Universal’s Year-Long Turnaround Shows Cyclical Nature Of Insane Movie Business

Universal’s Year-Long Turnaround Shows Cyclical Nature Of Insane Movie Business

EXCLUSIVE ANALYSIS… UPDATED THROUGHOUT: Every movie studio has its fair share of hits and misses because success is cyclical in Hollywood. What goes up must come down, eventually. (Sony Pictures is having a troubled summer now after years of successful releases. Once stable Warner Bros Pictures just went through an executive upheaval as did Fox and Disney before it. Paramount had a film drought last year. And so on.) But then a studio’s fortunes go back up. Such is the case with Universal Pictures. For the past 12 months, its filmmakers have been on a winning streak from June 2012 to now – in other words, after the release of its embarrassingly bloated bomb Battleship and before that a string of stinkers. In the last year Universal has released 14 films with 10 opening #1: Snow White And The Huntsman, Ted, The Bourne Legacy, Les Misèrables, Mama, Identity Thief, Oblivion, Fast & Furious 6, The Purge, and this weekend’s Despicable Me 2 which broke records here as well as overseas. Not even counting DM2‘s grosses, the studio amassed $3.2 billion at the worldwide box office which was more than in any 12-month period in Universal’s history. The slate also has been the most profitable not only for Universal (not adjusted for inflation, higher ticket prices, or 3D premium sales) but compared to every major Hollywood studio except Disney. I’ve learned that Legendary Entertainment‘s Thomas Tull could announce his selection of a new financial, distribution, marketing, and production partnership as early as this week after kicking tires all over Hollywood – and his choice is “likely” NBCUniversal. That’s a big vote of confidence for the movie side led by chairman Adam Fogelson and co-chair Donna Langley who report to Universal Studios president/CEO Ron Meyer.

“They are killing it,” emails one film financing expert I respect. “Since January of 2012, Universal has beaten Sony, Warner Bros, Paramount, and Fox on ‘cash on cash’ (TCCR) return. And if you look at their next two years, it is filled with sequels (10 in their 25 next pics) which should lead to terrific profits plus lower volatility. And they have event pictures and several brands such as Fifty Shades Of Grey and Wicked (touring in 40+ countries). It’s an amazing run. I never expected this. To be honest, I’m not their biggest fan.”

I’ve learned this short and stunning turnaround actually was the result of a plan by Universal execs to target overseas audiences who make up 70% of theatrical box office and intentionally create international franchises. “They executed well and succeeded. On Ted they got lucky. But that is what happens when you have enough at bats,” a source tells me. Now Uni wants to have potential franchise pics start in the $80M to $100M range if not a well-known brand. They’ll spend more on a sequel.

This strategy followed months of media predictions that all three studio heads would roll (separately or together) because of what was suddenly seen as deep systemic problems at the studio. Universal became the subject of speculative article after speculative article. Remember the bruising Uni brass suffered last summer when Battleship failed and rumors fanned that Comcast had courted DreamWorks partner Stacey Snider to take over?

And then in the middle of all that, the boss, Comcast EVP/NBCUniversal CEO Steve Burke, decided to sit in on Universal’s Monday motion picture meeting for senior Universal execs. Burke at the time only visited his film outpost about once every financial quarter (more often this summer). This Xanax moment took place while Burke was in town for a weekend wedding then atypically stayed on. It had to be made clear internally that he was not coming to fire anybody or commence layoffs. But Comcast folk are a tight-lipped bunch and the silence only added to the “where’s there smoke/there’s fire” chatter destabilizing the studio even more than any inaccurate journalist could. The fact is they didn’t know what to say. Though entertainment vets, Burke and Comcast chief Brian Roberts were “not used to the fishbowl nature coverage of the movie business. That everything which happens, true or false, gets the industry talking,” as an insider explained to me at the time.

For awhile, it looked as if Comcast would be no different than so many other corporate and private investors who came to Hollywood dreaming of big profits only to leave with empty wallets. (Remember, at one point early on during the acquisition and then regulatory period, Comcast seriously contemplated selling the film studio.) “Comcast just weren’t prepared to have movies like Ted make so much more money than anyone imagined - and then to have Battleship do so much less than planned. There’s virtually no other business around where your plans for the year in 24 hours go up and down,” a Comcast exec explained to me back then.

Fogelson self-consciously ran the meeting with Burke watching and said to staff afterwards about his Comcast overlords, “They’re genuine grownups. They’re not panicked. They want to run and grow an extraordinary business. And as for the immediate effects of Burke’s visit, I feel completely supported as I did before.”

Of course, no one believed Adam. Instead, he and Donna and Ron ignored the public humiliation and predictions they were about to be shitcanned and kept their heads down. It didn’t help when Comcast revamped its own logo to include NBC’s famous peacock but not Universal’s spinning globe. Now things are looking up.

For the most part, Universal has achieved its turnaround not by reinventing the wheel when it comes to filmmaking but by mostly playing it safe. It’s still unclear how many new franchises the administration has created because many films are still in that ‘maybe we’ll do a sequel, maybe we won’t’ no-man’s-land. The studio still relies on old and new partners like Illumination Entertainment, Working Title, Blumhouse Productions. But it was a decidedly risky move to release another Bourne movie without leading man Matt Damon that the studio insists paid off, or change the genre of successful franchise Fast & Furious to freshen the 5th and 6th installments which even rival studios can’t believe worked. (What’s next – Fast 7 as a rom-com?)

Meanwhile, I noticed a dramatic improvement in Universal’s film marketing after the studio in May 2011 hired Sony Pictures’ Josh Goldstine. (As I wrote at the time: Gee, if I were Amy Pascal and Michael Lynton, I wouldn’t let him go. But Goldstine had less than three months left on his contract.) This was the guy mostly responsible for Battle: LA‘s and The Social Network‘s really fresh ad campaigns for Sony. Fogelson for months had been lobbying Golfstine to replace domestic marketing czar Eddie Egan who was transitioned to Uni’s toonmaker Illumination Entertainment. Last month, Goldstine announced that another Sony marketing vet, Seth Byers, was joining Universal’s marketing team in a newly created role stressing analytics.

That said, no one is claiming Uni moguls are Thalbergs reincarnated or more talented than counterparts at other studios. A lot of what happens atop the movie business is luck mixed with karma, no question.

Meyer, of course, has survived four changes of studio ownership (Seagram’s, Vivendi, General Electric, and now Comcast) and nine different bosses (Edgar Bronfman Jr, Frank Biondi, Jean-Marie Messier, Pierre Lescure, Barry Diller, Jean-Rene Fourtou, Bob Wright, Jeff Zucker, and now Steve Burke) since he arrived in 1995. Every time Hollywood collectively worried about his future, Meyer has replied, “I’m still here.” (As he once told me on the record, “Fear of failure has taken me a long way.”) His contract ends in December 2015. Comcast has reupped both Fogelson, a film executive’s son and former movie marketing and distribution president, and Langley, the veteran film exec, who took over Universal during an especially lousy period in 2009 and released their first full slate in 2012. Frankly, the best that can be said about it is that it’s very diverse, filled with more small bets than big gambles, and reflects that its moguls are learning from past mistakes. But here are some of Universal’s year-long accomplishments:

- The studio recorded Universal’s fastest ever climb to $1 billion at the international box office in May 2013.

- Universal has topped the box office on four major holidays over the past year: Christmas Day, Martin Luther King weekend, Memorial Weekend, and this recent Fourth Of July holiday.

- Even before Les Misèrables was released on Christmas, Universal in 2012 marked its best year at the worldwide box office in the studio’s 100-year history with global theatrical grosses exceeding $2.927 billion even with Battleship. Universal broke its domestic record ($1.127 billion) in October and surpassed its international record ($1.716 billion) on December 21.

- Fast & Furious 6 opened #1 in 65 territories and became Universal’s biggest opening ever in 51 of those markets, including North America. My sources say that, even with a net cost of approximately $180M (negative cost of $200M with production benefits of $20M), it’s “still a great piece of business that will easily pass $725M and could even reach $800M”.

- Pitch Perfect and Les Misèrables are the #1 and #2 soundtracks of 2013.

- Universal’s first micro-budget film with Jason Blum – The Purge - earned 10x its production budget in the first weekend.

- Les Misèrables ($440.8M) became the #2 musical film of all time with Universal’s Mamma Mia! still on top ($605.9M).

- Ted is the top original R-rated comedy of all time ($549M).

- Fast 6 and Despicable Me’s digital games were both #1 on iOS and Android charts.

- The low budget supernatural thriller Mama grossed $147M worldwide and marked the second year in a row that Universal has been #1 on Martin Luther King weekend domestically.

- Identity Thief scored the top five openings of all time for an original R-rated comedy ($34.6 million) and has grossed $175 million worldwide.

- Universal broke even on Tom Cruise’s Oblivion which has grossed $285.6M worldwide but less than $100M ($89.1M) in North America. My sources say the final cost to the studio was $140M (actual negative cost of $160M minus $20M in production benefits) but Cruise proved he’s still an international draw. The ancillary markets may make it show a slight profit.

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