Oscar Economics 101

Thanks to Lions Gate Entertainment Corp. and federal laws requiring companies to disclose meaningful developments to investors, we can all get a "Crash" course in Oscar economics.

Last week, Lions Gate (which recently decided to save space by referring to itself as Lionsgate) publicly disclosed to Wall Street that its profits will be crimped in 2006. One reason: the company is spending "an additional $2 million" to promote director Paul Haggis' "Crash" during the stretch run of the best picture race, which ends March 5 with the Academy Awards.

The operative word here is "additional." That's because it's double what the company had already spent to promote the movie for various awards. All told, Lions Gate is expected to spend $4 million to campaign for a film that only cost $6.5 million to make.

What's interesting about last week's corporate disclosure is that it may be the only time anyone has had to publicly own up to how much cash is being thrown around to buy Oscar votes.

Hollywood studios are usually loathe to talk about what they spend on campaigns. It's all about art, or so the line goes, even though the rest of us know it's about money and ego.

Truth be told, "Crash" is still probably one of the cheapest campaigns out there.

Estimates on some Oscar efforts (think Harvey Weinstein) have been as high as $15 million to $20 million over the years. The big guns don't have to mention those expenditures because they are immaterial to the bottom line at giant media companies — a Sony or a Paramount couldn't even buy their execs a new Gulfstream V for that price.

Of course, no one ever admits to spending that much anyway. That's why every story reporting numbers in that range will inevitably include an anonymous denial from a source everybody knows works for the studio.

Lions Gate is a small independent company where $2 million actually means something — 3 cents a share on earnings. By comparison, at Warner Bros. parent Time Warner Inc., 3 cents a share is somewhere north of $130 million.

According to Lions Gate Theatrical Films President Tom Ortenberg, the company decided to pony up some money for a campaign last June after "Crash" was well received by critics when it opened in May.

By early January, Lions Gate had spent $2 million on trade ads and other promotions. To date, the studio's most audacious move was sending out 130,000 DVDs to members of the Screen Actors Guild.

It looked more expensive that it was. Ortenberg said it only cost $220,000 — 60 cents each for the discs, which were wrapped in cellophane, plus mailing costs. "Crash" received SAG's best movie ensemble award, and now has probably been seen by virtually every voting member of the Academy of Motion Picture Arts and Sciences.

Just before Oscar nominations closed, Lions Gate earmarked another $500,000. After "Crash" scored six Oscar nominations — best picture, best director, best original screenplay, best song, best editing and best supporting actor for Matt Dillon — yet another $1.5 million was budgeted.

On a conference call with analysts Friday, Chief Executive Jon Feltheimer called spending the extra $2 million a "prudent investment."

Here's why: Feltheimer estimates an Oscar win could provide a windfall of as much as $10 million, because Lions Gate would would sell more DVDs, and get more money when "Crash" is shown on TV. Then there's the intangible benefit of sending a message to filmmakers you want to do business with that you will go to bat for good films.