Hollywood Balks at Big Budget Movies as DVDs Drop

Hollywood — long considered the land of excess— is becoming more cost-conscious, as movie executives rethink what they're willing to pay to make a blockbuster.

After years of beefing up budgets to meet audience expectations, movie studios are cutting back and canceling projects that are too costly. Half-baked, expensive movie ideas that would have received approval a few years ago are now under scrutiny. For movies that are made, producers have to settle for toned-down special effects, cheaper actors and fewer locations for shoots.

In the past five years, major studios have trimmed the annual number of films they release by nearly a third to cut costs and avoid having big movies compete head-to-head on opening weekends.

In July, two major projects were stopped mid-stream because of budget pressures. The Walt Disney Co. halted "The Lone Ranger," starring Johnny Depp, even though sets were already half-built in New Mexico. Universal pulled out of "The Dark Tower," a three-movie, two-TV-series colossus based on books by Stephen King.

A person familiar with Disney's thinking said the budget on "The Lone Ranger" was creeping north of $250 million, and the company wanted to shave it to around $200 million.

Universal, which became a unit of cable TV provider Comcast Corp. this year, withdrew from "The Dark Tower" because of problems with the business model, according to another person, who is familiar with that matter.

Neither person was authorized to speak publicly and spoke on condition of anonymity.

Disney CEO Bob Iger explained the company's approach to analysts in July. "It's our intention to take a very careful look at what films cost," Iger said. "If we can't get them to a level that we're comfortable with, we think that we're better off actually reducing the size of our slate than making films that are bigger and increasingly more risky."

Blame it on declining DVD sales.

Until recently, studios could afford to churn out movies with heart-pumping action scenes featuring pricey special effects and high-salary actors. Although many of those movies cost more than they garnered in ticket sales, Hollywood could count on overall strong sales of DVDs to make up for excessive expenses.

"The DVD buying boom covered up a lot of sins in the middle part of the last decade," said Tom Adams, principal analyst and director of U.S. media for IHS Screen Digest.

But the curtain is falling on the DVD era. IHS said U.S. video disc sales fell from $10.3 billion in 2004 to $7 billion last year.

The popularity of low-cost rental options, such as Netflix and Redbox, along with the ease of piracy, has cut into DVD sales, making it tougher to profit from the movie business. Blu-ray disc sales and gains in digital purchases haven't made up for the shortfall.

Hollywood economics have been strained by movie budgets that have been rising steadily over the past couple of decades. To cut costs, some studios have dropped smaller budget movies with big-name, expensive actors, but kept making summer blockbusters based on franchises such as superheroes.

That trend has increased the average cost of major studio movies to $78 million in 2011 from about $42 million in 1995, according to Bruce Nash, the founder and president of Nash Information Services LLC, which operates The-Numbers.com

Fewer small movies means that each big-budget project has more pressure to deliver. Nash believes Hollywood will rely on tried-and-true material — sequels and reboots — rather than take a chance on untested pricey projects that follow in the footsteps of "Avatar."

"Studios are willing to spend money for well-established franchises," Nash said. "There's not that much enthusiasm in completely new franchises built from scratch."

While Hollywood's newfound frugality doesn't exactly herald the coming of sock-puppet cinema, the belt-tightening is likely to favor more character-driven productions such as "The Help," which struck box office gold with sales of $139 million so far, despite costing an estimated $25 million to make.

That was the strategy former Disney CEO Michael Eisner pursued when he brought cheap-to-produce but profitable films including "Down and Out in Beverly Hills" and "Ruthless People" to the big screen.

While the millions made on each film don't stack up to the estimated $400 million profit on 20th Century Fox's "Avatar," Eisner characterized his strategy as an attempt to string together a series of small hits rather than always swinging for a home run.

Eisner said many major studio movie budgets these days appear frightening. Big films can make more money, and they can also lose a ton.

"Yes, you can make a small fortune, but you better come with a large fortune," Eisner said in an interview. "It's just a riskier business."

Consider Universal Pictures' "Cowboys and Aliens," which had an estimated budget of $163 million but grossed $129 million in global ticket sales since its release July 29. Universal likely spent tens of millions of dollars on advertising, and it only keeps about half the take from theaters. Even if it does well on home video, the film is headed toward a multimillion-dollar loss.

Hollywood couldn't afford to make those bets any longer.

In 2004, American audiences spent $2.04 at home consuming movies for every $1 they spent on theater tickets, according to IHS Screen Digest. But that ratio has been falling consistently for the past five years. Last year, the ratio was $1.37 to $1.

Meanwhile, box office sales in the U.S. and Canada were flat in 2010, as rising prices from 3-D ticket surcharges offset falling attendance. The declining home video market means a big chunk of revenue — more than $7 billion a year globally — has disappeared from the movie economy.

Although theatrical revenue has grown overseas, thanks to booming markets like China, Hollywood is losing share to local producers.

Producers of "The Lone Ranger" and "The Dark Tower" are scrambling to get the movies made after their studios balked.

While neither project is dead, they may be made for less.

Oliver Lyttleton, a U.K.-based writer for the blog The Playlist for IndieWire, said the inflated budget for "The Lone Ranger" might have been caused by an ambitious early script from 2009, which he read.

It featured wolves, a mysterious creature named a Wendigo, a train crash, a silver mine that features a major battle scene and "loads of explosions." Not to mention the Western theme with its elaborate sets and costumes.

He speculated that Disney might have to swap out director Gore Verbinski to shave costs. The big-budget director helmed Disney's first three "Pirates of the Caribbean" movies, but, according to the Los Angeles Times, he clashed with a previous studio head over the budget of the third movie and was dropped from directing the latest "Pirates" flick, which came out this year.

"It's not inconceivable that Verbinski will throw his hands up and just go, 'If I can't make the movie I want to make, I'll sling my hook,'" Lyttleton said.

Disney isn't saying anything specific about how it might cut costs.

The producers of "The Dark Tower" are faced with raising money and finding another studio to distribute the series. Producer Ron Howard said in a statement sent to The Associated Press, "we are continuing to be actively working on the project."

Howard and his co-producer Brian Grazer face a tough fight.

Not only did they produce the money-losing "Cowboys & Aliens," but Hollywood's love of sequels tends to fade quickly if the first installment fails to perform.

Warner Bros., dismayed by the disappointing receipts from its June release of DC Comics' "Green Lantern," is considering abandoning plans for a sequel, despite heavy hints at the end of the film about a resurgence of evil yellow forces.