Hollywood gets tough on talent: $20-million movie salaries go down the tubes

It wasn't so long ago, after putting in years building up his career, that Denzel Washington finally cracked the $20-million star salary club. But now he's taking a sizable pay cut to star in the upcoming 20th Century Fox film "Unstoppable" after the studio threatened to pull the plug on the picture in order to get its costs down. David Fincher used to make $8 million to $10 million per picture, along with a nice piece of first-dollar gross, as an A-list director. But he's taking considerably less money -- and no first-dollar gross -- to get his new Sony Pictures film, "The Social Network," off the ground.

The same goes for "Dinner for Schmucks" star Steve Carell and director Jay Roach. They may be two of the top comic talents in the business, but the duo aren't getting their usual salary quotes for the upcoming Paramount movie. When Julia Roberts told Disney she wouldn't cut her salary to star in the recent comedy "The Proposal," the studio bailed on Roberts, hiring Sandra Bullock for even less than what it had offered Roberts. The movie turned out to be one of the summer's biggest comedy hits.

What's going on here? In Hollywood, whenever a studio executive would sit down to negotiate with an agent for an actor, writer or filmmaker, one of the first questions volleyed across the table was: What's your client's quote? If you'd written, directed or starred in a big hit, or even enjoyed a couple of modest successes in a row, your quote went up. And unless you ran off to make some nutty labor-of-love indie film where everyone committed suicide in the third act, your salary level was assured. That quote stuck like glue. Even after a few stinkers, a big star could still get their $15- or $20-million fee.

Not anymore. For basically everyone except Will Smith, salary quotes have evaporated, simply vanishing into thin air, as have the much-coveted first-dollar gross deals that top actors and filmmakers used to get. As one successful producer put it: "Quotes and first-dollar gross have just flown out the window -- the studios simply won't make those deals anymore," he explained. "It's all about what the role is worth in that particular movie. The studio pays for the lead actor or actress, but after that, well, the talent is just getting grinded. Everyone else is lucky to be working." 

(You'll notice that no one is quoted by name in this post because, in addition to the natural Hollywood aversion to talking about salaries, the studio chiefs don't want to look like they're gloating about reining in talent costs -- although they often are, gloating that is -- while the agents and managers don't want their clients to think that they've been largely powerless to stop the new austerity measures, for fear that their talent will skedaddle across town to another agency.)

In Hollywood the new mantra is: "cash break zero." Instead of paying out first-dollar gross, where top talent would start collecting huge wads of cash right off the top from the very first box-office receipts, the studios are now constructing deals where the talent participates in the profits from a film only after the studio has recouped both its production and marketing costs. The new arrangement can still lead to huge windfalls -- in part because the studios are now giving top talent a far bigger piece of the home video take than they could get before. But the talent only reaps the rewards if they are willing to bet on themselves and can deliver a hit.

Just ask Michael Bay, who has boasted that he made $80 million from his share of the box office (and merchandising) from the first "Transformers" film. Director Todd Phillips is also enjoying a lucrative payday from Warners after making "The Hangover," where he gave up a chunk of his up-front salary in return for a bigger piece of the back end. But not every movie is a monster hit. In the new "cash break zero" universe, if a film flops, or simply underperforms, the star isn't walking away with the first batch of money that comes rolling in. If the studio doesn't get to its break-even point, the talent (except for their reduced up-front salary) is walking away empty-handed.

Why did the movie studios finally get tough with talent? And is this really good for the movie business? Bad for talent? Or just a rare sign of fiscal sanity? Keep reading: 

In Hollywood, everything revolves around leverage. When the business was flush, talent had the edge. If one studio wouldn't do a deal, usually someone else surely would. But in lean times, it's the studios who have all the muscle. While some talent reps smell collusion, it's more likely that the talent is being hurt because of the way film budgets are put together. At its most basic, a movie has below-the-line costs and above-the-line costs. Below-the-line costs are basically the actual production expenditures on a film, from special effects to soundstage rentals to crew salaries.

Those are essentially fixed costs -- call them unmovable parts -- whether it's union salaries for the crew or the cost of filming each day, either on location or at a studio soundstage or special effects house. Since no one wants to rob a movie of its production value, which is ultimately what wows an audience, a studio can't simply say "Shoot the picture in 60 days instead of 80." So when a studio tells a producer to cut 10% out of a film's budget, guess what gets cut? The negotiable part: the cost of talent.

So today, the actors who used to make $15 million are making $10 million. The filmmakers who used to make $10 million are making $6 million. The writers who used to get a three-step deal, guaranteeing payments on a series of rewrites, now get one. As one prominent agent put it: "In terms of prices and quotes, everyone is in free fall. It's just brutal out there. The balance of power has totally shifted from our side to their side." 

Studio chiefs say that in the old days -- meaning five years ago -- everyone was enjoying boom times. Year after year, DVD revenues kept soaring. In an up market, it was easy to be generous with back-end profits, since it looked like there was plenty of profit to go around. The studios didn't mind if the talent got rich, just as long as it wasn't at the studios' expense. But times have changed.

"Two years after you'd made a movie, you'd look at the P&L [profit and loss] statement and the numbers always turned out better than they were when you'd greenlit the movie," says one top studio executive. "Even a movie that you'd thought was a break-even proposition turned out to be nice moneymaker. But now it's the complete opposite. The DVD revenues keep going down. You look at a movie two years later and the numbers aren't anywhere near where you'd originally projected them. When the Walt Disney Co.  reports earning losses in back-to-back quarters, it's very compelling evidence that the entire business is in trouble."

The steep downturn in the DVD market, where revenues are down close to 25%, might have been enough in itself to prompt studios to get tough with talent. But with marketing costs still skyrocketing, with the collapse of the capital markets leading to far less money pouring in to help studios assemble film slates, something had to give. According to another popular theory, the writers strike turned out to be incredibly bad for talent -- notably writers -- since the months of enforced production stoppages gave studios a rare opportunity to sit back and analyze their business, a process that had especially disturbing consequences for talent.

"It's never a good thing when studios have time to think, especially if they're going to be thinking -- exactly why are we paying all these people all this money?" one top talent rep said. "They started looking at their overall TV and movie deals and before you knew it, a ton of talent had lost their deals, because the studios had the time to study who'd actually made them money and who hadn't delivered the goods." 

The end result is a huge recalibration of the money being paid out to talent, especially in an era where a surprisingly large percentage of the biggest hit films, from "Up" to "The Hangover" to "Star Trek" and "Transformers," are star-free movies, potential franchises that involve interchangeable parts. There are some who see this new austerity as a potential boost for creativity. If studios can make movies for less money, in theory the studios who still retain any artistic ambitions -- all two of them -- could greenlight some riskier, more filmmaker-friendly efforts, knowing that the price tag would be far less than it was a few years ago.

But right now everyone is still trying to get their bearings. In the old days -- like 2005 -- when a studio chief told a talent agent that his meal ticket would be taking a pay cut, the agent would act offended, loudly complaining that the studio's offer was an insult. The star would never stand for that kind of abusive treatment.

But today? "Everyone has been going through all the stages, from denial to anger to rationalization to acceptance," says one high-level studio executive. "But the world has really changed. I think most of the talent is in the acceptance stage now."  

Photo credit: the Associated Press

Comments

[T]

As some one who spends a fortune on dvds, NOT blue ray, I would say, you aren't going to be seeing much more of my money if you keep being so stingy with special features on the dvd. Why the heck should I buy a dvd when all you put on it is the movie or the tv show. ? I can tivo or tape that for free.

So I'm very happy to pay 23- for a season of tv, I'm happy to buy the complete all available seasons, I don't go to one of the down loading sites - you get my real money - but in return I want the movie and the features. Disney really blew it with Wall-e - you did 3 different versions of the movie, all costing an arm and a leg - you charged so much extra for the features, that I went to the library, watched the basic movie and figured, naargh, I'm not paying even 10- for that - however great the features are, they aren't worth 25-.... but if you'd made the special effects version available for 2-3 bucks more as opposed to being greedy and asking like 10- more at street price, i'd have just bought it - instead you lost all the revenue.

DVD sales are falling cos we can now get the same stuff from TV. You want our money, give us more. You could try sticking a bit of paper in the dvd case, you know saying what the episodes are - like you used to - but you cheapskates want maximum profit for minimum product. ... and that's my opinion now, while I still have discretionary spending money.

[whiskey]

It's not just DVD sales falling. It's piracy (American Gangster was selling on the streets of LA and Shanghai for a buck two weeks before opening). And digital projection means an easier time for pirates, particularly in China and Russia. Cracking down in those places is a non-starter. Then there's the competition with already existing DVDs. Does Joe Consumer need a copy of say, "Up" when he can see say, "Ghostbusters" on a DVD he already owns, again?

Then there's free streaming sites like Hulu.com and Southparkstudios.com . Sort of like Pandora, and imeem, and Myspace Music, which offer free streaming music and social networking. Already the NYT had a feature article on how music has been destroyed revenue-wise by consumers switching to "free" streaming content supported by ads. Kids are not even bothering to pirate Peer-to-Peer or borrow/copy. Much less pay per download from Itunes or Amazon.

This is a massive shift in behavior that threatens ALL of Hollywood's revenue: DVD, foreign markets, TV rights, and pay-per-view/video on demand.

My guess is that most films and serial content will be "free" on streaming internet and available for download to a video Ipod or phone, with ads built in at time of download. And most stuff will be watched on laptops, Iphones, Ipods, video phones, and the like. For "free" but with ads. Why? Because you can't beat "free" and most content is not compelling.

Hollywood cannot learn from their mistakes, and make broadly appealing content to men and women alike, old and young alike. At best they can make "deals" and try to finagle one more project that is hype and no content.

This is a favorite theme of mine in the last few weeks. Look at the Networks. ABC, CBS, NBC, and FOX combined take 12.6% of viewers 18-49. Pathetic. And not sustainable in a recession when "free" beats pay. My guess is that someone will make movies and serial entertainment at a fraction of the production cost (New Zealand, Canada, Australia) and sell mostly over the Web. With "Free" as the model, making money on broad not niche content that reaches maximum eyeballs, probably with sponsors baked into the plot. I.E. "Lou Randolph: Farmers Insurance Investigator." With an insurance investigator each week responding to disaster, or an accident, or a death, and ferreting out the bad guy while making Farmers look good.

You could probably produce an hour long drama (or say, 47 minutes) with the ad baked in as above, in New Zealand or Australia, for about say, 1.5-2 million including rebates/tax breaks etc.. Make say, three or four and the total cost for the sponsor is 8 million and they have total control over the ad, no competition with other ads, if the show is any good, it's far more emotionally effective than say Dennis Haysbert standing up for 20 seconds, and can reach a lot more viewers (since people won't zone out or tivo through the ad). Yes it's the ultimate product placement. Yes it's a return to old-school radio days concepts. Yes if done wrong it's cheesy and corny. It's still probably less than the Seinfeld Microsoft commercials. It's the ultimate image builder in a tough economic environment. If done right, very effective, particularly if mixed with social networking.

However the music business (and Peer to Peer Pirates) have found out you can't beat free. What makes the movie and TV business different?

[12 Weeks Pregnant]

I think its the right thing to do, if the studios make a loss then the actors shouldn't get a bonus, this might also be a good opportunity for new talented actors to get a part in a movie.

[LTL]

Finally, it's about time.

Regarding Peter's comment. Yes, the strike did give time for the studios to reflect and then consequently dump deals that were not profitable. I know this for a fact. Also Masterpuff's point of view is obviously coming from the talent point of view alone. You need to start reading Screendaily. In fact, everyone in the film business in LA should be reading Screendaily. I've worked in physical production, large talent agency, development and in recent years international film distribution. It's shocking to me how many high level execs here in LA know little about what is going on internationally. If Julia Roberts, Brad Pitt etc can't make the box office work here, what makes US execs and agents think they will work outside the US? The rest of the world isn't so interested in us anymore.

Agents aren't my favorite people, but let's all realize they have a tough job, llistening to talent bang on everyday. I remember those days very well.

A film can't get made without financiers, agents, producers, talent, publicists, below the line etc. We are all in this together and so let's start valuing the worth of all components, not just what we individually deal with.

[michael]

That sound you are hearing between the commentary is Hollywood eating itself. Good riddance to agents, managers, charlatans, hacks, publicists, and the rest of the corporate pigs and their minions who produced nothing but swill for the past thirty years. And a special farewell to the legions of talentless, disposable, interchangeable whores onscreen who collaborated in the decline of the American cinema. Kill yourselves. It's your last chance at redemption.

[Michael Ornstein, A.C.E.]

We who toil below-the-line and are referred to as a "fixed cost" are ignored in Mr. Goldstein's (and most critics/commentators) universe. While the stars he refers to still make more on one picture than most of us do in a career, he ignores the pressures being put on those of us who provide the "production values" the audience craves. We "fixed-costers" are being squeezed by tightened schedules, reduced budgets, runaway production and new union contracts which will eliminate thousands of families from the health care rolls all in the name of reducing these "fixed costs."

[Jackson Carlaw]

I heard through the grapevine, that certain upcoming talent reps are now looking outside of Hollywood for upcoming screen writers as they feel the well is drying up and the coasts of some projects are going through the roof.

The rumor I heard is that one agent has nailed down some reclusive Scottish screen writer from Scotland after seeing his spec script whilst attending the Baftas and feels that we should be looking afar for original ideas that can be made on a cheaper budget whilst retaining a high spec look.
Heck ! If true, I guess that every agent and producer will be trying to get a hold of this guy.

Again, don't know if it's true or just gossip.
But! As they say, it all begins with the writer as he or she is the one who comes up with ideas.

[alex velazquez]

I think Hollywood is out of control and there for actors continue to make millions. studio executives need start being tough on actors salaries because movie prices at the box office continue to rise and something needs to be done. First let me just say that studio executives needs to stop paying actors millions if they want movies to be successful. More over that are movies that aren't that good for instant, but somewhere actors where still getting there big salaries. so i think studio executives need to put there foot down and say no and they need to renegotiate with actor agent's for better salaries. what ever happen to the good old days when actors got good salaries and movies were good at the box office. So there for I support studio executives about being tough on actors, because it is in the best interest for writers, producers, below the line, above the line, to continue to make great movies and still make a great impact on consumers like myself who spent millions of dollars every year watching movies at the box office. So I think this is in the best interest of the entire entertainment industry.