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Marketing Costs Scale the Heights

The stage is set for Hollywood to surpass the nearly $3 billion it shelled out in 2001 to promote its movies

October 20, 2002|Claudia Eller | Times Staff Writer

When John Woo's costly World War II epic "Windtalkers" had a disastrous debut this summer, MGM Studios responded in Hollywood fashion: It spent millions of dollars on emergency marketing.

Despite the infusion of cash for new ads, the box-office receipts didn't climb, but the losses did. "Windtalkers," starring Nicolas Cage, grossed just $41 million in the U.S., or $1 million less than what sources said it cost to market. And that didn't include the film's price tag of more than $110 million.

Such desperation spending has helped drive studio marketing expenses to an all-time high. Ten years ago, it cost an average of $12 million to market a studio movie. Today, that average is $31 million, and studios can spend nearly twice that on big "event" releases such as "Spider-Man." With spending on movie advertising up 17% so far this year, the stage is set for Hollywood to surpass the nearly $3 billion it shelled out to promote its movies in 2001.

The record amounts increasingly are skewing the economics of the volatile movie business and raising the ante in the high-stakes box-office game. The studios say if they spend more they'll make more, particularly on blockbuster hopefuls. It's great when it works, but when it doesn't, marketing costs eat away at already thin profit margins and bloat the losses on big flops.

For every heavily promoted movie such as "Spider-Man," which has grossed more than $800 million worldwide before one DVD has gone on sale, there are dozens of duds such as "Windtalkers," which struggle to recoup their marketing costs, let alone make a profit.

"Everyone thinks we spend like drunken sailors, and they're right," said Peter Adee, who took over marketing at MGM after the release of "Windtalkers." "It's because it's an all-or-nothing game. You either open [big] or you die, so there's a lot at stake."

Afraid to Be Timid

Studio executives believe they cannot afford to spend less than their competitors even on movies with built-in audience awareness such as the highly anticipated sequel "Men In Black II," which had a $50-million promotion campaign.

Even with support from a big advertising partner such as Pepsi, which New Line Cinema teamed up with for its big summer comedy, "Austin Powers in Goldmember," studios still spend as much as they would have on their own.

"You have to make sure you're not taking anything for granted," said Russell Schwartz, marketing president at New Line, which is owned by AOL Time Warner. "We can't assume the promotional partner is actually selling the movie or just creating awareness. We still have to spend to make sure the audience understands why they need to go see it."

The same was true at Sony Pictures this summer. The studio perhaps could have saved some of the $60 million it spent to market an already highly-recognizable title, "Spider-Man."

"Nobody wants to save the dollar that leaves you a dollar short," said Jeff Blake, head of worldwide marketing and distribution at Sony Pictures. "Could we have saved a couple of dollars and pulled a couple of bricks out of the building? I wouldn't have even wanted to try."

Some question the wisdom of such excessive spending when studios' corporate parents, such as AOL Time Warner, Walt Disney Co. and Vivendi Universal, are being pummeled by the stock market.

"It is obscene," said Peter Sealey, a marketing consultant and adjunct professor at UC Berkeley who headed marketing at Columbia Pictures in the mid-1980s. "There's no excuse for the consistent overspending ... it's close to corporate fraud."

There is no way to quantify what advertising dollars actually buy. Studios defend big-budget marketing because they believe it can turn a solid performer into a global blockbuster and deliver additional revenue with the sale of videos, DVDs, TV rights and merchandise. With high-profile movies today often costing more than $100 million to produce, executives reason, a mega-marketing campaign is the insurance policy that protects that investment.

"You have to spend money to make money," said Geoffrey Ammer, marketing president at Sony, which outspent its competitors this summer to promote such hits as "Spider-Man," "Men in Black 2" and "XXX."

But the studio also spent about $50 million to promote its $120-million sequel "Stuart Little 2," which opened to a dismal $15 million and grossed $63 million in the U.S.

The 'Batman' Factor

Hollywood's current spending frenzy can be traced to 1989, when Warner Bros. flexed its marketing muscles with another big event movie, "Batman." Far in advance of the movie's release, the studio bought TV ads and plastered billboards with the iconic bat logo. "Batman" also started the trend of opening movies in more than 2,000 theaters.

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