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Movie ticket sales hit record

But a report on the industry's health may understate the true cost of making films.

March 06, 2008|Josh Friedman | Times Staff Writer

In Hollywood, the math is never simple.

Worldwide box-office revenue rose to record levels last year, the studios' main trade group said Wednesday -- but a closer look at the numbers suggests a murkier picture of movie industry strength.

Movie ticket sales climbed to $9.6 billion in the U.S. and Canada and $26.7 billion globally, both logging 5% increases that demonstrated a "healthy" industry, said Dan Glickman, chairman of the Motion Picture Assn. of America.

The report tends to downplay the actual cost of making movies, however, along with currency fluctuations that benefited Hollywood because of the free-falling U.S. dollar.

For major studios, the average cost of producing and marketing a movie grew 6% to a record $106.6 million, the MPAA said. But that number -- based on a survey of trade group members such as Walt Disney Co., 20th Century Fox and Paramount Pictures -- reflects only the $70.8 million the MPAA said studios spent on a typical production and the $35.9 million they shelled out to advertise it and make prints.

Not considered was the tens of millions of dollars that outside partners such as Relativity Media, Legendary Pictures and Dune Capital Management spent to co-finance dozens of big movies, including last year's "300" and "American Gangster." Studios are turning to partners such as hedge funds and banking firms to share in many of their productions, a strategy that limits their risk but also their potential profits.

Billions have poured into Hollywood since 2004, with all of the big studios and several of the smaller ones taking on partners for at least a portion of their films.

The MPAA has continued to tally only the investments by the studios, a calculation that analysts say glosses over the true expense of making movies.

Outside investors funneled $1.3 billion into studio productions released in 2007, according to Global Media Intelligence, a media research firm. Including that cash, the average film cost $81.6 million to make, said Roger Smith, a GMI analyst -- or 15% more than the MPAA calculated. As a result, the trade association's figures "understate how much costs are out of control," he said.

The MPAA's annual survey has shown production costs flat to slightly down from 2004 through 2006, "a time when they were going through the roof and everyone knew it," Smith said. Increases were masked because studios' partners assumed a greater share of production costs, he said.

In a conference call with reporters, Glickman and Dean Garfield, the MPAA's chief strategic officer, said total production costs including outside cash would be hard to quantify. They noted that the trade group has been consistent in its yearly calculations, allowing for apples-to-apples comparisons of studio investments.

They also said the continuing flow of money to Hollywood showed that investors remained bullish on the business of making movies. Universal Pictures and Relativity, for example, last week announced a co-financing deal that would fund at least three-fourths of the studio's productions through 2011.

"It's not a cheap exercise, but people continue to believe it's worthwhile," Garfield said.

But, in response to reporters' questions, Glickman said the MPAA would consider factoring outside financing into future studies.

The latest survey also showed that production and marketing costs for movies made by studio subsidiaries and affiliates, such as Time Warner Inc.'s New Line Cinema and News Corp.'s Fox Searchlight Pictures, rocketed 54% in 2007 to an average of $74.8 million.

Glickman said it was unclear why costs had climbed for these smaller divisions, but he said overall box-office results indicated that the investments were worthwhile.

"It was a business decision that seems to have paid off for them," he said.

Ticket sales outside the U.S. and Canada accounted for 64% of the $26.7 billion in worldwide box-office revenue last year, the MPAA said.

Glickman called foreign ticket sales a "testament to the popularity of American films overseas," as well as to the strength of local movie industries. He acknowledged that the dollar's weakness contributed "a significant portion" to overseas receipts but said that wasn't the only factor.

Overseas sales bring in more dollars when revenue in euros and other strong currencies is translated into sagging greenbacks.

Ticket prices in the U.S. rose 5% last year to an average of $6.88, the MPAA said. Although attendance was flat at 1.4 billion tickets sold, ticket prices rose faster than the rate of inflation for the first time in four years. That's an encouraging sign for studios and theater owners, which increasingly are focusing on premium-priced events such as 3-D and Imax screenings.

The ticket price average, which included discounts for matinees, seniors and children, prompted questions about how that number was calculated because ticket prices in big cities such as Los Angeles and New York are often advertised at $12 or more for adults. MPAA executives said the number came from the National Assn. of Theatre Owners, whose survey was answered by 56% of that group's members.

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josh.friedman@latimes.com

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