Theater chains, desperate to pull back from the financial brink, are steadily phasing out all but the blockbuster films on which they make the most profits. In response, major art-house divisions of Hollywood studios are reinventing themselves, moving away from low-budget pictures and toward bigger-budget crowd-pleasers. In turn, independent filmmakers and distributors are being hammered as never before.

In the not-too-distant past, the major art-house divisions seemed to be all over the place, attending every key film festival around the world in a frenzied attempt to acquire independent movies, which they would then release through their own distribution machines.

Not any more. Distributors like Miramax Films, Fine Line Features and Fox Searchlight Pictures have been slashing the number of films they buy, and focusing on bigger-budget films with good marketing hooks like "Crouching Tiger, Hidden Dragon," made for a relatively comfortable $12 million to 15 million, and "Traffic," a big-budget drama saturated with stars.

There are several reasons for the change of strategy chief among them, the spiraling costs involved in marketing a picture and the refusal of big video chains like Blockbuster Inc. to stock more than a few choice indie titles. But many industry insiders say the problem begins and ends with the movie theaters.

"Theaters are desperately out to make money, especially considering the state of exhibition today," said Steve Bickel, president of The Shooting Gallery International, an independent production and distribution company. "The patience they may once have had is totally eroded by their own financial difficulties."

What Bickel is referring to is a crisis that has consumed the exhibition side of the business for the past year. After investing too heavily in massive construction of new theaters, many chains are either going out of business, facing bankruptcy or struggling just to survive.

Because of that, they are increasingly risk-averse. Michael Barker, co-president of Sony Pictures Classics, noted that in most multiplexes the lowest-grossing film is the first to be dropped. All too often, that is an art-house title that needs weeks before word-of-mouth spreads and builds a critical audience mass.

In a typical deal, after a theater's operating costs have been paid, the first week's revenues are split 90-10 in favor of the distributor which is why the initial grosses are so important for a studio. That split shifts in the exhibitor's favor as the run continues, though precise terms are separately negotiated for each picture. The longer a film's run, the more the theater operator makes.


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