Bad Days at the Box Office
By Alexander Taylor
Hollywood bosses look for new profits in entertainment
Movie executives this year are feeling as if they have just had a close encounter of the first kind with Jaws. March and April were the worst months for movie attendance in a decade. So far in 1981, admissions have fallen approximately 15% below last year's lackluster performance.
The somber mood extended last week all the way to Cannes, where key industry figures from around the world gathered for the annual wheeling and movie dealing at the industry's premier film festival. High-rolling producers like Richard Zanuck still vied for choice tables at sidewalk cafes along the Boulevard de la Croisette, while aspiring starlets jousted for the attention of the camera-toting paparazzi. But Variety summed up the atmosphere in the headline: LACK OF ZEST AT CANNES FILM FEST.
What the movie business needs, everyone agrees, is a new blockbuster. That is what it got last week, but this one was not another Star Wars. It was the purchase by MGM of United Artists from Transamerica Corp. for $380 million.
The deal was part of the radical transformation currently taking place in the movie business. New technology, including video-tape recorders, video cassettes and cable television, are rapidly being installed in millions of American homes, and movie studios are trying to determine how their wide-screen extravaganzas will fit into the world of the smaller home screen. Moreover, the studios are finding that the vast libraries of old films in their vaults can be valuable bargaining chips in the emerging entertainment game, since the new technologies have an almost insatiable appetite for products to show.
Central casting has sent the moneymen to help direct the entertainment industry's new wave. They are businessmen who have earned their fortunes in other fields and are now conquering Hollywood. Examples: MGM's Kirk Kerkorian, a onetime airline financier, and Denver Oilman Marvin Davis, who liquidated his energy holdings in order to buy 20th Century-Fox.
Ever since its founding, the film business has been afflicted by fluctuating fortunes. After the golden age of movies, which lasted up until the end of World War II, television pushed the industry into a 30-year slump. Paid attendance reached 4.1 billion in 1946, but fell precipitously until it bottomed out at 820 million in 1971. At the same time, the average price of a ticket was rising from 20-c- to $2.69.
The industry had some major successes in the late 1970s, including Star Wars, Saturday Night Fever and Grease, but Hollywood is now again reeling. The writers have been on strike for almost two months, and the studios last week were bracing for a walkout by directors. The loudest flop has come from Heaven's Gate. The film cost a stunning $43 million to produce, but it has been roasted by critics and ignored by audiences. According to Variety, a new version of the original movie is now earning a combined total of only $1,300 a week at the 26 American theaters where it is playing.
Just as admissions have sagged, Hollywood production costs have been climbing like the rents on Rodeo Drive. An average picture, which cost $3.1 million to produce in 1975, now costs nearly $10 million, and up to $10 million more must be spent to distribute and promote it. These high costs have forced the studios to find outside sources of funds. For example, Gulf & Western currently owns Paramount, while Universal has become part of the media conglomerate MCA.
Now Hollywood hopes to capture additional sources of revenue through the new forms of electronic entertainment. Studios see vast profits in the sale of movie rights for transmission over pay-cable television systems, which charge subscribers an average of $10 a month for a program of movies and other entertainment. Studios are also eagerly licensing their films for reproduction on video-tape cassettes or record-like video discs that can be played at home on special machines costing $500 or more. Says MGM Chairman Frank Rosenfelt: "We're no longer in the movie business, we're in the entertainment software business. The whole nature and character of the business have changed."
The studios have started scrambling to set up subsidiaries to handle the new home-viewing programs. 20th Century-Fox acquired Magnetic Video, which has become the nation's largest producer of video cassettes with prerecorded movies. MCA has joined with IBM to make and sell videodisc players. Only United Artists is not involved in marketing video discs and cassettes. Instead it has licensed its films to other companies. RCA, for example, bought 100 movies for use on its videodisc player.
Not all the new forays are successful. Last year the Justice Department stopped a proposed joint venture of Getty Oil with 20th Century-Fox, Columbia Paramount and MCA to start the cable television broadcasting of films. The judge ruled that the movie companies might use the new organization to drive up the prices paid for their motion pictures.
Kirk Kerkorian, 63, is now trying to make MGM the industry's leader for the new era. The son of a Turkish immigrant, Kerkorian got started in business by buying old DC-3 airplanes in Hawaii after World War II, flying them to the mainland and then converting them for commercial use. After amassing a fortune in aviation, Kerkorian acquired 47% of MGM in 1969. At first, he moved rapidly to liquidate the company's valuable assets. While the production of movies declined by 75%, Kerkorian sold back-lot real estate for residential development and even auctioned off Judy Garland's dress from The Wizard of Oz as part of a celebrated sale of movie memorabilia.
Beginning in 1978, Kerkorian started looking around for other movie companies to acquire. He secretly bought 24% of Columbia Pictures and tried to merge it with MGM. Columbia's owners resisted vigorously, calling the attempted takeover "an early-morning bombing and strafing raid." Last February the two sides signed an accord in which Kerkorian sold his shares back to Columbia for $137 million and agreed not to buy any more stock for ten years. Kerkorian then flirted with 20th Century-Fox, but was thwarted by Marvin Davis, who made his own bid of $722 million for the studio. Finally, Kerkorian made the offer for United Artists that was accepted last week by Transamerica.
The acquisition makes sense for both sides. United Artists seemed the odd man out in Transamerica's financial services company. Heaven's Gate had demoralized the firm and caused a management shakeup. MGM was attracted to UA because it owns a library of about 2,000 old films that can be sold to cable TV. MGM executives also want to control United Artists' worldwide distribution network, since they will now collect the distributor's 30% cut of their movies' gross ticket sales. Says Merrill Lynch Vice President Harold Vogel: "The merger means MGM will be a stronger competitor now."
After a long period of corporate confusion, Kerkorian divided his holdings into two parts last year. He spun off his hotel and gambling interests, which include the MGM Grand in Las Vegas, into a separate company called MGM Grand Hotels Inc., and his movie properties into MGM Film Co. It was shortly after the two MGM companies were split that a fire took 84 lives last November at the MGM Grand.
For the first time in a generation, MGM is the busiest studio in Hollywood. Last year Kerkorian brought in David Begelman, the controversial but successful former head of Columbia, to run the movie operation. So far this year, MGM has started eight films, compared with a total of 15 for Columbia, Disney, Paramount and Fox combined. Begelman has also announced that he will be developing 51 films. These include Tarzan, the Ape Man starring Bo Derek, John Steinbeck's Cannery Row with Nick Nolle, and American Rhapsody with Punk Rocker Deborah Harry.
No matter how much promise exists in new entertainment technology, Hollywood still lives for the box-office smash. Big resale prices to television and other video outlets, and the resulting profits, are largely determined by the success of a movie in regular theaters. The industry hopes that Warner Bros.' Superman II, the sequel of the fifth most popular picture ever made, will draw audiences back to theaters this summer. If the Man of Steel succeeds, Hollywood believes that it can prosper with movies that play both on the big screen and on the little tube.
--By Alexander Taylor. Reported by Michael Moritz/Los Angeles and Sue Raffety/New York
With reporting by Michael Moritz, Sue Raffety
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