Recession could hurt small films like ‘Slumdog’

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/ Source: The Associated Press

The long-shot story of Jamal Malik in “Slumdog Millionaire” mirrors the uphill struggle to get the movie made. Given the recession and a slumping DVD market, an independent film like “Slumdog” might not survive today’s Hollywood economics.

The industry’s problems were showing even as a rough cut of “Slumdog” was being made in London last May. At the time, Warner Independent, the specialty division of Warner Bros. that had bought the North American rights to the movie, was told it would be closed to cut costs.

The film eventually found an outlet through News Corp.’s Fox Searchlight. But Polly Johnsen, Warner Independent’s former president and now a producer with Warner Bros., thinks other small films might not be so lucky now.

Niche labels that had paid to distribute small-budget movies to a wide audience have shut down or have been folded into their parents, including Warner Bros.’ Picturehouse and New Line Cinema brands, Paramount’s Paramount Vantage, and Capitol Films’ THINKFilm.

The absence of deals that ensure a major distributor in North America can severely crimp a movie’s budget. The money from distribution rights helps to fund a production. And the prospect of a wider audience reassures investors and lenders that their money won’t be wasted.

In recent years, the business of making and distributing independent-style films reached bubble proportions.

Awash in capital, hedge funds, private equity firms and big studios helped bid up the price on promising film projects. Those buyers then spent great amounts on advertising to try to ensure solid returns. Studio subsidiaries’ production and marketing costs rose more than 50 percent in 2007 to $75 million, according to the Motion Picture Association of America.

Most films never made all the money back.

“They drove up production costs and marketing costs for everybody to the point where it wasn’t a business any more,” said Paul Federbush, Warner Independent’s former senior vice president of production and acquisitions.

Studios less willing to take risksNow finding and funding movies will be more difficult in coming years as studios recoil from risk. On top of that, home video sales have slowed — further trimming studio budgets — and outside investors’ money has shriveled in the economic downturn.

Last year, Deutsche Bank pulled out of a $450 million deal to finance 30 films with Paramount Pictures. Paramount also trimmed its planned output by six films a year.

Lions Gate Entertainment Corp. said last week it would cut its annual output by four, to a dozen films, beginning in April, after co-financing partner Pride Pictures withdrew support. CEO Jon Feltheimer said the future slate is “a little leaner, takes fewer risks.”

Instead, major studios have declared a renewed focus on big budget, all-inclusive entertainment such as the superhero action flicks that have defied gravity in the recession. The industry calls these films, such as “Iron Man,” “tent pole” titles because they can support a studio’s finances.

Jeff Bewkes, Time Warner Inc.’s CEO, cited that as a lesson learned from the success of Warner Bros.’ “The Dark Knight,” which has grossed nearly $1 billion at the box office worldwide and an estimated hundreds of millions more on later markets such as home video.

“The obvious thing we’re going to take from it is: More ‘Dark Knight,”’ he told analysts this month.

This is the environment that might sink a movie like “Slumdog” today.

The film had no stars that North American audiences would recognize. And a quarter of the movie was in Hindi.

Warner Independent, which paid $5 million to distribute “Slumdog” in North America, had bet the film could be sold to small Indian communities in the U.S. and Canada, as well as typical art-house theatergoers, and hoped to gross $12 million to $16 million. That investment allowed the movie to get made with a budget around $15 million. Without it, the movie might have been delayed or downsized, or remained on the drawing board.

Once Fox Searchlight took over distribution, “Slumdog” started small, in just 10 theaters in November. After the film was bolstered by several awards and good word of mouth, it grew to some 1,600 theaters today. The movie has made $130 million worldwide so far and is up for 10 Oscars on Sunday night.

Johnsen, the former president of Warner Independent, said she hopes that the movie’s success will remind Hollywood that not every film needs a comic book hero to succeed.

She also notes that smaller films can be vehicles to develop future stars. Chris Nolan would not have directed “The Dark Knight,” with an estimated $185 million budget, if he hadn’t made “Memento” for $5 million in 2000, she said.

“I think it would be a shame if everyone’s first time out was a huge budget movie, because it doesn’t give filmmakers the opportunity to take risks,” she said. “Not everything that makes 100 percent sense on paper is always the big win.”