your book and magazine division and stuff like that.

How do these three companies cross-collateralize a film?

There are many ways to cross-collateralize a film. I guess Disney or Universal will probably be the best examples, in that they can create everything from soundtracks to merchandising to TV series, to direct-to-video sequels to a lot of their bigger hit movies, and especially [with] the animated movies, theme park attractions. So it really begins to mushroom. In the case of Disney, they've created Broadway shows from one of their movies. So it can be never-ending. It's what's called a franchise, and studios are very eager to be in the franchise business. They are always looking to try to create a new franchise that will carry then four, five, to 10 years.

[Note: See the "Anatomy of a Monster" section of this website for more information on the seven major studios and their film-related assets.]

Who are the companies that are taking over the business?

Obviously, the AOL Time Warner merger was humongous, and has subsumed so many different companies, including Turner and Time Inc., as the Internet, Warner Brothers, New Line Pictures. When you start to think about it, it's enormous. They have the WB Network ... Warner Brothers Music. I mean, God, it's an enormous company. And while no one's quite that big yet, at this point there are many companies that are half or two-thirds as big, and mirror that in terms of the various divisions that they have.

People are noticing the corporate clash with how they used to do business.

Well, the corporate sensibility is very bottom-line oriented. It's not that Hollywood has never been bottom-line oriented; but it's kind been a big boys' club, and there was a great deal of mixing of social and business concerns. A lot of that has had to fall by the wayside, because they have to answer the same as General Motors has to answer. You have a much larger corporate culture, and you have so many different ways in which you have to answer to the ultimate boss.

In some ways I think they [the studio bosses in earlier years] wanted respectability, in addition to money. In order to have respectability, you have to create something that commands respect. I don't think that anyone who runs a studio today gives a hoot about respect. They want money.

[In] the 1970s and early 1980s, there was someone who ran the film and television division, and that was the boss. Then there were a couple of other layers below that. Now, the layers just get thicker and thicker and thicker, and there are just so many people that have to say yes to something, and so many people that you have to please, that it becomes almost impossible to do anything that comes from your gut. You have to justify everything in terms of every penny of expenditure.

There is kind of a new breed of manager.

Well, we're seeing a great number of managers that have taken over that either come from a legal background or a business background. So it's accountants and lawyers. And, of course, that's always been the joke -- in any sort of big company, that it's all run by accountants and lawyers -- but it's never been more true than it is right now.

What does that do to the Peter Gubers and the Bill Mechanics of the world?

These former studio bosses who had a real desire to actually make movies rather than turn out product, they're feeling the pressure. At one time, to go off and become a producer was kind of a badge of shame, because it means you couldn't make enough good movies when you were working in the studio and you couldn't hang on to your job.

Right now, it's become the preferred place to go, because at least you can try to patch together the money to make the movies that you want to make -- rather than the movies that the studio expects you to make -- that are going to throw off a significant amount of profit and be worth the time and trouble.

It seems like you have to approach everything in a different way now.

The studios have become just a place full of corporate offices. ... So those people who want to actually create movies, you can't work it really in that kind of an environment. The studios essentially are distributors of movies that are made by other people, and either partly or totally financed by them.

Do you have a sense of the guys still on the lot?

The people who stay on the lot have become less and less casual. It's become less of a casual business and more of a grind, more of a nine-to-nine job.

Do you have insight on what it does to the creative process?

It's very easy to see what this kind of environment does to the creative process. It's basically become a second-guess process. The concept has to be large; the stars attached have to be large. Basically, the studios are in the business of buying -- this is not all that different, but it's become more different -- they're in the process of buying packages. So I have to come to you with a viable concept, a star attached to it, a director who makes sense and who can get it in on time, and a very good marketing hook. I have to come to you with all of that stuff, and then and only then will the studios say, "Yes, I will go for it," or "Yes, I will go for it if you can find half the budget somewhere else."

It seems like every movie now has to be an event.

Particularly in summer and at the end of the year -- where there's the biggest surge in attendance -- that's when the studios make their event movies, because they can make the most amount of money. And the reason to create an event is to create a sequel to an event and to create an entire business around a single movie. That's pretty much destroyed any sort of real impetus to create anything that even remotely resembles art.

It seems as though they're competing against each other's marketing campaigns.

The marketing campaign really has come since the late 1970s, since the advent of mass national distribution. The marketing campaign really leads the movie. Most scripts don't get approved unless the marketing department chimes in and says, "Yes, I can sell this effectively." If the marketing department can't sell it effectively, the movie probably doesn't get made.

It seems as though everything is being controlled in-house?

The studios are trying to do that, because most of the studios own networks. And since there is no ban any longer on owning your own programming, that's another thing that the studio can bring in-house that they can control and they can own in perpetuity. It becomes another division of their library, rather than just being a distributor or a middleman on a particular TV series or movie.

It seems as though sweetheart deals can be made within the studios.

The whole problem with corporate synergy is that it actually can work much too effectively. If you create a product that you think can be rolled out as a TV series, and can then sell on home video, you can create sequels to it, you can sell merchandise against it, you can write books about it, you can make video games. Everybody has to be basically in agreement on how it has to work, so everybody has input. So the video game guy goes, "We need a little bit more of this, because it'll make for a more exciting video game." So then the script gets changed from the start to make that happen. And so it can work very effectively, because everybody can make big money off the deal. Unfortunately, most of the time what you see is not worth going to see.

Why have movies gotten so expensive over the last few years?

Movies have gotten very expensive because if you're creating an event, you have to spend money to create an event. So the studio would rather spend a lot of money on a movie that they think can make a great deal of money, than to try to nurture a movie that is quirky or different and convince people to go to see it. So it behooves them to spend $100 million on a movie, fill it with special effects, market the hell out of it, and then hope for the best.

Talk about star salaries and how they've gone up.

Star salaries have gotten very big because, as part of creating an event, if you don't have a movie that has special effects -- or even if you do, in some cases -- you want to anchor that around a large personality. And those personalities, as always, are few and far between. Even back in the old studio days, there were basically five to 10 stars who were very big. And so everybody wants those very big stars. It's the law of supply and demand. If I want you and I want you to do my movie before you do that movie, I am willing to fork out another $5 million. So that just keeps expanding. I'm willing to give you 10 percent or 15 percent of the gross because I want you so badly and I need to line you up. A Bruce Willis or a Tom Cruise, they're booked basically in perpetuity. If you want to get a slot, if one of their movies gets postponed, you're willing to cough up some serious bucks. ...

Why is it so important to have Bruce Willis or Tom Cruise?

Because a bad movie with Bruce Willis will make more money than a bad movie without Bruce Willis. And a good movie with Bruce Willis will make a lot more money than a good movie without Bruce Willis. At least that's the concept.

What does that do to everybody else involved in production?

When the star takes away a lot of money, you find an inequity. If you look at any of the big, big stars, very rarely do you see a female or male of equal stature with that person. It would just become too cost-prohibitive. So it's kind of nice that some young actress can get to star opposite Tom Cruise, but as soon as she becomes more valuable, they can't re-pair those people or put them back together again, because it just costs too much money.

Who makes the money now?

I would say stars and star directors and star producers are the people who are making the biggest profit in movies. It's not that studios aren't making a great deal of money on movies; it's just that they're not netting a great deal of money on movies. If you have a movie that grosses $200 million and you're paying, in some cases, 20 percent to 30 percent of that to talent, what you get back on that is in the best case scenario, good, in the worst scenario, marginal.

What does the studio make, as opposed to what the stars walk with?

Right now, the stars basically have a stranglehold on the studios. Whether it's a hit or a miss, they're the people who make a great deal of money. If it's a big hit, they make even more money. I think the perfect analogy is a corporate CEO. The stock in a company can go down or it can go up and his bonus and his stock options and all of that stuff like that is always there. So, you know, PG&E goes bankrupt and all of their people get huge bonuses at the same time.

Why has the marketing become so expensive and important?

Since movies are created to be marketed, therefore the marketing takes precedence over the movie itself, in many cases. If you're opening a movie in 3,000 theaters and usually 5,000-6,000 screens on its opening weekend, you have to spend a great deal of money to make sure that you fill those theaters, because there's another movie coming up right behind you. And if you don't fill those theaters, you are going to start to lose screens like that, and your movie is dead in the water. So you have to open very big. The bigger you want to open, the more money you have to spend. If you've spent $100 million on a movie, you have to spend another $20 million to open it.

What is the danger in that, when a movie is expensive but doesn't click?

The danger in spending a great deal of money and having to spend a great deal in marketing is that you come out with a movie that sometimes works and sometimes doesn't. ...

A movie like "Pearl Harbor" -- which was basically in every way designed to be "Titanic," even though the people at Disney will deny it... They will not do half of $1.8 billion, which is what "Titanic" did. But the investment was almost as great. They spent $140 million to make it. They spent over $100 million to market it worldwide. And they will come away with probably $400 million to $500 million at the box office, half of which is returned to the studio.

But then you have to factor in all of the other costs that go into making that movie, plus the fact that a lot of people, believe it or not, at $140 million, took a cut in pay and took money off the backend after the studio breaks even. So even when the studio breaks even, which it will on something like "Pearl Harbor," they are going to give away a percentage of that movie somewhere in the neighborhood of 25 percent. So what's left to them is not going to really carry them for a great deal of time. And the reason to create a movie like that is that it's going to take you through some lean months or years.

It used to be that your big film would carry little ones, but now they're all big.

... If you made a little miss and a big hit, you really covered yourself. But now they're making big misses and big hits, so you can see that the profit ratio is shrinking.

It seems like such a huge gamble, and every time it gets bigger.

The gambles are bigger because they want them to be bigger. Part of the corporate culture is to create a brand name. You want to go to your bosses and say, "I can bring you "Tomb Raider," and "Tomb Raider" will be two, three, four movies. Then we can spin it off and make a TV series out of it. We have a great soundtrack. We'll sell millions in video. It'll be a great title for when we go to television and syndication and cable." And the gamble is part of the excitement now. So it's become really a gamble, rather than a sort of curious mixture of business and art.

"Tomb Raider" is a huge franchise, but in reality, it shrinks down to a profit for very few people.

Well, of course. But the reason for that is that they have all these other divisions to feed. So you create a "Tomb Raider" so you can make your home video division happy. You create a "Tomb Raider" so that you can make your television division happy, because maybe at one point you want to do a syndicated series or a series on the WB that's based on "Tomb Raider." So you start to create that, because you want to make all the people happy in your company. And the happier you make the people in the company, the better you look, and the more the bosses smile down upon you.

If you're an independent in any way, how does all that affect you?

Independent people have been feeling the squeeze for a long period of time, and they've always had only a sort of fraction of the movie business. By creating these huge a priori blockbusters that people will at least go out and sample in the first weekend because they've been hyped to death about it, it leaves very little room for anything that's other than an exceptional little film to break through. But if you look at a movie like "Memento," which is nowhere on the map... "Memento" is going to be far more of a profitable movie, I think, than most studio movies this year, because it somehow managed to break through. Who knows why? Maybe because it's a good movie. ...

[Note: Read more about the state of independent filmmaking today.]

Why is there such a fascination with weekend box office gross?

The box office race has become like the Top 10 chart. I grew up listening to what the Top 10 was, and how it changed from week to weekend. I think that box office has turned into that. When you can make $50 million in your opening weekend in box office, that's pretty good publicity. So, as much as the studios complain about box office, they use it as part of their marketing machine.

Most times, three out of 10 isn't bad. But in the box office, it's a disaster. Why is that?

When you come in third on any given weekend, it means that the next weekend you're probably going to be fifth or sixth. And if you're not in the top five, you might as well not be there, because people are not going to notice the movie as much. Fewer people will go and you'll disappear very quickly, because there's new movies coming in every week. So you don't want to open at number three. You want to open at number two or, hopefully, number one.

Do you think that affects what the moviegoer goes to see?

Absolutely. I think that just as everybody, when they hear that it's the number one song, they go out and buy this. It's the number one song, it must be the best song on the Top 10. If it's the number seven song, it must be the seventh best. It's the same thing in movies. You're going to go out and see one movie this weekend, at most. Which one are you going to go see, the number seven movie or the number one movie? ...

Talk about the relationship between the opening weekend of a movie and the stock price of the company.

Only in very rare instances can the opening weekend of a movie really affect the stock price. In the case of "Pearl Harbor," for instance, Disney got a bit of an uptick right before the movie opened. As with all good news on Wall Street, the price usually goes up in anticipation. If it had lived up to those expectations, or exceeded those expectations, I think the bump would have been a little smoother and a little longer. As it was, the stock went back down to where it was.

But more importantly these days is having a hit on the order of "Survivor" or "Who Wants To Be A Millionaire" on television, because that's not a one-tick opportunity. So Disney rode "Who Wants To Be A Millionaire," because they own ABC, for the better part of a year. Gave them a tremendous boost in the long return. Of course, if you have "Titanic," then yes, that's going to help.

The studio heads now seem to be division heads rather than the master.

Studio heads, they either run the film and/or television division of a particular studio. But there's so much more to that studio right now, and there is usually a great robber baron like Rupert Murdoch or Sumner Redstone running all of those divisions. So you basically answer to that person, and that person's agenda is what the agenda for the entire company is, and you better plug into that agenda or you'll be gone, because you're middle management.

Is the attendance up at movies?

There's one way to gauge whether attendance is up -- if the box office for a particular week or month or year is up more than 5 percent over the previous year, because every year, there's about 3-5 percent inflation built into ticket prices. If box office is up 10 percent for the year, you've had a 5 percent net gain in attendance. If the past weekend box office receipts were up 28 percent, that's a significant number of greater ticket sales in terms of attendance.

Do you think these big blockbusters are going to start turning the audience away?

The blockbuster mentality is good as long as the blockbuster delivers. If you have four or five blockbusters in a row that don't deliver, you're going to lose your audience. But if they deliver on a certain level of satisfaction, it doesn't necessarily make movies any better, but it certainly makes the business better. ...

What are the big financial stories?

The big financial stories are the fact that movies are not that profitable, ultimately. The amount of expenditure that goes into them does not make a movie very profitable anymore. And because they are subsumed within a giant corporate culture, with so many people who have to be employed and so many different fees and distribution and profit participation, there's very little profit made anymore. What you're doing is throwing big numbers at people.

The studios are very fond of something called market share. ... They want to have 20 percent of the market or more in a given year and be the number one, but that says absolutely nothing about how profitable that particular studio was. They may have released 50 movies, each of which grossed X amount and gave them a 20 percent box office share, so they sold one out of every five tickets.

But those movies were also expensive. They didn't really make any profit. And the studio that's ranked third maybe released five or 12 movies, and all of them were profitable. Therefore, they're actually the success story of that given year. It's all become about numbers. It's all become about dazzle. It's become all about sizzle, and no steak.

Everywhere there is one giant hardware store and one giant supermarket. Is that happening to the movie business?

I think just like every other business, the movie business has become Home Depot. A studio is like Home Depot. It's a one-stop shop. They're no longer run by people who at all care about movies on any really essential level.

Are they driving out the mom-and-pop stores?

The movie business was never really a mom-and-pop operation, because the major studios were always the major studios. But they were run by sort of crass, vulgar guys who wanted desperately to buy into the American dream. They wanted to create things that moved you in some way emotionally so that you'd go see it, and so that it would make money. ... Something that really touched you on a certain level, so that you could go back 10 or 20 years from now and look at it and still be pleased by it.

I don't think they did that consciously; but in some ways I think they wanted respectability, in addition to money. In order to have respectability, you have to create something that commands respect. I don't think that anyone who runs a studio today gives a hoot about respect. They want money.

Can you talk about the downsizing involved because of the corporate mentality?

When you combine different kinds of companies together, then you have four distribution organizations for those four divisions. You say, "Well, we could probably make due with two here, because we could combine and make certain efficiencies." That really sort of makes good business sense. It always has made good business sense. What it sort of engenders is, it's no longer show business; it's business. So you are really being run in terms of piece goods -- the number of units you can sell, the number of people you can get into a movie theater. When you come out of a movie preview now ... people no longer ask you how you liked it. They ask you what's it going to do, how much money is it going to make. And that started about 10 or 15 years ago, when I first started covering this business.

No, people are not at all interested in what you think of a movie. ... Movie critics have probably the worst job in the entire world, because what they're doing is basically judging video games. ... How can you talk about the artistic merit of a video game?

[What do you think that's going to create?]

People burning with passion have to find some other way to make movies now. There are fortunately one or two people who you can still go to, who have a real feeling for movies and really love movies -- people like Harvey Weinstein. But you have to find a different way, if you really want to get a movie that you're passionate about made. You basically have to do it yourself. And that means either raising the money through a group of wealthy friends or benefactors, or making it on a shoestring and making it yourself. There are fewer and fewer opportunities for that to happen. If you have passion and you're in the movie business, you might just be in the wrong business.

Any predictions about the future and where it's all going?

I think that the business has gotten as big as it can possibly get, which is not to say that it can't grow. But I think that the sort of elephantitis that surrounds the movie business right now can't really get much bigger, simply because there's never going to be a great expansion in the number of people who go to the movies. You can have special movies that make people who never go to the movies come out, or people who only go to the movies once a year, come out. But you can't create those on a regular basis. It's impossible. Even if you wanted to, or even if you had all the creative manpower and talent available to you, the cost structure has gotten prohibitive.

So I think that we're in the era of the dinosaurs. Movies have become dinosaurs. I think they will continue to exist, but I think they will become ultimately less and less interesting. A film critic whom I respect a great deal named Todd McCarthy, who's the film critic for Variety, wrote a piece railing against the first six months of this year, in terms of the output of the major studios. [He said] that there wasn't a single movie of merit that came out during that period of time, and the only thing that he looked forward to on a regular basis was going home to watch "The Sopranos" on Sunday night.

For Todd McCarthy, who is as dyed-in-the-wool a movie fanatic as I know -- he adores movies, he lives and breathes them -- to say something like that is very serious, as far as I'm concerned. For him to prefer television is almost shocking. If you asked several other film critics, I'm sure that they would say the same thing. And once that starts to happen, it can't be good. It can't be good.

Anything else you want to talk about?

What we haven't talked about is the foreign box office. ... What most people forget is that movies are no longer made just for the U.S. It's important that a movie be a success in the U.S., because it helps it become a success overseas. But the number of theaters is shrinking in the U.S., and the amount of overall business that a movie does in the U.S. versus the rest of the world is shrinking. So more and more movies are made to satisfy a foreign audience, which doesn't understand English, and so therefore plot and character are not as interesting, because they don't necessarily translate around the world; whereas action and special effects are a universal language.

The latest area in the world that is starting to burgeon is South America. First it was Europe, then Asia, now South America. Eventually it will be Africa, Australia, all of those places are very important to the financial success of a movie. A big action movie like "Armageddon" can do almost twice as much overseas as it did in the U.S. And that's going to continue to grow.

So the international reach of a movie is much more important. If you don't really understand it, it doesn't really make much difference because "The Mummy Returns" is going to play everywhere in the world, and is going to be embraced everywhere in the world, because it delivers on a certain action level. Even if the plot doesn't make a great deal of sense, people are watching it in subtitles or dubbed -- they don't really care. And that has had a profound affect on the movies that are made and the kinds of movies that are made.

You will see certain movie stars, like Brad Pitt, who hasn't really had a hit in America in maybe five or six years, continue to make movies because he's a very big star in Japan, he's a very big star in Germany. And that's very important. Tom Cruise couldn't be bigger anywhere around the world. Julia Roberts, the same thing. But they are as big, if not bigger, overseas and that really has shifted the equation, and everybody knows that. That's going to continue to get bigger and bigger and bigger.

So the kind of movie that we used to make back in the 1970s, with rare exception, no longer is viable around the world, because we're no longer really leading in so many things. We've become such an important export in terms of dollars and cents, that movies have to be made palatable for every culture, every religion, for everyone.

Something like "The Matrix," which happens to be a very good movie of its kind, really knocked people's socks off overseas. So therefore there are going to be two sequels to it, and you want to make that kind of movie. That's the kind of movie you want to make. You don't want to make "American Beauty," because what can you do with "American Beauty"? Even though it was an enormous success and an even bigger success overseas than it was in the U.S., you can't do anything with it. You can't make a sequel to "American Beauty." You can't make a copy of "American Beauty." If you can't repeat the success of something, what's the point of making it in the first place? It's much better to make something that you can repeat and repeat and repeat and repeat and repeat. You can make "Jurassic Parks" from now to as far as the eye can see, if they continue to perform.

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