The Cheapest Suits in Hollywood
If there were an Oscar for most consistently profitable Hollywood studio, it probably would go to 20th Century Fox (NWS). Hollywood is a hit-driven business, and most studios bounce from box-office hit to dud with depressing regularity. But for the past seven years, Fox has scored with both blockbusters (Alvin and the Chipmunks) and indie hits (Juno) that have generated the kind of double-digit return on investment you might expect from a business making widgets, not films. Tom Pollock, a former Universal Pictures chairman who produces movies for Fox and other studios, says: "Fox is simply the best-run studio in town."
You were expecting anything less from Rupert Murdoch's guys? At Fox, the mantra is "to be creatively driven but fiscally astute," says James N. Gianopulos, who co-chairs the studio with Thomas Rothman of Fox Filmed Entertainment (NWS). Translation: to be almost pathologically obsessed with costs. Not that the co-chairs run from risk. They outbid most of Hollywood in 2004 for the script to the apocalyptic The Day After Tomorrow, but made it for $100 million, relatively cheap for a special-effects picture. It grossed more than half a billion dollars worldwide.
Double-digit profits are rare in Hollywood. Yet for the past six years, Fox has delivered 12% to 18% operating margins. Halfway through its fiscal year, it earned operating income of $765 million on nearly $3.6 billion in revenues—a 21.5% operating margin. And that doesn't include Horton Hears a Who!, which grossed a hefty $45 million on its Mar. 14 opening weekend and was made for just over $85 million, nearly half what an animated Pixar Animation Studios (PIXR) film costs.
"No one in Hollywood negotiates tougher than these guys," says producer John Davis, who made I, Robot and Garfield: A Tale of Two Kitties for Fox. The hardballing starts with development, which Davis says typically costs Fox 10% to 15% less than usual because it holds the line on costly rewrites. On top of that, Fox rarely gives anyone but the biggies—Steven Spielberg, say—a piece of the profits. It also sets tough budgets and sticks with them. For his Lord of the Rings-esque Eragon, Davis had a $100 million budget, which forced him to cut some special effects and limit stars such as John Malkovich to cameos. It earned just $75 million domestically but did well globally.
Special effects often eat up an action film's budget. Not at Fox. The studio learned its lesson 10 years ago with Titanic, which cost Fox and Paramount Pictures (VIA) a then-unthinkable $200 million to make. After Titanic, Fox hired an in-house effects czar, whose main job is riding herd on special effects houses, often playing them against each other to get the best price. "They beat you over the head," says X-Men producer Avi Arad. "If it costs $30 million, they'll ask why it can't cost $20 million." To keep downtime to a minimum, Arad used several shops on Fantastic 4: Rise of the Silver Surfer.
Fox's biggest hits are its smallest films. Peter Rice runs the studio's independent unit, Fox Searchlight Pictures (NWS), which is in the business of finding tiny films, like Little Miss Sunshine, that were made on a shoestring. Rice's limit: $15 million. His latest triumph: Juno. It cost $7.5 million to produce and pulled in $135 million-plus in the U.S. alone.
Which brings us to marketing, an expense that has been known to account for one-third of a film's overall budget. While executives say they pay full freight for ads on Fox's far-flung global properties, their stars pop up all over. Samuel L. Jackson, who starred in the flick Jumper, walked the carpet at the Super Bowl on the Fox Network. And wasn't that Jim Carrey, who provided Horton's voice, recently grinning insanely in the audience of Fox's megahit American Idol?
Fox has stumbled before. Its 2005 picture Kingdom of Heaven bombed in the U.S. and cost a very unFoxlike $130 million to make. But even then, Fox turned things around. It had loaded the film with international stars, including Orlando Bloom, so it made enough outside the U.S. to break even.
Jon Fine is on vacation and will return next week.