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Friday, August 18, 2006

For Warner Bros., a summer to forget

Claudia Eller of the LA Times has a great piece today on how quickly a studio can go from toast of the town to charity case. Last year, Warner Bros. had Batman, Willy Wonka, and Harry Potter. This year it has the "Lady in the Water," Superman, "Ant Bully," and "Poseidon."

The most interesting thing, to me, is what impact this will have on private investors coming in to Hollywood to help finance studio pictures. Warner Bros. recently got financing help from Legendary Pictures ($500 million worth) and Virtual Studios. Eller writes:

    Warner's flops also underscore the inherent risks for investors behind the torrent of private equity money flowing into Hollywood. Warner and other studios increasingly rely on outside financing from hedge funds, private equity firms and other sources to spread their risks.

    Warner's recent losses will be shared with equity players Legendary Pictures and Virtual Studios, each of which has committed hundreds of millions of dollars to co-finance the studio's movies.

    Increasingly starry-eyed Hollywood investors are feeling the sting of failure when expected blockbusters go bust.

    "All I can say to our partners is the same thing I say to our people here at Warner Bros.: It's painful to lose money on a movie," [Warner Bros. chief Alan] Horn said. "We are in the business for the long term. We are producing a slate of movies and some will work and some will not."

    Warner is especially dependent on the outside money to protect its downside. Except for its lucrative "Harry Potter" series, the studio has partners on virtually every film.

    Although the partners split costs with Warner, the deals are particularly good for the studio because it winds up making far more on the hits and losing less on the flops than its investors. That's because it takes an off-the-top distribution fee of more than 12% before sharing any revenue.

    But independent media analyst Harold Vogel wonders whether access to such easy private equity money has clouded Warner's movie choices.

    "Maybe Warner Bros. got a little inebriated, and it distorted their normally good judgment," Vogel said.

Of course, Warner Bros. will likely take the conventional wisdom approach to solving this summer's box-office "problem": make fewer movies. Warner now releases between 18 and 22 movies a year.


  • The question no one seems to be asking is who greenlit these films. And who greenlit Sony's films from last summer? (Stealth?)

    I love how people in those positions get the credit/blame for their predecessor's successes/failures.

    By Blogger cycad, at 10:18 AM  

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