The New York Times
November 9, 2009
A Movie¹s Budget Pops From the Screen
By MICHAEL CIEPLY
LOS ANGELES ‹ Can a movie studio make money on a film based on an original and unfamiliar story, with no Hollywood superstars, a vanishing DVD market and a price tag approaching $500 million?

That question looms large for 20th Century Fox and its 3-D science-fiction film ³Avatar,² among the most expensive movies ever. Despite many skeptics, the studio thinks it can turn a profit, in part because the film¹s creator, James Cameron, was the driving force behind the studio¹s immense hit ³Titanic.²
But just in case box-office receipts for ³Avatar² fall short, Fox has worked hard to hedge its large bet on the movie.
Despite the estimated half-billion dollars spent on its production and marketing, ³Avatar² may carry surprisingly little financial risk for Fox¹s parent company, the News Corporation, even if it disappoints. That is because of shifting industry economics, reliance on outside investors and help from a network of allied companies and in-house business units.

Fox¹s efforts underscore how studios generally have been able to minimize their exposure at a time of blockbuster budgets ‹ albeit at the cost of limiting their profit potential as well.
The final cost of the film has not been tallied, as Mr. Cameron, who has worked on the film for 15 years, and his collaborators, as far-flung as Weta Digital in New Zealand, continue to complete their work. Published reports have put the production budget at more than $230 million.

But the price tag would be higher if the financial contribution of Mr. Cameron and others were included. When global marketing expenses are added, ³Avatar² may cost its various backers $500 million.

Tom Rothman and Jim Gianopulos, the co-chairmen of Fox Filmed Entertainment, declined through a spokesman to be interviewed. Jon Landau, Mr. Cameron¹s partner in their Lightstorm Entertainment production company, also declined to be interviewed.

But ³Avatar² did get a mention in a conference call on Wednesday during which Rupert Murdoch, the News Corporation¹s chairman, discussed a surprise 11 percent earnings jump in the company¹s fiscal first quarter, which ended Sept. 30.
³I¹m confident we will lead the Christmas season,² Mr. Murdoch said. He added that he was ³excited and moved² by ³Avatar.²

Michael Nathanson, an analyst with Sanford C. Bernstein & Company, wrote in an e-mail message before the earnings call that investors ³tend to ignore² the impact of a single movie on a company as large as the News Corporation.
At what point the various partners in ³Avatar² would see profit from the film depends on what share of revenue each receives as the movie reaches theaters, then home video and other media around the world. If domestic ticket sales reach $250 million ‹ a level broken in the last year by five films, including ³Star Trek² and ³The Hangover² ‹ Fox and its allies would appear to be headed into the black.
Mr. Cameron¹s ³Titanic,² which took in more than $1.8 billion at the worldwide box office after its release in 1997, was a major corporate event for the News Corporation, then about a third the size of the current conglomerate, which has roughly $30 billion in annual sales. Less than a year after the release, the News Corporation raised nearly $3 billion in a public offering of shares in its filmed entertainment group, partly on the strength of ³Titanic.² (It bought those shares back four years ago.)
In 1980, the failure of ³Heaven¹s Gate² was enough to chase the Transamerica Corporation, which then owned United Artists, out of the movie business. But such company-wreckers belong more to history than to the contemporary film business.
With ³Titanic,² the News Corporation was at risk for at least half of a production budget that would approach $300 million in today¹s dollars, and was borne partly by Paramount Pictures.
The News Corporation is carrying a much smaller share of ³Avatar¹s² production cost, as a pair of private equity partners ‹ Dune Entertainment and Ingenious Media ‹ pick up 60 percent of the budget, according to people who were briefed on the economics of the film but spoke on the condition of anonymity to avoid conflict with the studio or filmmakers.
Speaking by telephone on Thursday, James Clayton, the chief executive of Ingenious, confirmed his company¹s backing for ³Avatar,² but declined to discuss the size of its stake. Greg Coote, the chief executive of Dune, declined to be interviewed.
In a further hedge, Mr. Cameron would give up part of his own participation in the film¹s returns if production costs exceed a specified level, according to those who were briefed on the film. If final production costs exceeded $300 million, for instance, Mr. Cameron would effectively defer much of his payout until the studio and others were compensated, despite his years of labor on the movie.

Mr. Cameron, along with Vince Pace, a Hollywood technology master, also developed much of the elaborate camera system and digital technology for the film themselves, at cost of about $14 million. According to Mr. Pace, the systems are owned by a company that expects to recoup the investment by selling to other filmmakers with help from the Creative Artists Agency.
³We¹re turning it into a business, as opposed to a path where everybody¹s supposed to service ŒAvatar,¹ ² Mr. Pace said.

While the film was largely shot in a converted aircraft hangar in Los Angeles, much of the work qualified for tax rebates in New Zealand, where Weta Digital operates under the direction of the filmmaker Peter Jackson and others.
Fox¹s biggest investment in ³Avatar² may be on the marketing side, where the company is planning to spend about $150 million around the world ‹ a number that is somewhat lower than might be expected, because of recession-induced concessions on advertising prices and reliance on in-house resources. The News Corporation recently showed a new trailer for the film on Fox¹s ³NFL Sunday² pregame show, and has been using MySpace to build awareness of the movie.
But here, too, the studio has looked for partners to bear some of the load. One ally, Imax, worked with theater owners to set up a special 15-minute preview last summer without significant cost to the studio. ³A lot of people are lending this sort of in-kind support,² said Greg Foster, chairman and president of Imax Filmed Entertainment.

Panasonic, in return for using some of Mr. Cameron¹s expertise for its own 3-D home video systems, contributed technological and marketing help, linking ³Avatar² to its campaign for home theaters, for example.

³We¹ve been supporting the effort,² said Eisuke Tsuyuzaki, Panasonic¹s North America chief technology officer, who spoke on Friday. Mr. Tsuyuzaki declined to put a price tag on that help, but said estimates of about $25 million were ³in the ballpark.²
In addition, rapidly changing dynamics in the theater business have made blockbuster openings much easier to achieve.
Privately, theater owners are now predicting that ³Avatar² may play in as many as 2,500 3-D theaters, while occupying almost as many conventional theaters over the holiday season, heightening the likelihood of a big opening. Theaters using 3-D bolster the overall box-office by commanding ticket prices perhaps 30 percent higher than those of conventional theaters.
Still, the studio has experienced some problems. Initial reaction to a conventional trailer was flat, and response to the 3-D Imax preview provoked doubts about whether Mr. Cameron¹s movie ‹ which uses new technology to tell the story of a planet being assailed by humans ‹ was really the cinematic game-changer that had been promised.

Taking no chances, Fox is backing up Mr. Cameron¹s movie with what an executive recently called the studio¹s ³secret weapon.²

That would be ³Alvin and the Chipmunks: The Squeakuel,² set to open just a week after studio marketers get ³Avatar² into theaters. It is the relatively safe sequel to a chipper family comedy that cost about $60 million and took in $217 million at the domestic box office when it was released two years ago.

"If you can, tell me something happy."
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The New York Times November 9, 2009 A Movie¹s Budget Pops From the Screen By MICHAEL CIEPLY LOS ANGELES ‹ ... about $60 million and took in $217 million at the domestic box office when it was released two years ago.

I came up here to post the same story. It's going to cost about half a billion dollars. That's a hell of hole to fill in before you can start making a profit.

Paulo Joe Jingy
"I just couldn't live in a world without me."
I came up here to post the same story.  It's going to cost about half a billion dollars.  That's a hell of hole to fill in before you can start making a profit.

Yeah, but that includes Cameron's technological investment. A half billion dollars could be considered a cheap prices for breaking ILM and Panavision's monopolies.
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The New York Times November 9, 2009 A Movie¹s Budget ... domestic box office when it was released two years ago.

I came up here to post the same story. It's going to cost about half a billion dollars. That's a hell of hole to fill in before you can start making a profit.

Cieply's always pretty insightful.
I think I'll wait for the Alvin movie.
To me, Avatar looks like the frat boy version of Jar-Jar Binks, only with rigid ears.
I came up here to post the same story. It's ... to fill in before you can start making a profit.

Yeah, but that includes Cameron's technological investment. A half billion dollars could be considered a cheap prices for breaking ILM and Panavision's monopolies.

I didn't know that ILM has a monopoly and I don't think the Avatar effort is going to put much of dent in business for ILM or Panavision.

I'm not even sure what demographic their shooting for with this movie.

I doubt that anyone is going to get a huge payday with this thing. Maybe the people involved need to take a little better look at what this movie really is, who it will really appeal to and stop repeating the mantra "James Cameron Titanic!".
Because half a billion dollars is still a huge hole in before you can start making a profit.
I have no reason to wish ill on James Cameron, but this ain't Titanic. Maybe he'll put something in it to get the teenyboppers to watch this over and over again, like they did with Titanic, but Titanic was a box-office freak. If there was a formula that could work every time, studios would be using it.
My opinion.

Paulo Joe Jingy
"I just couldn't live in a world without me."
The New York Times November 9, 2009 A Movie?s Budget Pops From the Screen By MICHAEL CIEPLY

Privately, theater owners are now predicting that ?Avatar? may play in as many as 2,500 3-D theaters, while occupying almost as many conventional theaters over the holiday season, heightening the likelihood of a big opening.

Oh, great. Will it be possible to see anything else on December 18th?
Taking no chances, Fox is backing up Mr. Cameron?s movie with what an executive recently called the studio?s ?secret weapon.? ... about $60 million and took in $217 million at the domestic box office when it was released two years ago.

I never saw the first one. How awful is it? Is it as hideous as I have heard? Was a whole generation of tykes emotionally traumatized for life, as their parents dumped them into seeing that while they were busy shopping or seeing a real movie? Will it be safe to walk the streets five years from now, as all those chickens begin to come home to roost?

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"I do not consider it an insult, but rather a compliment to be called an agnostic. I do not pretend to know where many ignorant men are sure that is all that agnosticism means." Clarence Darrow
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