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LOS ANGELES (Hollywood Reporter) - When a movie hits big, almost no one cares what was spent; when a release fails to make opening-weekend estimates or has a 60 percent drop-off during its second week, everyone begins pointing fingers.
Consider MGM's $30 million to tub-thump "Hot Tub Time Machine," which cost about $35 million to make: First-week gross was $20 million, dropping 60 percent the following week and winding up with $50 million in domestic gross.
Or Disney's $200 million production "Prince of Persia: The Sands of Time," which has raked in $63 million domestically to date against a prints-and-advertising spend stateside of $75 million.
On the other hand, Disney's "Alice in Wonderland," similar in cost and marketing budget to "Prince," has grossed $334 million domestically and $1 billion worldwide.
In short, there might not be a more daunting challenge than opening a major motion picture: Create an internationally recognized brand name that lasts a lifetime, and do it in a couple of weeks with no second chances to course-correct. It's little wonder that the average P&A (prints and advertising) spend for major releases last year topped $37 million, according to Baseline Intelligence, the highest number since 2003, when the six largest studios spent an estimated average of $39.5 million on P&A in North America.
For the past seven years, domestic P&A has accounted for 34 percent-37 percent of combined production and domestic-releasing costs for movies released by the six big studios. In fact, after taking a big jump in 2003, the combined negative plus domestic P&A has hovered around the $100 million-a-film mark, with last year hitting $102.3 million, up from $87.9 million in 2008, according to Baseline Intelligence.
Looked at another way, for every dollar spent on producing a major film, the studios have been spending 51 cents-58 cents to release and market it in the United States and Canada. Assuming distributors get an average of 55 percent of domestic ticket sales, the average 2009 release had to gross $186 million to recoup production and domestic-releasing costs -- an unrealistic goal for all but a handful of titles -- which is where the international brand-building challenge kicks in.
The connection between production budgets and P&A spend is repeated at the individual studio level. Last year, Paramount had the highest average negative cost ($87.7 million) and highest P&A average ($50 million a release). Universal had the lowest average negative cost ($51.7 million) and lowest P&A ($30.4 million).
The "P" portion of prints and advertising represents less than 10 percent of the overall spend, and with digital distribution becoming more widespread it is heading downward. The actual cost of a print can vary widely depending on the volume of prints ordered, the film-release stock chosen, length of the movie and quality-control considerations. Prices can range from less than $1,000 to more than $3,000, but what the majors pay is based on volume deals cut in aggressive negotiations between high-level studio and lab executives and might include rebates from such film-stock manufacturers as Kodak and Fuji.
Through the years, there have been periodic attempts to control escalating P&A spending, which can soar to the $85 million range on big "tentpole" releases involving 4,000 screens. This includes finger-pointing at ego-driven demands by actors and directors to blanket major-city skylines with giant billboards and lavish creative campaigns.
But Nielsen Ad*Views data suggest that the overwhelming portion of the spend is on television advertising. Last year, Nielsen estimates that of the $26.5 million in media spent on the opening weekend of a 2,000- to 5,000-screen release, 80 percent went to network, cable and spot TV buys.
In contrast to just about every other product release, a movie faces a singular challenge: It must create near-instant national brand-name recognition within a span of a few days to a couple of weeks. The only way to do this, especially with a highly visual product like a film, is with a well-crafted TV spot campaign.
While overall TV viewership is at record levels, it also is increasingly fragmented across dozens of channels. Spending on network TV actually has increased, from 35 percent of opening-weekend budgets in 2006 to 41 percent last year, in addition to an increase from 26 percent to 28 percent in cable-network spend. These increases have come largely at the expense of spot TV, down from 18 percent to 11 percent, and newspapers, down from 12 percent to 9 percent, Nielsen said.
At various points along the way, especially with the ascent of social media, there have been calls to shift a larger portion of media budgets to the Internet, especially given that medium's lower ad rates, massive inventory and ability to target key demographics.
This certainly has happened with limited- and medium-release movies. Those bowing on fewer than 500 screens have seen online-media spend jump from 5 percent in 2006 to 12 percent last year; 500- to 2,000-screen releases allocated 6 percent to the Web last year, double the 3 percent mark in 2006.
Industry peer pressure and second-guessing also play a part in keeping P&A spending trending upward. "When a studio like Disney tries to rein in these costs, they are second-guessed and doubted for trying a new media mix and paradigm," says Jim Lukowitsch, product manager at Baseline Intelligence.
Web-delivered over-the-top (OTT) television might open additional opportunities for movie marketers, but at present the Internet remains a text-driven medium, and usage is so fragmented across tens of thousands of sites that it is difficult to buy in the massive tidal wave needed to create overnight brand awareness -- which is where TV outshines all other media, albeit for a premium price.
Indeed, TV spot rates are likely to rise as the economy improves and midterm elections, which could draw record TV campaign spending, further drive up spot pricing.
The big question facing movie marketers is how to deal with the declining DVD window. Conventional wisdom has been that the massive spend around the opening theatrical window could be justified by the "afterglow" effect lasting into the DVD and even PPV/VOD windows. This was further justified by steady shrinkage of the theatrical-to-DVD window, lessening the need for a second big spend to promote the home video release.
With Google TV entering the OTT fray -- all of which have movie rentals and subscriptions as core offerings -- it would be logical to see a further shift of ad spend to online.
What isn't likely to happen is a change in the need to create that initial brand awareness in the theatrical window. Although a small-budget release might bet on multiple Golden Globe and Oscar nominations to give it a promotional push, that type of strategy is simply too risky for larger-budget movies.
It might be the ultimate example of that old adage, "You never get a second chance to make a first impression." With movies, it is an impression that lasts a lifetime.
(Entertainment analyst Larry Gerbrandt is a principal at Media Valuation Partners in Los Angeles.)
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