Hollywood claims the sky is falling.

The Reel Truth 

Hollywood claims the sky is falling.

If you go to Rotten Tomatoes, the Web site that compiles more than 100 film critics' reviews each week, you will find at the top of the "Certified Fresh" list a single movie that was the very best reviewed of 2005. It was not a remake or a sequel, it didn't cost $200 million, and it didn't star a pubescent wizard or a computer-generated ape. It was a made-for-cheap documentary about men confined to scrap-metal wheelchairs who play a violent game of quadriplegic rugby that involves rolling across gymnasium floors at high speed and hitting your opponent as hard as you can.

Titled Murderball, it was released in July to nearly unanimous acclaim, and the execs at its distributor, THINKFilm, had every reason to believe that audiences would run to this funny, furious movie. One of its stars, Mark Zupan, was touted on the cover of Entertainment Weekly as the summer's unlikeliest action hero. A&E Network bought Murderball for broadcast, MTV Films signed on as a promotional partner, and Reebok put up billboards pushing this latest extreme sport. And just a week before the movie came out, Participant Productions — the socially progressive company owned by eBay founder Jeff Skoll — partnered with THINKFilm to help give the movie a promotional push on the Internet.

"If you had asked me and a number of people in this company and a number of industry observers what the box office would be," says THINKFilm's Mark Urman, "I think everybody would have predicted multiple, multiple millions for Murderball."

Instead, it made just $1.5 million during its three-month theatrical run.

On the surface, the failure of Murderball would appear to render it one more casualty of The Year the Movies Died, a so-called trend trumpeted in newspaper headlines on an almost weekly basis. But don't weep for Mark Urman; the man ain't losing money, even on a box-office failure. Welcome to the economics of Hollywood, where great apes and Jedi knights aren't the only computer-generated illusions.

Throughout the year, dozens of newspapers and TV news shows insisted that studio revenues were off 5 percent from the same period in 2004; some had it as high as 7 percent or 8 percent. The most commonly cited stat was that Hollywood had lost $500 million, give or take, for the first half of 2005 compared to last year.

Which wasn't true. At all.

Fact is, the major studios took in more from the box office in the first quarter of 2005 ($870 million) than they did during the first quarter of 2004 (when receipts totaled $797 million). How do we know this? Because Edward Jay Epstein reported it on the online magazine Slate, where he contributes a weekly column called "The Hollywood Economist." Epstein got his numbers from "a secretive unit of the Motion Picture Association" called Worldwide Market Research, which provides revenue breakdowns to the highest-level studio execs but keeps those numbers away from journalists. Yes, Epstein says, audiences were down, but "this came mainly at the expense of independent, foreign, and documentary movies." The studios, he insists, suffered no slump whatsoever.

Epstein, whose book The Big Picture: The New Logic of Money and Power in Hollywood was published by Random House in February, has spent the better part of 2005 demystifying and debunking Hollywood's woes on Slate. He is no embedded trade-mag reporter, no Variety shill, but a writer of books on subjects ranging from the collapse of TV news to the Warren Commission to the diamond trade; he's a serious man of sober purpose. So his numbers ring true, as do his assertions that Hollywood is in the business of peddling not only big-screen myths, but business-page ones as well.

"The reason I have stayed on the subject all year is the inability or unwillingness of the media, of people who report on Hollywood, to try to get the real numbers and see what's really happening," Epstein says. "They have no willingness to accept that box office numbers are not the studio numbers."

Spend an hour talking to Epstein, and he will tell you that the U.S. box office is still the dominant money machine, providing more than 60 percent in ticket sales worldwide. And he will tell you that even though Universal claims King Kong cost more than $200 million to make, it probably cost the studio next to nothing, once you figure in subsidies provided by the New Zealand government and German tax shelters and presold licensing rights. Telling audiences how much King Kong cost was just part of its prerelease hype.

So, sure, the movies may have seemed terrible this year — the year of The Dukes of Hazzard, Bewitched, Be Cool and Domino — but there are awful movies every year, just as, in the case of Murderball, there are always critical darlings that tank with the public. If people are indeed staying away, it's because they just don't want to see any movies — not when they can spend the price of a ticket on a DVD 90 days after a film opens.

Mark Urman says it doesn't matter that Murderball did poorly at the box office, because he'll make his money on the DVD.

In that top-secret report Epstein cites, DVD sales for the first quarter of 2005 were up $550 million — from $2.7 billion to $3.2 billion.

"In the future, the theater will be less and less important, and they're [studios are] just trying to keep them alive," Epstein says. "Everyone understands it's an inefficient system, but if they kill the theaters, they will kill themselves. If you try to open Syriana or King Kong on HBO or as a network special, like a Super Bowl, and all the publicity was concentrated on it that way, you may make more money. But they don't know. You know what? They're scared."

But not broke. Not by a long shot.

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