Cut The Fat: How Hollywood is Adjusting to the Recent Economy

Two posts ago, I talked briefly about the current state of Hollywood in the midst of the economic crisis that we are in, but focused primarily on the split between Paramount Pictures and DreamWorks SKG. This week, I have decided to focus on the larger economic affects on Hollywood, and how the entertainment industry is being shaken up in every sector, from major studios to independent film festivals. As stocks and quarterly figures alike continue to fall, companies are making serious changes in order to counter their projected losses. Jeff Zucker, CEO of NBC Universal (seen right), has decided to cut $500 million from next year’s budget, despite profits in its last eight consecutive quarters. The figure will constitute a total of three percent of operating expenses for 2009, and the major cuts will be in three areas: discretionary spending, promotion expenses, and staffing. Zucker was quoted in a memo stating to his workforce, “We are living in a time of unprecedented economic challenges, and it is increasingly clear that the worldwide economic slowdown will continue into next year.” I agree wholeheartedly with Zucker’s quote, and believe that most of the recent cutbacks in the entertainment industry are due to the grim projections of 2009. In addition, it seems that the cutbacks most companies are making are primarily in the number of projects being produced, especially in the independent film market, and the advertising and marketing campaigns of new or current projects. I believe it is in the best interest of studios and production companies alike to cut the fat on extraneous endeavors and projects for the next few years, and focus on the tent-poles that will bring in enough revenue to sustain these companies through this rough period. Unfortunately, other aspects of the industry may not be so fortunate.

In the past month, several major independent film distributors and production houses have been completely shut down by their parent companies. Warner Brothers eliminated two of their independent, albeit successful production companies, Warner Independent and Picturehouse. Paramount Pictures absorbed most of its staff at its specialty division, Paramount Vantage, as well as terminating fifty of its employees. These businesses were not extraneous ventures started by the studios during some boom, producing small films no one had heard of. For example, Paramount Vantage was responsible for, among many other noteworthy titles, There Will Be Blood and Into the Wild, two of this past year's nominees for Best Picture. Aside from those in the independent film sector, even big studio films that have been slated for a release date have been pushed back in the attempt of conglomerates to minimize losses for 2008. One primary example of this is Paramount’s film, The Soloist (pictured left), starring Jamie Foxx and Robert Downey Jr., which has been delayed to March of 2009, instead of its initial November 21st, 2008 release date. The decision was made because Paramount did not have the budget to support the film’s advertising and marketing campaign, which included an Oscar campaign for the Best Actor and Best Picture category. Research shows that the delays on this film alone will save Paramount $60 to $70 million in prints and advertising costs. Along with The Soloist, vice chairman of Paramount Pictures Rob Moore said last week that it was “cutting costs by reducing the number of films released each year from about 25 to 20.” While Paramount will lose the revenue of these five films, this cutback seems to be a safe, and even timely decision. Moore went on to explain that unless the split with DreamWorks was made, Paramount would have a difficult time reducing its production count to twenty films per year. The split also created the opportunity to make other potentially lucrative deals, including an agreement with Marvel Studios to distribute all four of its films that will be released through 2011. As we have seen with the success of Iron Man in both the box office and DVD sales, the distribution deal seems to be a very smart move for Paramount.

One can imagine that if these major studios and production companies are minimizing costs as much as possible, smaller film festivals around the country, including the Jackson Hole Film Festival and the Santa Barbara Film Festival, are really feeling the brunt of it all. Due to insufficient funds, these festivals have been forced to shut down. According to one studio exec, “Outside of Cannes, Berlin, Sundance, and Toronto we’ve never acquired a film at another festival. And in terms of tracking talent, anything that generates heat comes back to L.A. anyway.” It seems that without celebrity backing garnering enough publicity, many of these events are losing corporate sponsorships, which account for most of the festivals’ budgets. Not only are cutbacks being made everywhere in the film industry, but costs are also being minimized in the television world across the board. NBC’s Knight Rider, ABC’s Private Practice, and FOX’s Terminator: The Sarah Connor Chronicles have all been slated for nine more episodes apiece, despite mediocre to poor reviews and ratings. If this were last year, let alone five years ago, these shows would have been cancelled and a new show would have taken their place. However, “given the cost of producing and marketing a new scripted series,” companies like NBC Universal “might have a greater temptation to give a show like ‘Knight Rider’ more time to find an audience.”

Due to the recent economy, aside from job security, stock-market crashes, and everything else we have to worry about, audiences around the country are going to have to worry about quality of entertainment and media for the next year, as almost all mediums are minimizing their content and rate of production due to the decreasing stock value of the major conglomerates that control the output of entertainment for the majority of the country. Whether it be in film, television, or the independent arena, audiences will not be available to the maximum potential of the industry for the next year. However, this downside is the only option the industry has in a time like this, and Hollywood will bounce back when the time comes. Every industry needs to play it safe these days, and Hollywood should be no different.