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May 12, 1999

Great Expectations

by Yi-Hsin Chang
(TMF Puck@aol.com)

It's tough to call who's more psyched about the new Star Wars Episode I "prequel" The Phantom Menace -- the fans or movie-theater owners, but I'd go with the latter.

Movie theater owners are hoping that the Force will be with them come May 19th -- and that it will help pull them out of their recent box office slump. Facing what's called "tough comparisons" from last year's calendar first quarter, which was boosted by James Cameron's record-setting Titanic, movie exhibitors -- and even film studios in general -- are optimistic that Episode I will give box office sales a much-needed shot in the arm.

Take Carmike Cinemas (NYSE: CKE), the nation's third-largest motion-picture exhibitor with some 2,700 screens at almost 500 locations. At the end of April, it reported a "disappointing" 16% drop in first-quarter revenues year-over-year and a loss of $3.1 million, before charges, compared with a profit of $3.8 million last year.

The company said it has been "preparing and looking forward to our summer season, which begins on May 19th with the much anticipated opening of Star Wars: The Phantom Menace." In fact, Carmike is scrambling to add 132 more screens prior to the movie's premiere by reopening 53 screens that were closed for stadium-seating retro-fits and opening five new theaters with 79 screens.

"We feel that our summer business will gain early momentum with movies like The Mummy and Star Wars: The Phantom Menace, which should create excitement and anticipation for other upcoming movies such as Austin Powers II, Tarzan, Wild Wild West and many more," said Carmike CEO Michael Patrick, adding that this summer is "expected to be one of the best summers in our industry's history in box office sales."

A Titanic of a Movie?

While Star Wars creator and director George Lucas and his Lucasfilm Ltd. stand to take home the most loot from Episode I's box office receipts, the one major film studio that will pocket some profits from the movie is Fox Entertainment's (NYSE: FOX) Twentieth Century Fox Film Corp., which has sole distribution rights to Episode I and the other two prequels to come, along with the original Star Wars trilogy (now referred to as Episodes IV, V and VI).

Fox has dominated the blockbuster category in the past few years with such movies as Independence Day and, of course, Titanic, which grossed $600 million in North American box office sales and topped $1 billion worldwide. But unlike those movies, Fox will be getting a much smaller cut of the action: reportedly just 7.5% of box office receipts -- the norm for distribution is more like 12% to 17%. But, hey, a small slice is better than no dice.

Lucas opted to bankroll the $115 million picture out of his own pocket in order to maintain autonomy and, of course, the lion's share of the profits. Because of that combined with the cult-like frenzy surrounding Episode I, Lucas also has a lot more leverage with theaters than your typical movie producer. And, boy, does he have a long list of demands.

Blockbuster or not, Lucas and Fox are limiting the number of runs of the 2-hour-11-minute-long film and only distributing it to the best theaters in terms of quality projection and digital surround sound systems. Episode I is expected to premiere in about 2,800 theaters, compared with Godzilla's initial run in 3,310 theaters. In other words, only about 4,000 of the country's 28,000 screens will be showing the movie on May 19th, meaning that some smaller towns won't be getting the movie when it opens.

While terms were still under negotiation, Lucas and Fox want theaters to run the movie on their largest screen and for a minimum of 8 to 12 weeks, depending on the market. In competitive areas, they want the film to be shown on at least three screens for the length of the minimum run. Other terms on the table would require exhibitors to use one print for every screen, not honor discount passes for the first eight weeks, and pay Fox within seven days during the first two weeks (30 to 60 days is the usual practice).

If Lucas and Fox get their way, which seems highly likely, theaters also wouldn't be allowed to sell Star Wars merchandise on site. Neither would they be allowed to run paid onscreen advertising during the first two weeks. Fox is also limiting trailers before the movie to 8 minutes, 2 1/2 of which will be used by Fox to promote two or three of its other films. Several rival studios are trimming down their trailers in hopes of increasing the likelihood that the ads will be shown during the 5 1/2 precious minutes that are left.

No Butting Heads


Lucas and Fox originally banned advance ticket sales to prevent scalping, but changed their minds much to the relief of ticket sales specialists such as MovieFone (Nasdaq: MOFN). Advance tickets for Episode I went on sale today (May 12), exactly one week before the movie's premiere. Buyers are limited to 12 tickets each.

For the most part, rival studios, including Walt Disney Co. (NYSE: DIS), Time Warner's (NYSE: TWX) Warner Brothers, and Viacom's (AMEX: VIA) Paramount, have decided to sit on the sidelines and not premiere any new movies within two weeks of Episode I.

But in May, two studios are bringing out romantic comedies, which are deemed to target a different demographic than Star Wars. DreamWorks will roll out The Love Letter, starring Kate Capshaw and Tom Selleck, on May 21st, while Seagram's (NYSE: VO) Universal Pictures will release Notting Hill, with Julia Roberts and Hugh Grant, on May 28th, three weeks ahead of schedule. Also on the 28th, Sony (NYSE: SNE) will put out a sci-fi flick called Thirteenth Floor, made by the director/producer team of Independence Day and Godzilla. These studios and others are hoping to capitalize from any "spillover effect" from Episode I.

Meanwhile, Sony Classical has released a record one million copies of John Williams' soundtrack for Episode I. It's the widest-ever release of a score album. Williams, who composed the music for the original Star Wars trilogy, conducted the London Symphony Orchestra (LSO) for the recording of the soundtrack. The LSO recorded Williams' original Star Wars score 22 years ago. The soundtrack is currently the number one "Chart Topper" on Amazon.com.

And, of course, the movie will likely be a hit as well once it goes to video and DVD. While it looks to be a little early in terms of ordering or pre-ordering Episode I online, Hollywood Entertainment's (Nasdaq: HLYW) movie rental chain Hollywood Video, for instance, is pushing its sci-fi films for $0.99 a pop for a five-day rental. Reel.com has its own Star Wars store featuring the three movies in the original trilogy, as well as books, CDs, and posters.

Speaking of books, you've got lots to choose from for your summer reading list: an illustrated screenplay by George Lucas, the novel written by Terry Brooks (which comes in four different covers), a visual dictionary, The Making of Episode I, just to name a few.

"Just a Movie"


If Lucas and Fox are nervous or excited about Episode I's much heralded premiere, they're not showing it. "The picture's going to do well, but it's not about setting a record," Tom Sherak, chairman of 20th Domestic Film Group told USA Today. "If records come, wonderful."

Sherak sounded laid-back in an interview with the Fool as he tried to downplay the significance of Episode I. "It's just a movie," he said. "Repeat after me: It's just a movie."

In an interview with Wired magazine, which just featured Lucas on its May cover, the Star Wars creator said: "My hope is that the film makes enough money so that I can make a new one. But I don't judge my movies by how well the public accepts them. My own yardstick is, how much have I enjoyed the process and am I proud of the results?"

But like it or not, all eyes will be on The Phantom Menace as May 19th approaches to see if Episode I can indeed measure up to everyone else's long yardstick and extremely high expectations -- to see if it can measure up to the hype.

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