Looking for a Few Good Blockbusters

Media companies need holiday hits more than ever

One of the surprise hits of Hollywood's holiday season may be a film that was never intended for the Christmas lineup. When Metro-Goldwyn-Mayer Inc. (MGM ) pulled its World War II movie, Windtalkers, from a Nov. 9 debut because of the September 11 terrorist attacks, Warner Bros. Inc. pounced on the open weekend for its David Mamet-directed film, Heist, a thriller about thieves starring Gene Hackman and Danny DeVito. "All of sudden, a film no one had heard much about looks like it could find an audience," says Paul Dergerabedian, president of box-office analyst Exhibitor Relations Co.

Indeed, holiday movies--in theaters, on video, and on DVD--may be all the media conglomerates have going for them during the fourth quarter. A deteriorating economy, exacerbated by post-attack woes, has cut the advertising, subscriptions, and other revenues so important to big media companies, badly denting their sales and earnings forecasts for the year. The last glimmer of hope: yearend movies, which normally account for 20% of a studio's annual box office.

REBOUND. This year could offer bigger gifts. Movie audiences are shaking off a year-long funk, with their numbers running nearly 10% ahead of 2000. In the five weekends since September 11, the studios have topped last year's box office for those dates. Dergerabedian predicts a record $8 billion in ticket sales for the year. "People need to get out of their houses, away from CNN, and we think they're gonna want to see movies," says Tom Sherak, a partner at indie outfit Revolution Studios.

That rebound has Hollywood feeling all the more urgency to cash in now. One example: Sources say Revolution is considering moving up the release of its big-budget military film, Black Hawk Down, from next March. And studios are hustling to fill slots left open this season by Hollywood's wariness of Warner Bros.' much-anticipated Harry Potter and the Sorcerer's Stone, opening on Nov. 16. Fewer choices could help the Walt Disney Co.'s computer-generated Monsters Inc. and Fox's Martin Lawrence comedy, Black Knight, opening the week after Potter, positioning itself as an alternative to teens turned off by the precocious wizard.

Studios are also hoping for a big boost from DVD sales, especially among folks ensconced at home during the holidays. Paramount is releasing Lara Croft: Tomb Raider, and Universal is offering Jurassic Park III in the next few weeks. With players now in nearly 25 million U.S. homes, analyst Tom Adams of Adams Media Research thinks DVD sales plus videos will generate revenues of $9.6 billion for studios this year, vs. $8.1 billion last year.

Among those expecting a big final quarter is AOL Time Warner Inc. (AOL ) In addition to releasing Harry Potter and Ocean's 11, a star-studded remake of the '50s Rat Pack movie, it will roll out the eagerly awaited first installment of Lord of the Rings through its New Line Cinema. The movie and DVD releases could mean $183 million in cash flow for Warner Bros.' fourth quarter, a 47% hike over last year, figures ABN Amro Inc. (ABN ) analyst Spencer Wang, beating AOL's Internet, cable, and publishing units. Other studios may post healthy years, too: Wang projects 25% cash-flow growth at News Corp.'s (NWS ) Fox Entertainment and 18% growth for Viacom's (VIA ) entertainment unit.

Some of those earnings will come from cost-cutting and the stockpiling of movies in anticipation of a Hollywood strike that didn't materialize. More recently, some studios have been trimming back on lavish premieres.

But they won't be cutting advertising, especially with ad rates falling as advertisers pull out of agreements. Disney (DIS ) says it will use some canceled ad time on its ABC unit to run spots for Monsters and a DVD release of its classic Snow White and the Seven Dwarfs. Adds Michael Dunn, Fox Home Entertainment's marketing chief: "We've got the same budget. We're just able to buy a lot more ads with the same amount of money." The irony is that the movie business, long criticized for its spendthrift ways and hit-or-miss risk, is suddenly the stalwart earner in an otherwise dismal media landscape.

By Ronald Grover in Los Angeles

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