Studios Turn to Sequels in a Big Way to Hedge Bets

Hollywood has more money riding on big sequels in 2002 than any other year in movie history.

Collectively, the studios are spending more than $1 billion on production and marketing for 13 sequels to such hits as “Star Wars,” “Lord of the Rings,” “Harry Potter,” “Men in Black,” “Stuart Little,” “Austin Powers,” “Spy Kids,” “Star Trek,” “Analyze This” and the next James Bond movie.

Although this year doesn’t boast the most sequels--there were 17 in 1994--it’s a record for the most high-profile, expensive sequels in a 12-month period, with many costing more than $100 million to produce.

In a volatile, high-stakes business in which it’s a struggle to make money back on most movies, let alone turn a profit amid escalating costs, sequels offer a way for studios to hedge their bets.

“They’re trying to go for sure things,” said Paul Dergarabedian, president of box-office tracking firm Exhibitor Relations Co.

Having a recognizable title often gives studios a leg up, especially in the critical first days of release, though executives know there’s no such thing as a slam-dunk in the movie business.

Still, they say having a big sequel or two in their mix of movies relieves at least some of the anxiety inherent in releasing other costly “tent pole” movies.

“The notion of doing a sequel carries a certain comfort level because there’s a built-in demand, which helps mitigate the risk associated with the high cost of making and marketing movies,” said Warner Bros. President Alan Horn.

Given how high the financial stakes are, Columbia Pictures Chairman Amy Pascal said, “Knowing anything is good.”

The “comfort level” studio chiefs refer to has risen to new heights in recent years with windfalls from such blockbuster titles as “Star Wars: Episode I The Phantom Menace” (technically a prequel), “Toy Story 2,” “Lost World: Jurassic Park,” “Mission: Impossible 2” and “Austin Powers: The Spy Who Shagged Me.”

In 2001, half of the top 10 grossing films were sequels: “Rush Hour 2,” “Jurassic Park III,” “The Mummy Returns,” “Hannibal” and “American Pie 2.” Add “Dr. Doolittle 2,” and that accounts for six out of the top 15.

The new reality--even if short-lived--is that sequels have in recent years been out-grossing their predecessors, laying to rest the conventional wisdom that they typically generate just two-thirds of the original.

Recent sequels that upstaged the originals at the box office include “Rush Hour 2,” “Mission: Impossible 2,” “Austin Powers: The Spy Who Shagged Me,” “American Pie 2” and “Hannibal.”

“Empirical evidence tells us that the old rule of thumb is thrown out the window,” Horn said.

In fact, if a sequel now grosses only two-thirds of its predecessor, “it’s considered a major failure,” Dergarabedian said.

Last year’s “Scary Movie 2,” which grossed $71.3 million, was considered a disappointment when it took in less than half of the original’s $157 million.

Then there are sequels that are out-and-out flops. If audiences feel they’re not getting something familiar yet new-and-improved, forget it. Moviegoers showed up in droves to see “The Blair Witch Project,” “Speed” and “Babe” but flatly rejected their sequels.

“People want continuity and improvement,” Dergarabedian said. “They used to expect less from sequels; now they expect more.”

This isn’t lost on the studios and filmmakers.

“You have the responsibility to make a sequel a complete, stand-alone movie that is good in and of itself,” Pascal said.

Her studio is releasing two $100-million-plus sequels this summer, “Men in Black 2” and “Stuart Little 2,” and the under-$30-million sequel “Once Upon a Time in Mexico: Desperado 2.”

Stacey Snider, chairwoman of Universal Pictures, which profited last year with three sequels, “The Mummy Returns,” “Jurassic Park III” and “American Pie 2,” said, “You have to give audiences enough of what they experienced before to satisfy expectations, but you have to take the sequel to another level. You can’t just redo the same movie.”

Producer Sean Daniel, who made both “Mummy” films, concurred that everyone involved in sequels “understands that the asset must be protected and expanded.”

And, as studio executives acknowledge, poorly made sequels can put an entire movie series in jeopardy.

“If you don’t make a good sequel, you can kill a franchise,” said John Goldwyn, vice chairman of Paramount Pictures Motion Picture Group.

Paramount’s longtime franchise “Star Trek” has experienced fallow periods over the years, as has MGM’s James Bond series--both of which have been revived in recent years. This year, Paramount is releasing the 10th installment of “Star Trek,” and MGM, the 20th Bond movie. The value of a successful franchise goes beyond the box office.

“It’s a very important part of our strategy,” Snider said. “There’s evidence now that a successful brand can drive all other businesses. And, they’re designed to that end.”

Universal’s “The Mummy” not only grossed $155 million at the U.S. box office but also enjoyed huge success on home video and DVD and gave birth to a theme park attraction, an animated series and an interactive game.

“Mummy” producer Daniel notes how the advent of repeated home video viewings greatly expanded the theatrical audience for movies and their sequels.

The classic example is New Line’s original “Austin Powers,” which grossed just $53 million in theaters but was a huge hit on video, thus creating demand for a sequel.

In 1999, “Austin Powers: The Spy Who Shagged Me” racked up $205.4 million and is today the eighth-highest-grossing sequel of all time. It grossed more in its opening weekend ($54.9 million) than the first film did in its entire theatrical run.

DVDs, as Dergarabedian points out, have become a strong marketing tool to promote sequels. “They get moviegoers pumped up to see the next film,” he said. The reverse also can happen.

MGM’s release of “Hannibal” last year prompted the sale of 2.5 million DVDs of the film’s 10-year-old predecessor, “Silence of the Lambs,” studio Vice Chairman Chris McGurk said. AOL Time Warner-owned Warner Bros. and New Line were so confident in the potential value of their respective literary adaptations of “Harry Potter” and “Lord of the Rings” that each made huge financial commitments to make the sequels before the first movies were released.

Warner also is simultaneously making two expensive sequels to its hit “The Matrix,” both of which are due out in 2003.

Sequels don’t come cheap. They often cost two to three times more than the originals, most often because of higher star and filmmaker salaries, profit participation and lavish special effects.

It took the management of Sony-owned Columbia Pictures nearly two years to put together deals it was comfortable enough with to green-light Barry Sonnenfeld’s “Men in Black 2,” starring Will Smith and Tommy Lee Jones. The studio is said to be guaranteeing the stars and filmmakers a huge chunk of first-dollar gross income from the film, which is costing around $140 million to make.

Pascal would say only, “Everybody has to be a partner.... We made financial arrangements where everyone makes money in success, including the studio.”