Chapter 208: Alliance with American Cinema Chains
The day after Simon met with Jack Valenti, Daenerys Entertainment's first independently distributed film, "The Haunting of Avira," premiered in North America with a scale of 553 screens.
Despite being a project left over from New World Entertainment, the media still paid considerable attention to it.
On the second day after its release, many mainstream newspapers in North America published reviews of the movie. However, the reviews were predominantly negative, with the film failing to meet even the basic standards of quality. The Hollywood Reporter harshly criticized the movie as 'a horror film that tries to imitate various horror genres but ends up being a mess.'
Having decided to release this movie in cinemas, Simon didn't just make do; he specifically approved a $2 million marketing budget for printing and advertising. In the 1980s, such a marketing expenditure was quite significant.
However, during its opening weekend, "The Haunting of Avira" only managed to earn $2.21 million at the box office, with an estimated total of about $3 million for the first week.
A $3 million opening week, according to the general box office trends of the era, meant that the total North American box office would likely be between $8 million and $10 million.
With a production cost of $7.5 million and an additional $2 million marketing budget, the total investment amounted to $9.5 million.
Based solely on box office revenue, this film obviously could not recoup its costs. Even with later overseas channels, VHS, and television platform distributions possibly breaking even or turning a slight profit, considering the time cost, this was ultimately a failed project.
The senior management of Daenerys Entertainment had anticipated such an outcome and were not surprised. However, after the box office data of "The Haunting of Avira" was released, many media outlets started to propagate the notion that Simon Westerfell had 'fallen from grace,' suggesting that "The Haunting of Avira" could be the beginning of Daenerys Entertainment's decline into mediocrity.
The New York Times even wrote an article analyzing Simon's acquisition of New World Entertainment as a bad move, arguing that overly hasty expansion would only lead Daenerys Entertainment to a rapid decline and decay.
Simon was unaffected by these media comments, as he could clearly feel the benefits that acquiring New World Entertainment brought to his standing in Hollywood.
By purchasing the company, Daenerys Entertainment gained an experienced film production and distribution team in one go, acquired a valuable portfolio of film and television project rights, solidified its position in the television program supplier sector, and most importantly, obtained Marvel. All these were well worth the $250 million expenditure.
Although Simon was indifferent to the failure of "The Haunting of Avira," the former New World Entertainment executives, like Robert Rem, showed signs of nervousness in the days following. However, Simon did not offer words of comfort to these individuals, believing that pressure can drive motivation. The failure of "The Haunting of Avira" could serve as a motivation for them.
As "The Haunting of Avira" sparked media discussions, Daenerys Entertainment submitted "Scream" to the MPAA for rating for the third time on the following Monday. Additionally, post-production for "Rain Man," "Dead Poets Society," and "Steel Magnolias" was completed. Simon was awaiting the stance of Hollywood's traditional forces and did not rush to submit these three films for review.
At Daenerys Entertainment's Burbank division.
The date was October 5th, Wednesday.
Unlike "Scream," due to the themes of "Rain Man," "Dead Poets Society," and "Steel Magnolias," the MPAA could not possibly assign them a rating higher than R. Therefore, even though the ratings were not yet finalized, Daenerys Entertainment had already started arranging for representatives from various North American cinema chains to participate in screenings in order to sign exhibition agreements.
During the screening of "Steel Magnolias," Robert Rem, who personally hosted the screening, invited Richard Hill, the Vice President in charge of film sourcing at United American Cinemas, to the adjacent reception room.
This was the second screening of the day, with the two having already viewed a sample of "Dead Poets Society" in the morning.
In the 1980s, the large-scale consolidation of North American cinemas had not yet begun. United American Cinemas, which was spun off from the United Artists company following the Paramount Decree, remained the largest cinema chain of the era, owning more than 2,200 screens across North America, accounting for nearly 10% of the market share.
To offset the potentially negative impression that the box office failure of "The Haunting of Avira" might have left on Simon, Robert Rem had been tirelessly advancing the distribution of the year-end films in recent days. For three consecutive days, he personally accompanied executives from various cinema chains to view samples and discuss cooperation agreements.
Moreover, Robert Rem had a hunch that Simon's meeting with MPAA Chairman Jack Valenti the previous Friday might have involved laying all cards on the table. Several major film company-owned cinema chains, which had previously shown interest in cooperation, had declined his screening invitations in recent days. Robert Rem was now forced to seek screen resources from cinema chains outside the seven major studios.
However, Robert Rem was not overly worried about the current situation.
Due to the Hollywood strike earlier, North American cinemas were generally in a state of film shortage, and the quality of screening films could not compare to the same period in previous years. For three consecutive weeks, the total weekly box office in North America had been severely reduced, staying below $30 million. Coupled with the box office miracles created by Daenerys Entertainment over the past two years, Robert Rem had full confidence in securing sufficient screens for the company's films without relying on the seven major cinema chains.
"Charlie, including 'Scream' that we've already viewed, all three films were personally selected and supervised by Simon throughout their production. 'Scream' is even based on Simon's original idea. Thus, for these three films, Daenerys Entertainment needs to ensure a combined box office revenue share of 55%," Robert Rem said.
"I've heard about the rating issue 'Scream' encountered," Richard Hill replied, holding a coffee and confidently stating, "Bob, you probably don't even know yet if 'Scream' can be released on time. 'Dead Poets Society' and 'Steel Magnolias' might not face such issues, but companies like Universal's Cineplex and Columbia's Loews cinemas probably won't open their screens for you. So, we can only offer 40%. Moreover, if 'Scream' passes the rating, we can sign a one-time exhibition contract for all three films, but in key cities like New York and Chicago, United American Cinemas needs exclusive screening rights."
Due to occupancy rates, film companies and cinemas usually sign a tiered box office revenue sharing contract. In the first few weeks of release, film companies can take at least 60% of the box office revenue, but as occupancy rates decline, so does the percentage of revenue the film company receives.
Overall, mainstream film companies can expect a final box office revenue share of about 40% to 55%. After half a century of development in the North American film industry, there are very mature formulas for these calculations. Therefore, Robert Rem and Richard Hill did not dwell on the details but directly discussed the final revenue share percentage.
Hearing Richard Hill's demands, Robert Rem shook his head and said, "Charlie, our company's situation might not be great, but yours is actually worse. All cinemas are lacking films right now. Moreover, if the seven majors could achieve Daenerys Entertainment's box office results from the past two years, they would demand an even higher revenue share, and you might have to pay a hefty guarantee fee to secure films as before. So, 55%, you need to agree to this for us to continue talking."
Richard Hill countered, "Past achievements don't represent the future. 'Scream' might still be okay, since it's Westerfell's original idea, but he didn't sign his name on it. As for 'Dead Poets Society' and 'Steel Magnolias', if not for stars like Robert De Niro and Jessica Lange, they would lean more towards art films and lack appeal."
"Take 'When Harry Met Sally,' for example. The major Hollywood studios also thought it lacked appeal, but it earned $110 million at the North American box office," Robert Rem firmly stated, continuing, "Charlie, if you want to make this deal, it's better not to consider factors like the seven majors. The seven majors' suppression of Daenerys Entertainment won't help you make more money, but cooperating with us can. Understand that it's not just about these three films; Daenerys Entertainment will produce many more in the future. If our cooperation is pleasant this time, Daenerys Entertainment will definitely prioritize United American Cinemas as the exhibitor."
Richard Hill, hearing Robert Rem's final words and seeing his expression, immediately understood the implied message.
If this cooperation was unpleasant, United American Cinemas would definitely be excluded by Daenerys Entertainment in the future.
In recent days, Richard Hill had received several calls from executives at major Hollywood film companies, requesting United American Cinemas not to cooperate with Daenerys Entertainment.
It was clear that, for some undisclosed reasons, the relationship between Daenerys Entertainment and the seven majors had begun to sour.
Robert Rem initially thought Daenerys Entertainment's stance would be weaker this time but did not expect the usually mild-mannered Robert Rem from the New World Entertainment era to suddenly become so assertive.
Richard Hill couldn't help but think of Simon's figure.
That was truly a sharp and ambitious young man.
Perhaps the type of boss you have determines the type of employees you produce.
After further negotiation, Robert Rem did not budge on the revenue share percentage, and Richard Hill found he really did not have the leverage to fall out with Daenerys Entertainment.
After all, United American Cinemas only owned less than 10% of North America's screens. Even the seven majors, after the government lifted restrictions on film companies operating cinemas a few years ago, only acquired about 15% of the screens, although these were the highest quality resources. However, across North America, 75% of cinema screens were in the hands of various other large and small cinema operators.
The long-established interest relationships gave the seven majors a very strong influence over the entire North American cinema market. If it were any other second or third-tier film company, the seven majors could indeed force cinemas to adopt a blockade strategy out of fear.
However, Daenerys Entertainment was not among them, as this film company was simply too dazzling.
Producing six films in two years, all entering the top ten of the annual box office, with five breaking the $100 million mark domestically, such stunning box office performance, if continued, who would have the courage to refuse the massive profits it entailed?
Although he humored the callers from the seven majors over the phone, Richard Hill never considered cooperating with the seven majors to blockade Daenerys Entertainment. He believed many other cinema operators in the industry wouldn't either. Perhaps, only the cinemas directly owned by the seven majors, due to their parent companies' overall interests, couldn't cooperate with Daenerys Entertainment, but Richard Hill felt those cinema managers were definitely cursing inwardly.
As professional managers, everyone has performance targets.
Thinking this, Richard Hill glanced around the reception room and suddenly realized something else.
Under normal circumstances, film companies would invite responsible persons from multiple cinemas to participate in screenings together, but this time, Robert Rem only invited him. This was clearly not just because United American Cinemas was the largest cinema chain in North America. Daenerys Entertainment did not want to give cinema chains the opportunity to collude.
Without the leverage to fall out with Daenerys Entertainment and considering the proposed cooperation terms were not too harsh, Richard Hill's attitude gradually softened during the negotiations.
By the time they finished work, the two parties had essentially finalized the exhibition agreement.
After reaching cooperation, Richard Hill declined Robert Rem's dinner invitation and left. Robert Rem was also planning to go home but received a call from Simon, who had just received the new brand logos for Daenerys Pictures, New World Pictures, and Highgate Pictures, and wanted him to come over and take a look.
Since the boss was still working even after hours, Robert Rem had no complaints and drove from Burbank to Santa Monica.
Arriving at the Daenerys Entertainment headquarters in Santa Monica, Robert Rem quickly went to a meeting room upstairs.
Simon and a few others were there. After greetings, they sat down at the conference table. Seeing Simon's female assistant adjusting the projector, Robert Rem took the initiative to report the results of the afternoon's negotiations.
"United American Cinemas agreed to sign all three films with a 55% combined box office revenue share and a minimum of four weeks of screening time. Richard Hill initially wanted some exclusive screening rights in key cities, which I refused. However, United American Cinemas is not optimistic about 'Steel Magnolias'; they are only willing to provide 200 screens. If 'Scream' passes the rating review, they can provide 500 screens for this film and the subsequent 'Dead Poets Society'. Additionally, Simon, the internal screenings of 'Steel Magnolias' and 'Dead Poets Society' arranged last week were very well received. I was wondering if we could adopt a strategy of starting with a small-scale release to accumulate word of mouth, similar to Disney's 'Good Morning, Vietnam' last year?"
In theory, films like "Dead Poets Society" and "Steel Magnolias," which lean towards the art film genre, should participate in some film festivals for pre-release promotion. However, these films have very tight schedules and simply do not have the time for such marketing activities.
Hearing Robert Rem's suggestion, Simon considered it briefly before nodding, "That's possible. You guys come up with a plan first."
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