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King of the World (Again)


The inside story of how Avatar's James Cameron became the most powerful commercial force in the movie business—twice

Reasonable people can debate the artistic merits of James Cameron's work. Anyone for whom Arnold Schwarzenegger is a frequent muse is not likely to specialize in observing the human condition, unless it's in the aftermath of an exploding building or a run-in with a mercenary robot from the future.

What's indisputable, however, is that the Avatar director's influence extends far beyond his movie credits. More than George Lucas or Steven Spielberg, Michael Bay or Pixar (DIS), Cameron is the most important commercial force in modern film, and his vision for the future of the movie business is rapidly demolishing anything that gets in its way.

There are 1.64 billion reasons that Cameron is Hollywood's director of the moment—that figure being the mid-January worldwide gross of Avatar, the blue-aliened, 3D extravaganza that earned Golden Globes for best director and best dramatic picture. By the time you read this, Avatar may have passed the $1.84 billion mark set by 1997's Titanic, Cameron's previous feature and current holder of the title Highest-Grossing Film of All Time.

The money is impressive, but it only hints at Cameron's impact. It took Titanic several months to reach $1 billion worldwide at the box office. Avatar hit that milestone in 17 days. How? Because cinema operators say they can charge at least 30% more per ticket if a movie is in 3D. By persuading a huge number of filmgoers to put on the 3D glasses and pay more for the privilege, Cameron has changed the economics of the movie business. "Films can change people's minds, and the aim with Avatar was to introduce the industry to the possibilities of 3D," Cameron told Bloomberg BusinessWeek. "I decided, let's go make a movie that they can't ignore."

At 55, the man who declared himself king of the world at the 1998 Oscars has mellowed some. Cameron accepted his 2010 Golden Globes with a mix of humility and amazement. No one knows better than he how close Avatar came to not being made. Despite Cameron's track record for delivering large profits on big budgets, Twentieth Century Fox (NWS), which co-financed Titanic, hesitated to make an even riskier film that required the creation of a three-dimensional alien world. "I knew that if this failed my name would be dirt, but that's the nature of this business," says Cameron. "Every director knows that you can flame and burn like the Hindenburg, and do it very publicly."

With the studio balking, Cameron had to turn himself into an inventor-entrepreneur. Using his own funds, he developed the technology to bring Avatar to the screen, betting that what he saw in his head would be so visually persuasive that, ultimately, he could sell his souped-up camera rigs back to Hollywood at a potentially considerable profit.

Until Avatar came along, 3D movies—even such recent efforts as 2008's Journey to the Center of the Earth and 2005's Chicken Little—had the stigma of novelty. Now fellow directors, convinced their movies will attract a wider audience in 3D, are willing to pay Cameron to use his gear. Avatar 's technological wizardry also coincides with a big push by Sony (SNE), Panasonic (PC), and other consumer electronics companies to bring 3D into the home with a new generation of TVs and DVD players. "This is a game-changer," says Rupert Murdoch, chairman and CEO of News Corp. (NWS), which owns Fox. "If you create a film of this quality and make it an event, it shows that people will pay to come see it. We will see more [3D in] films and TV."

A VISION OF BLUE ALIENS

Cameron wrote the original script for Avatar in the mid-1990s. Set 150 years in the future, it told the story of a paraplegic ex-Marine who travels to a moon called Pandora where he inhabits the body of a Na'vi, the 10-foot-tall, blue-hued humanoids who inhabit the world's lush jungles. The marine falls in love with a Na'vi princess (think John Smith and Pocahontas) and ends up defending her people against Earthlings eager to exploit Pandora's resources. Even 15 years ago, Cameron had a fully formed vision of Pandora—right down to the blue aliens, six-legged mammalian predators, and floating mountains. But he put any plans to film his Avatar script on indefinite hold, knowing that the existing technology could not do justice to his ambitions.

By 2000 he was growing impatient. So Cameron contacted Vincent Pace, an entrepreneur who helped design and manufacture the underwater lighting system for Cameron's 1989 movie, The Abyss. Through his eponymous company, which develops and rents cameras for use in hazardous conditions, Pace agreed to work with Cameron on a camera rig that could capture 2D and 3D images simultaneously. Cameron says the project cost about $12 million, much of it his money.

It's a rule as old as Hollywood: Never sink your own money into a movie. Ultimately, Cameron felt his investment would be justified not only because it would allow him to make Avatar but also because the new technology would accelerate the rollout of 3D, giving theater chains an incentive to upgrade their projectors and screens and moviegoers an incentive to leave their increasingly well-equipped living rooms.

Developing the technology was one massive project. Cameron also had to persuade Fox to finance Avatar. Although the studio had backed and distributed several Cameron films, the Titanic experience had made Fox executives cautious. Originally budgeted at $110 million, the film's production costs famously ballooned to $200 million when special effects and the cost of constructing the ship delayed filming. There were also months of rumors preceding the film's release that it would prove to be one of the worst business decisions in the history of the movies. Given all that scary background, says Twentieth Century Fox Co-Chairman Tom Rothman, "Avatar couldn't be rushed." In 2005 the studio decided to place a small wager on Cameron—$10 million so he could show proof of concept.

With the Fox money, Cameron repaired to the 280,000-square-foot hangar he leases in Playa Vista, Calif.—where in the 1940s Howard Hughes built the Spruce Goose—and began working on a 3D film clip that he could use to persuade Fox brass to make the movie. Jeffrey Katzenberg, CEO of DreamWorks Animation (DWA), says he and Cameron were in touch frequently during the experimentation phase and that Cameron visited the DreamWorks facility in Glendale, Calif., to learn more about animation software. "We create our own world in animation," Katzenberg says. "But this was the first time a director could take real characters and put them into a world he had created, in real time."

Katzenberg is one of Hollywood's leading cheerleaders for 3D moviemaking—higher-priced tickets and bigger audiences mean more money for his studio. While entertainment executives often root against rival projects, Katzenberg was hoping Cameron's movie would jump-start the revolution. "Everyone," he says, "was waiting for Avatar."

In October 2005, Cameron screened his 3D segment for four Fox executives at the offices of his production company, Lightstorm Entertainment, in Santa Monica, Calif. "Their eyes kind of lit up," Cameron says. "They could see what I had been talking about for months." But Avatar producer and Cameron business partner Jon Landau says Fox still wanted a shorter script and a more reasonable budget. In response, says Landau, Cameron combined several characters to trim expenses. Cameron says he also agreed to cut his usual fee in half and take a lower percentage of the film's revenues if Avatar wasn't profitable. "Luckily," says Cameron, "we're at such a stratospheric level now that we're not worried about that."

By mid-2006, according to someone involved in the negotiations, Fox was still concerned that making Avatar would cost too much money. "They told us in no uncertain terms that they were passing on this film," Cameron says. Cameron decided the best way forward was to try to persuade another studio to get involved. Walt Disney (DIS) had produced two of the director's 3D underwater documentaries, so Cameron invited Dick Cook, then Disney's studio chief, to watch the clip. "We loved Jim and would have liked to have worked with him," says Cook. "He has an infectious love of 3D that impressed us. Unfortunately, we never got that far." The reason: Fox had the first right of refusal. "We were never going to let this one get away," says Fox Co-Chairman Jim Gianopoulos.

To get the deal done, the studio decided to bring in partners to share the financial burden. Fox already had a deal with Dune Entertainment, part of a New York private equity fund that since 2006 has contributed financing for Fox movies. To further reduce its risk, Fox began talking to London-based Ingenious Media, which since 1998 has raised $8 billion to invest in such films as Shaun of the Dead, Night at the Museum, and Live Free or Die Hard. Taking a stake in Avatar, however, required some persuasion. James Clayton, who oversees Ingenious' movie investments, recalls multiple meetings with Cameron and Landau in Playa Vista before deciding to invest an undisclosed sum. "I was really impressed by their understanding of the business, that there is so much competition these days for people's leisure time that you have to create something you won't find on TV, on computer games, the Internet, to draw audiences into the theater," Clayton says. "This wasn't purely a creative process for them, like it is with some producers. Jon and Jim absolutely understood the need to cater to audience tastes."

With Ingenious on board, Fox had lowered its exposure to less than half of Avatar's $237 million budget. "We consider all filmmaking a dangerous game," says Murdoch. "And we always lay off [risk] to the film funds when we can. This time we laid off more than usual. But we own much of the distribution and other rights. In the end, we will make much more money than them." In October 2006, Fox agreed to make Avatar. Cameron says he still isn't quite sure why Fox finally jumped aboard but recalls studio executives saying: "We don't get the giant blue guys with the tails, but we believe in you and want to do this movie with you." Months earlier, Cameron had put a traffic light outside Landau's office. After Fox said yes, they switched it from amber to green.

Production began, and word soon leaked out that something extraordinary was going on in Cameron's airplane hangar. The director had rigged the ceiling of the cavernous space with cameras that tracked his actors, who were wearing versions of the motion-capture suits made famous by the character Gollum in Peter Jackson's Lord of the Rings trilogy. Headsets rigged with tiny cameras captured actors' facial expressions and eye movements, a jolt of reality that Cameron deemed crucial if he was going to make the film. Using software developed in-house, the crew imported the actors into Pandora's digital world while Cameron was shooting.

THE 3D STAMPEDE

Before long, other directors began making pilgrimages to Playa Vista. Landau recalls visits from Spielberg, Ridley Scott, and Pirates of the Caribbean director Gore Verbinski. Landau even set up a screening room near the set so visiting filmmakers could watch on a monitor what Cameron was seeing in real time through the lens of his camera. In December producer John Davis (I, Robot; AVP: Alien vs. Predator) screened Avatar at a special VIP showing in Hollywood. "I saw how 3D could improve a film," he says. Davis hopes to persuade Fox to shoot a remake of the 1963 movie Jason and the Argonauts in 3D. Transformers director Michael Bay and Star Trek director J.J. Abrams have said they would like to convert their franchises to 3D, too, though Paramount has not yet agreed.

Not every movie will warrant the investment that 3D demands. For the foreseeable future it will remain a high-risk, high-reward medium that excludes Woody Allen movies, and Sandra Bullock ones, too. But for directors and producers of action and fantasy films, 3D has to be a consideration. "What Avatar showed is that there is still a reward in taking the risk to make a large-budget film that will bring people out of their homes," says former Fox studio chief Bill Mechanic, who produced the 3D Coraline in 2009.

Vincent Pace has had a steady stream of inquiries since Avatar was released. His company rents out its 3D cameras and associated gear to other directors at a rate of $1.4 million to $3 million per film, depending on the difficulty of the shoot. Director Joseph Kosinski is using one for Tron Legacy, which is due out in December.

Pace says advertising agencies have also expressed interest in using the camera rigs for commercials, and networks are eyeing it for 3D TV sports broadcasts. "The perfect storm has kind of swept by," says Pace. "We're quite excited that what we embarked on 10 years ago is being accepted in a very commercial way." Pace says he and Cameron own the patents on the gear and that, given the buzz generated by Avatar and the coming wave of 3D TVs, it won't be long before they recoup their initial investment and start to reap a profit.

As Cameron anticipated, Avatar has theater owners rushing to equip more of their cinemas with 3D technology. "Avatar has put an exclamation point on what we have done and what we are going to do," says Michael V. Lewis, CEO of RealD, a Los Angeles company that supplies 3D screens, projectors, and glasses to theaters. Of the 38,000 screens in the U.S., only about 3,600 are currently 3D-ready. Lewis says RealD plans to add an additional 5,000 screens in the next 18 months.

The director has emerged from his 12-year odyssey far more powerful than after his previous box-office record-breaker. Even with credit still tight, money almost certainly will flood his way. And like any good businessman, Cameron will put his development costs to work with brand extensions. In other words, look out for that Avatar sequel.

Business Exchange: Read, save, and add content on BW's new Web 2.0 topic network

Cameron Redux

James Cameron's exploits have been well documented. Nonetheless, a profile of the director that ran in the Oct. 26 issue of The New Yorker is a fascinating read. The finely textured piece by Dana Goodyear traces the arc of Cameron's career from his roots in a small Canadian town to his present role as the king of Hollywood.

To read The New Yorker profile, go to http://bx.businessweek.com/movie-industry/reference/


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