How Sony's $500 million Spider-Man sequel spun out of control

Life must be good for Sony studio chairwoman Amy Pascal. What a year she had in 2006! Under her watch, 13 of the studio's movies opened at number one. The most successful of the lot, The Da Vinci Code, grossed $758 million. A few months later, Casino Royale raked in nearly $600 million more. By year's end, the studio had banked a record-setting $3.3 billion worldwide. Of course, in any other industry, such accomplishments would make Pascal untouchable. But in Hollywood, where people are especially loath to celebrate the good fortune of others, the backroom scuttlebutt centered on the ungodly sums of money Pascal was laying out for the latest Spider-Man sequel.

On the surface, Spider-Man 3 has all the ingredients of a box-office slam dunk—spectacular special effects, an obsessive fan base, and a roster of bankable stars. Moreover, its two previous installments have grossed $1.6 billion for the studio.

"The real danger is that it makes the $200 million movie seem not quite so bad. And the risks of that can be absolutely devastating"Even before filming began in January 2006, Sam Raimi promised to pull out all the stops for his third Spidey film (likely the last he'll direct in the series). He wasn't kidding. As production dragged on into late summer—it had been scheduled to conclude in June—stories about the project's ballooning budget started popping up all over town. But in the end, even the most hyperbolic of observers may have underestimated the final tab. Industry insiders claim that Sony spent $350 million or more on production alone. With marketing and promotion factored in, the total price tag will approach half a billion dollars—positioning Spider-Man 3 as the most expensive movie of all time. (Cleopatra, the 1963 epic that has long held the title of priciest picture, had an inflation-adjusted budget of $290 million.)

Still reeling from a flurry of bad press on its PlayStation 3 gaming console, Sony isn't eager to claim this honor. A studio spokesman angrily rejects the $350 million estimate as a "complete fabrication," insisting that production costs didn't exceed $270 million. One of the film's producers, Laura Ziskin, also disputes the higher total, albeit in a less forceful manner. "I refuse to say the [real] number because it makes me choke," she tells Radar. "Spider-Man 3 was a super-expensive movie—the most expensive film we've ever made. But there's no way you can get to $300 million."

Reports of Sony's record-breaking gamble have created a stir among entertainment insiders, seeming to evoke some combination of schadenfreude and envy. "Those are crazy numbers," remarks one leading industry figure.

"I don't think this sets a great [precedent] for any of us," complains a top executive at a rival studio. "It's beyond the beyond. The problem isn't that other studios will now feel liberated to drop $300 million on a movie. The real danger is that it makes the $200 million movie seem not quite so bad. And the risks of that can be absolutely devastating."

Noting Sony's long and storied history of overspending, the head of another studio asks, "Where is the corporate oversight? Who's demanding accountability? How is it that they're repeatedly able to conduct themselves in this manner?"

To be fair, Sony is hardly the only studio spending big bucks on tent-pole projects. Shrek the Third blows into multiplexes two weeks after the new Spidey film, with Pirates of the Caribbean: At World's End right behind it. Next come the Fantastic Four sequel and Steve Carell's Evan Almighty. Then, on Independence Day weekend, Transformers hits the screen.

None of these projects was cheap. Indeed, the third installment of Pirates may also sail past the $300 million mark. But in contrast to the Spider-Man series, the second Pirates film outperformed the original and grossed more than a billion dollars. (Spider-Man 2 took in $783 million—about $40 million less than its predecessor.)

Sony's free-spending ways have been evident ever since the Japanese electronics giant acquired Columbia Pictures in 1989, causing much consternation among competitors who feel pressure to match the studio's largesse. The first chairmen in the Sony era, Jon Peters and Peter Guber, spent so much money that the studio wound up taking a $3.2 billion write-down. The two were eventually fired, but business continued as usual. In 1996, chairman Mark Canton blew the roof off star salaries by awarding Jim Carrey an unprecedented $20 million for his role in The Cable Guy, a film that disappointed at the box office. Soon after, Canton was also gone.

To many observers, though, the budget for Spider-Man 3 represents a terrifying new frontier, even for Sony. As other studios try to cut costs, Pascal has continued in Sony's profligate tradition. The only woman currently heading up a major studio, she also happens to be one of the most popular executives in the business. That's largely because she seems to have a genuine love for movie-making at a time when many of her peers are fixated on the bottom line. "Amy's greatest strength is her intuitive, creative ability," says a longtime associate. "Her greatest weakness is that she lets that same ability get completely separated from any sense of fiscal restraint."

Pascal, who recently turned 49, decided early on to make her mark in the movie business. During the course of more than two decades in the industry, she has managed to survive some of Hollywood's toughest bosses, including Scott Rudin at 20th Century Fox and the late Dawn Steel of Columbia. Many years ago she did a stint at the Betty Ford clinic. A consummate career woman, her experience there fueled her interest in a movie about a young woman coming to terms with alcoholism. It became 28 Days, starring Sandra Bullock.

Her eccentricities have made her an industry legend. On the Sony lot she is a generally ebullient presence—if not a bit manic at times. One colleague claims, "There's a network of assistants who will tell you how many cups of espresso she's had [before seeing visitors into her office]," and "some people have been known to avoid going in if she's had too many."

When she was first hired to head up the studio in 1999, Sony was hobbled by an opaque, almost indecipherable management structure. Since then, emboldened by her success, Pascal has consolidated her command and exerts strict control over every facet of the business, from casting to posters to production. "She does whatever she wants to do," says a former Sony insider. "There's nobody to tell her no."

Unlike many other Hollywood executives, she rarely uses her authority to grind the talent, which has made her an especially popular figure with Hollywood deal makers. "Amy's easy to work with—you know what I mean?" says a prominent agent. "We love her." After a pause, he adds, "It was better before Bob Osher got there."

"Sony could spend $600 million or $700 million, and it would still be worth it.... Even if the margin isn't quite what it ought to be, it's still incredibly valuable to them as an asset. There will be a 'Spider-Man 4,' and that's what keeps them alive"Osher is Sony's chief operating officer, a tough-talking numbers man who earned his stripes at Miramax when it was still run by the fearsome—and frugal—Harvey Weinstein. In 2004 Sony hired Osher as a sign that the studio was serious about cutting costs. "Bob was supposed to be the muscle," says a producer close to Sony. "He was brought in to be tough on deals and change the culture." Osher has since severed several long-term alliances with producers and walked away from a handful of big-ticket projects, including Roland Emmerich's 10,000 B.C. But there are limits to what he has been able to achieve. "If Amy really wants to do something, she can absolutely overrule him," says the producer.

According to one filmmaker, Pascal is adept at nurturing creative personalities. But she has also been known to overindulge certain prima donna directors, including the temperamental Michael Mann on Ali and the petulant James L. Brooks on Spanglish. Perhaps understandably, the source says, Pascal finds it difficult to manage directors who "will go postal on her ass. She coddles them. She wants to be liked by them. Their attitude is, 'You hire me and I'm going to do what I want to do. I don't care if it makes fiscal sense.''"

One of the most obvious beneficiaries of her indulgence was Nancy Meyers, a well-known director and longtime pal of Pascal's who was hired by the studio in 2005 to helm a modest film called The Holiday. The project managed to attract a high-profile cast, including Cameron Diaz, Kate Winslet, Jude Law, and Jack Black. But Sony accountants estimated that the film had to gross $200 million before it would turn a profit. So the studio, adopting a tough stance, insisted that talent wait until expenses were recouped before profit participations kicked in. Sony held the movie up as a model of its new budgetary austerity.

But despite all the efforts to control costs, a movie derisively described by one director as "a romantic comedy that takes place in two houses" ended up costing well over $100 million. Before filming started, Meyers and her team went to England to scout locations, scouring the countryside in search of the perfect manor. Unimpressed with the real-world selection, she ended up building her own British country cottage from scratch. The director was also dissatisfied with a scene shot at great expense on location at a London diner. Upon returning home, she ordered up a replica of the restaurant on the Sony lot before ultimately scrapping the entire scene.

Asked about these excesses, Osher admits the film's budget was bigger than anticipated. But he firmly denies reports that Meyers received "a blank check." In light of the director's strong track record and The Holiday's cast, he says, the movie seemed like a good gamble—albeit one that didn't pay off. In the end, Sony chose to part ways with the director. (A source close to Meyers claims that preproduction delays caused by the studio's mismanagement played an important role in driving up costs.)

Clumsy financial dealings seem to have compounded the problems. Anxious to share its costs on the movie, Sony brought in Universal, which ponied up between $40 million and $50 million for the film's foreign rights. Universal's executives believed the foreign earnings would far outpace domestic ones. As it turns out, they were right. The Holiday grossed a hefty $197 million worldwide, but the majority of that ($134 million) came from overseas. After splitting the film's meager domestic gross with another partner, Sony apparently took in a paltry $17 million in box-office revenue on a film that probably cost it several times that amount.

The Spider-Man franchise has been of vital importance, saving the studio in lean years and throwing off mountains of extra cash in fat ones. "Spider-Man is Sony's Star Wars," says a former executive there. "It's the one franchise that's done business for them." Even assuming that the most astronomical rumors about the film's budget are correct, Spider-Man 3 should still make money. But the extraordinary expenditures promise to take a substantial bite out of any ultimate profits.

Defining which costs are necessary in the world of mega-budget films isn't exactly simple. Re-shoots and cost overruns are commonplace for many effects-packed productions. But some of the responsibility for this budgetary madness seems to belong at Sam Raimi's feet. Though he is an enormously respected director, he is also regarded as deliberate to a fault. His decision-making on this particular film appears to have been anything but linear. He started out early last year by filming a major sequence involving a skyscraper, which according to a production source took several weeks and at least a couple million dollars to construct. In April, with the sequence not yet complete, he moved operations to New York. While he was away, the set was razed. Months later—after filming was supposed to have wrapped—Raimi returned to the original site, had the skyscraper set partially rebuilt, and resumed shooting.

It didn't help that the production spent some five weeks in Manhattan. "You're in one of the most high-density places in the world, trying to control it and make it do what you want it to do," says a director. "The budget goes up and up and up. You clear streets, block streets. You have to rent out everything you're going to shoot. New York gets rented by the square inch, and it's some of the most expensive real estate in the world." Even with his seemingly bottomless budget, Raimi hit some limits in Gotham. Plans to shoot a big chase scene were dropped after the city refused to suspend traffic long enough for him to complete it. "We were told we needed six days, and they couldn't do it," Ziskin says. Instead, the sequence was shot in Cleveland, and New York was added with special effects.

Changes to the initial script further drove up expenses. On previous Spider-Man films, says an associate of Raimi's, he played the role of the decider-in-chief. But aware that the third installment would be his last, Raimi tried to be more open to ideas from the film's six producers. The result, according to this source, was that the director wound up in a thicket of proliferating plot lines and shot a considerable amount of extra footage that wound up on the cutting room floor, including several scenes with Theresa Russell as the wife of the villain.

For this reason and others, production on the film went over schedule, continuing for nearly eight months after the anticipated wrap date. Each day of shooting for a movie on this scale can cost up to a $1 million. An additional and particularly daunting expense was rush work from effects houses, which were busy with a concurrent wave of CGI-heavy movies like Pirates of the Caribbean.

One filmmaker notes that a project as massive as Spider-Man 3 can be beyond human ingenuity to manage. "Once a behemoth like this movie rolls out, it's like a glacier," he says. "It moves forward at its own pace." And veteran production manager Marty Katz adds that budget overruns are not necessarily a sign of poor leadership. "When we did Titanic, we thought we were doing everything right, but certain shots we just could not get," he says. "You plan and plan.... But that's the nature of these kinds of movies."

An agent at CAA, which represents Raimi and Maguire, insists the film's price tag is irrelevant: "Sony could spend $600 million or $700 million, and it would still be worth it." People shouldn't think the studio is blasé about rumors of its reputation for extravagance, he adds. "They're sweating bullets. They're dying with every dollar they spend. But even if the margin isn't quite what it ought to be, it's still incredibly valuable to them as an asset. There will be a Spider-Man 4, and that's what keeps them alive."

Even so, the experience has reportedly left Pascal a bit chastened. A producer close to the Sony chief says she recognizes her propensity to develop "crushes on talent" and is trying to be more disciplined. "I think Amy is a different person than she was two years ago," he says. "She's a smart person, and she really wants the job and wants to win. She's trying to count to ten before saying yes." Though in the case of Spider-Man 3, he adds, the talent had a lot of leverage that would have made it tough to say no. "How do you get Sam Raimi to do a third one?" he asks. "What creative concessions do you have to make?"

But this film is likely the end of the road for Raimi where Spidey is concerned, and Maguire also seems eager to move on, having recently told Australia's Courier Mail, "it feels like a trilogy to me, and it feels like the end." Pascal has confided to a friend that she thinks Maguire has gotten too old for the role anyway.

If the actor does hang up his tights, there are plenty of bankable young stars who'd happily sling a web. Spider-Man is still seen as a cash cow. Already, the studio has approached writer David Koepp about developing a script for the fourth movie. It's a safe bet that if it does get made, Hollywood will be watching closely. As the Green Goblin put it, "The one thing [people] love more than a hero is to see a hero fail."