Product Glut Is More Bad News For Hollywood

Pipeline problems: Hollywood's marketing problems in the wake of Sept. 11's terrorist attacks are considerable and growing.

These days network television movie ads can disappear along with regular programming in an instant and breaking news can destroy the most carefully orchestrated talk show appearances by movie stars promoting new films. On top of those problems, the industry now faces trouble on the distribution front because of the glut of product hitting the marketplace this fall, holiday season and early winter.

Hollywood is starting to see the negative effects of fragmentation in a marketplace that's not expanding the way it typically does in the summer. The problem was evident last weekend when three wide openings with big stars entered the marketplace -- "From Hell," "Riding in Cars With Boys" and "The Last Castle" -- but ticket sales for key films (those grossing $500,000 or more) fell nearly 2.5% from the prior weekend. Looking back at this time last year, last weekend was up, but by only a modest 4.2%.

In terms of dollars, key films grossed $77.96 million last weekend versus $79.87 million a week earlier and $74.83 million a year ago. Given all the doom and gloom news since Sept. 11 about business sectors that are now in serious trouble, one might be tempted to interpret those numbers in a more positive way. After all, there hasn't been a serious decline in moviegoing and there certainly could have been. Of course, traditionally Hollywood has always done well during bad times such as wars, depressions or recessions. People need to escape from reality, if only briefly, and a visit to the movies remains even at today's prices cheap compared to other types of escape like sports events, rock concerts, the theater, theme parks or vacation travel.

While the good news is that ticket sales haven't plunged, the bad news is that split up as they've been among so many films -- three new arrivals plus two key holdovers in "Training Day" and "Bandits" last weekend -- nobody walked away a big winner. That's meaningful to an industry that's become oriented in recent years to achieving bigger and bigger opening weekend grosses. The weekend's biggest grossing film was 20th Century Fox's launch of "From Hell" with a modest $11 million. A year ago, the number one movie for the comparable weekend was Universal's third weekend of "Meet the Parents" with $16 million.

Hollywood's advance radar screen usually gives marketing and distribution executives a good sense of what the weekend is going to bring, but last weekend brought only surprises. Business would have been up nicely if only things had turned out as insiders were anticipating. Columbia's "Riding in Cars With Boys" had looked to some handicappers like it would find first place parking with around $15 million. It wound up second with $10.4 million. Distributors were speculating that "Hell" would finish third with, maybe, $10 million and that DreamWorks' "The Last Castle" would plant its flag in second place with, perhaps, $12 million. Some insiders may have had "Castle" doing a little less and "Hell" doing a little more, but no one seems to have been predicting the upset that we saw. As for the two key holdovers, insiders were figuring that "Training" and "Bandits" would each fall around 40% to the $8 million area. But both films held up better than that. "Training" was only off 30% with $9.3 million. "Bandits" slid 36% to $8.3 million.

Why did things turn out differently than anticipated? Distribution sources point out that in today's environment, breaking news affects different demographic groups to a greater or lesser extent. Under-25 males, for instance, appear to be living their lives pretty much the way they were before Sept. 11, which worked to the advantage of "Hell." Women, especially those 25 and older, seem less likely to go ahead with moviegoing plans if the day's news takes a sudden turn for the worse. That didn't help "Riding in Cars," which appealed primarily to women of all ages. Adult men, the demographic group to which "Castle" probably had the most appeal, are more likely than their under-25 counterparts to stay home watching sports and crisis news on television news.

On top of that, when you have a product glut in the marketplace new films find themselves competing with recent holdovers targeted to the same demographic groups. Some of the male moviegoers who might have gone to "Hell" went instead to Warner Bros. "Training Day" and some of the females who might have opted for "Riding" caught up instead with MGM's "Bandits." Between them, the top five films last weekend grossed $46.1 million. Last year, however, the top five films for the comparable weekend took in $52.4 million. That's a drop of about 12% this year and a good indication of what's really going on.

Another interesting comparison can be made by using the numbers that insiders were estimating for the top five films prior to the weekend. Using the low end of various ranges floating around late last week results in a total of about $53 million. That would have been up about 1.3% from last year's Top Five total of $52.4 million. A $53 million showing for the Top Five would have represented a much healthier marketplace than the one we actually had.

Hollywood's concern is always with the top of the chart and with how well films open. Big openings help drive films at the boxoffice as the public finds out how much money they've grossed. And it's big openings that enable studios to make projections of ancillary revenues from home video and pay TV using formulas that hinge on how well movies get open. Moreover, distributors and exhibitors share boxoffice revenues according to sliding percentage scales that favor the studios in the first weeks of a film's run and tilt towards the theater owners after pictures have been in release longer. Big openings generate excitement throughout the industry and help films in their international releases, as well. Theater owners abroad are more interested in films that open big domestically and the publicity that big openings generate reaches audiences everywhere in this age of global media.

Clearly, with the sort of starts pictures are getting nowadays, there's less sizzle to help sell the films and it's tough to wind up with big domestic theatrical cumes. In the case of "Riding," Columbia has some cause for optimism since previous films starring Barrymore have done well after similar openings. "Drew's movies usually tend to hold," Sony Pictures Entertainment worldwide marketing & distribution president Jeff Blake told me Sunday morning. "So we certainly hope that's the case here. We got very nice exit polls from women of all ages. We hope what's happened to her movies in the past happens here. 'Never Been Kissed' opened April 9, 1999 to $11.8 million and did $55.4 million and 'Ever After' opened July 31, 1998 to $8.5 million and did $65.6 million. So as the female audience, in particular, continues to sample the movie, hopefully we'll be able to hold in there."

In analyzing the dynamics at work in the current marketplace, Blake pointed out, "I think the question is, 'Why isn't the market in general higher? Or why aren't anybody's movies higher?' I certainly think we've got the biggest factor very close to home and that's the volume of product. If the market isn't going to expand, for whatever reason -- and it's only expanding slightly, if at all -- I don't think you can be opening three or four movies every week in September and October, which is what we've done for the last month and are going to continue to do for the next couple of weeks."

Looking at release schedules for early next year shows that this isn't a temporary problem that's going to fade away after the holiday season is over. 2002 is already front loaded with product on many weekends, especially four day holiday weekends like January's Martin Luther King Jr. birthday weekend and February's Presidents' Day weekend.

"You've got to think about that," Blake said of the product glut. "It's one thing to do it in the summer when the market continually expands. It seems (that in the summer there is) almost no limit. But certainly that's not what's happening this fall, for whatever reasons. I think we've got a solid opening (for 'Riding'), given the marketplace. But you're going to need to find a way for there to be more to go around for everybody to be happy in opening three or four (movies) a week."

As for insiders' expectations that "Riding" would open atop the chart, Blake said, "You never know though. Whenever you're dealing with adult females -- we (also) had our young female audience and they certainly did turn out -- the tracking is always a little tricky because they're the most vulnerable to wait. It ended up pretty close and the young male audience (which went to see 'Hell') tends to be more reliable (when it comes to doing what they tell researchers they're going to do). In a close race, you're always a little better off with the younger males."

In any event, the product glut isn't going to go away. It's actually increased since Sept. 11 because the release of some high-profile films had to be delayed either because their content was too sensitive to come into the present marketplace or because reshooting or additional editing must be done to make them playable now. Thanks to the widely anticipated strikes by writers and actors that were supposed to have crippled the industry earlier this year, studios accelerated production so as not to run out of product anytime soon. Many of those films, some of which reportedly aren't as strong as they might have been had they had more time in development, will be in theaters next year.

Besides making it tough for films to open to big grosses, a glut of product also makes it harder for films to achieve big cumes. The issue here is being able to hold on to theaters. If a picture doesn't open big, exhibitors are likely to cut it loose after a few weeks to make room for something else, which theoretically, at least, might do better. In the absence of so much new product, theaters would be more likely to hold on to films because they'd need them to fill all the screens they over-built in recent years.

The product glut also has a negative effect on Hollywood's marketing costs. With more product in the marketplace, it's necessary to shout louder to be heard. Just as studios have to spend more on marketing in the summer to get noticed, they need to boost their marketing budgets to do battle in an overcrowded fall or winter marketplace.

Clearly, too much product is not good for anyone except the creative community, which profits from being paid to make it. While the product glut doesn't hurt actors, agents, filmmakers and crew members, it's not good for distributors. It's arguable as to whether the glut is good or bad for theater owners. On the one hand, it helps exhibitors to have an increased number of times at bat to benefit from boxoffice home runs. On the other hand, increased competition that holds down opening week grosses results in lower grosses later in a film's run when exhibitors get to keep more of the money.

How Hollywood comes to terms with the oversupply of product it now faces will clearly play a key role in determining the industry's financial health over the course of the next two years.

Martin Grove is seen Mondays at 8:35 a.m., PT on CNN and heard weekdays at 1:55 p.m. on KNX (1070 AM ) in Los Angeles.