<http://www.forbes.com/forbes/2003/1110/100_print.html> Forbes On The Cover/Top Stories Cliff-Hanger Brett Pulley, 11.10.03 A mix of art, philosophy and religion and truckloads of production dollars created a Hollywood blockbuster. But how will the cool, quirky franchise that is The Matrix end? It is a rainy, chilly, dreary afternoon in London. But the Hollywood producer Joel Silver is ebullient. As his chauffeur-driven Mercedes navigates the city's slippery streets, he stares out at the dreadful gray sky and joyously proclaims: "It's a great day!" Is he living in another world? Does he have some superior knowledge? Is he The One? His accountant surely thinks so. For the past six years Silver's life has been consumed by a futuristic film fantasy known as The Matrix . As the primary person responsible for pulling together what has become a multibillion-dollar motion picture series, Silver is personally receiving an estimated 7% of merchandise royalties and what's left after exhibitors get their half of box office sales. It's enough to buy plenty of sunshine on the cloudiest of days. So far, the first two films in the Matrix trilogy have generated $1.9 billion in gross revenue. The second installment, The Matrix Reloaded , which was released earlier this year, has by itself already grossed more than $1 billion from box office sales, a videogame, a soundtrack and other merchandise. The DVD, released Oct. 14, should haul in at least $200 million more. Even if the filmmakers stop at three movies, something they vow to do, the entire franchise will still near $3 billion in sales. Says Silver, who has toiled in Hollywood for years: "This is like my IPO." To get big bucks you have to take big risks. The studio distributing the film, Time Warner's Warner Bros. Pictures, along with its financial partner on the project, Australian ministudio Village Roadshow Pictures, invested $300 million to shoot two movies, the second and third installments of The Matrix , at one time. An additional $150 million was committed to market the two movies. Typically sequels get the green light only after the results on the previous film are in, says Warner Bros. studio chief Alan Horn. Despite the worldwide success of The Matrix Reloaded , with $289 million in domestic box office sales, the flick suffered the indignity of ranking second last summer at the U.S. box office, behind Disney's Finding Nemo . Now, the third film in the series, The Matrix Revolutions , is being released worldwide in November. It has the same stars, heavily layered story, fast action and stunning special effects of No. 2. A sure hit? Not really. It might get the benefit of momentum--or it might suffer from overload. If the fad-following youngsters who keep Hollywood solvent deem No. 3 uncool, it may just bomb. By comparison, there was a four-year gap between the first two films. The long waiting period caused anticipation to build so much that during the days leading up to the release last May the movie was the subject of a 30-minute special on NBC's Dateline , and the film's stars were on the covers of both Time and Newsweek . The publicity got people to the theaters, but it also created heightened expectations that were virtually impossible to live up to. Reviews were lukewarm and audiences sighed with disappointment when the credits rolled. "It's really hard for a performance to reach expectation when the expectation is in the stratosphere," says Horn. What could bring even the naysayers back for more is that the last film ended with a cliff-hanger:Will Keanu Reeves' character, Neo, free humanity from its enslavement by a computer program that fills our brains with a false reality while using our bodies as copper-top batteries?Can he save Earth's remaining free folk from extermination? Is he really The One? Is It The One? The Matrix Franchise The Matrix Domestic Box Office: $171 million Foreign Box Office: $294 million Video/DVD: $398 million The Matrix Revisted Video/DVD: $11 million The Matrix Reloaded Domestic Box Office: $289 million Foreign Box Office: $453 million Video/DVD (just released): $200 million? "Enter The Matrix" (videogame) 3.25 million sold @$49.95 each: $162 million The Animatrix 2.7 million sold @$24.95 each: $68 million The Matrix Reloaded (soundtrack) 1.85 million sold @$19.99 each: $37 million Merchandise (apparel, toys, shades, etc.): $3.5 million Much like the films' blurred distinctions between reality and make-believe, the public has hazily viewed The Matrix Reloaded as a financial failure. Untrue. The worldwide box office for the movie has topped $742 million. The videogame "Enter the Matrix," which was produced using $20 million of the film's production budget, has sold 3.2 million copies at $50 each, for a gross total of $162 million. Also, a selection of nine video shorts, The Animatrix , which explain background details of the complicated story, was released on DVD at the same time that the second film was released in theaters. It has sold 2.7 million copies at $25 each. The soundtrack to the film has sold 1.8 million copies, grossing $37 million. Warner Bros. receives a fee for distributing the film in the U.S. and most international markets. Thereafter Warner and Village Roadshow, which split the $300 million cost of making the last two films 50-50, will split the profit. Even after half of the box office sales go to the theater operators, there is plenty of gross profit left for the studios' coffers and for the film's so-called gross players. In addition to Silver, that includes the directors and several actors. For the last two films, the main star, Keanu Reeves, received $30 million plus perhaps 7.5% of the gross. The next-highest paid star was Laurence Fishburne, who received $15 million and an estimated 3.75% of the gross. The ancillary products generated a windfall for many others. Jada Pinkett-Smith earned a modest fee for her role in the second two films, but she cleaned up on the videogame, in which she is the main star. Pinkett-Smith is receiving an estimated 10% of the profit on the game, placing her earnings thus far near $5 million. "I got a check already," she recently confirmed. "It was like, 'Wow!'" In an unusual move, all of the gross players on the films chipped in a portion of their shares to a pool for production crew managers. Most Hollywood film franchises (like Star Wars or Lord of the Rings ) are big-budget popcorn extravaganzas, tailor-made for fast-food promotions and intended to cut a large swath across the moviegoing public. The Matrix is a little more narrowly targeted. Its R rating (for violence) cuts 12-year-olds out of the audience. There are no Happy Meal figurines to be lost between the seat cushions of automobiles. But what was lost in the hamburger trade was presumably earned back in coolness. Reloaded is the top-selling R-rated movie of all time, $200 million ahead of the second-highest seller, Arnold Schwarzenegger's Terminator 2 . Even among film franchises aimed at adults, few films take themselves so seriously as does The Matrix . The enduring James Bond franchise started off in 1962 in a very serious manner but eventually veered towards playful self-parody. The 1971 Diamonds Are Forever had Sean Connery trading barbs with a vixen named Plenty O'Toole. Revolutions will probably be as pompous as the last Matrix (typical dialogue: "What if tomorrow the war could be over? Isn't that worth fighting for?Isn't that worth dying for?"). The Matrix was expected to be a decent midlevel Hollywood movie when it debuted in 1999. It was produced at a cost of about $80 million, and during its first weekend in theaters it did a merely respectable $28 million of ticket sales. But it had tremendous word of mouth. There was something cool about the religious symbolism, the martial arts scenes, the serene characters and the pioneering digital film techniques. The film went on to sell $450 million of tickets worldwide. The DVD, released the same year, became the first movie ever to sell more than a million copies in that format. It went on to sell 30 million. The creators of the film, two brothers in their mid-thirties from Chicago named Larry and Andy Wachowski, had already written screenplays for two more sequels. They wanted to shoot them together, ` la Lord of the Rings . The crew spent 270 days shooting in Australia and additional time in northern California, where a 1.6-mile freeway was built just for the movie. In all, 3,600 extras would be hired, 3,500 props built and enough wigs purchased for the shellac-haired Agent Smith character (who--eek!--multiplies) to carpet a four-bedroom house. The Wachowskis wrote the videogame, which connects to the plot of the movie but tells its own story. They worked on the development of nine animated shorts that dig deeper into the story behind The Matrix . They launched a Web site and spent $350,000 on a documentary that has sold $11 million of DVDs and videos. Now to make a cult out of the thing. The storyline revolves around a belief system and a dark, hip underground subculture. But overdo the publicity or make the films appear mainstream and you disrupt the ethos and turn off fans. Says Silver, "Whatever we did had to be cool." The head of marketing at Warner, Dawn Taubin, assigned staffers to function as the "cool police." They played hard to get. For a fee, Heineken, Samsung and Coca-Cola were permitted to make advertisements mimicking the look of the movie, pushing their product and the film simultaneously. The Heineken ads, for example, use martial arts and obvious knockoffs of the movie's characters. " The Matrix gives us timeliness and relevancy for people between the ages of 21 and 34," says Steve H. Davis, who heads marketing for Heineken USA in White Plains, N.Y. The distinctive green computer code that streams down at the beginning of the first film turned into an icon. Last May Coca-Cola's sport drink, Powerade, launched new packaging in a Matrix -green-colored bottle. The night after The Matrix Reloaded premiered in Cannes the cast joined other Hollywood royalty at a party on the Mediterranean seafront as they popped champagne and gazed up into the sky to watch a fireworks display in green over the ocean. Part of the shtick: The third film will absolutely, positively be the last in the series. Time Warner's Horn says he hasn't tried to convince the Wachowskis otherwise. But, he admits, "I'd like to know what else they've got in their heads." Borrowing the "I vant to be alone" line from Greta Garbo, the Wachowskis have let it be known that their agreement with the studio stipulates they don't make promotional appearances or talk to any media. This could be the ultimate publicity stunt--but it could also backfire. Showbiz fame can be as fleeting as a white rabbit. -- ----------------- R. A. Hettinga <mailto: rah@ibuc.com> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'