Paramount is not the first studio to suffer their success. But we are getting a wave of spin from a few voices that seems to be deep in the bag with the denizens of Melrose.
Here’s the deal…
Go back to 1999… Fox releases The Phantom Menace. It “won” the summer, grossing $138 million more domestically than any other film. But all Fox had the rest of the way was Lake Placid and Brokedown Palace, a breakeven comedy and a red ink drama. A $472 million summer meant net revenues for the studio of about $50 million… and roughly another $50 million from Star Wars’ international release.
In 2001, Fox had Planet of the Apes and Disney had Pearl Harbor. The Apes did around $180 million domestic and Pearl just under $200m. Apes barely broke even in DVD and Pearl Harbor was saved by international box office with another $250m… but just barely. It, too, needed Home Entertainment to get out of the red.
(Ed Note: 5/6/08: The graph above was edited to reflect a $20 million mistake on the Pearl Harbor domestic gross.)
Sony’s billion dollar summer of 2002 – Spider-Man was a cash cow. But Men in Black II carried such a weighty burden of gross point players and an expensive pricetag that $450 million worldwide didn’t come close to making it profitable. Stuart Little II was so expensive that when it didn’t hit, it drained cash from the company. And Revolution Studio’s heavily hyped xXx managed only $277 worldwide… which left it gasping for every ancillary dime to hover near breakeven.
2003 – Terminator 3, Bad Boys 2, Hulk, and Charlie’s Angels 2 were all $100 million domestic grossers that were extremely expensive and/or had big gross players and may or may not have hit black.
2006 – Warner Bros became the poster child for avoiding trouble by selling off the costs of production to funding organizations. Superman Returns lost over $50 million… but not for Warner Bros. They sold off half the huge production budget then collected their distribution fees and marketing fees before any money went back to production, covering their part of the loss. The sold off at least half of Poseidon. The also covered their butts via Legendary, in the cases of Lady In The Water, The Ant Bully, and Beerfest.
You might remember that it was only a few years ago when Sherry Lansing and financial architect Jon Dolgen were getting creamed in the media for not risking enough, finding financial partners on pretty much every single movie they made for Paramount.
That complaint could emerge again this summer, as their four biggest likely grossers this summer are all deals that will not be terribly profitable for the studio.
First up is Iron Man. Marvel stock rose almost 10% today. Paramount’s part of the split Viacom stock? Down 2.6%.
Why? Because Marvel funded the film and Paramount will make no profit except for a distribution fee.
Indiana Jones? Funded by Paramount, but to get the movie made, they gave away 87.5% of the movie to Lucas/Spielberg/Ford after breakeven. So if the film makes $500 million worldwide, no one makes anything, except for Paramount’s and the producers’ overhead costs. But if the film makes $1 billion worldwide, Paramount will make about $70 million, while L/S/F takes home over $450 million. And this is before DVD and other ancillaries.
Kung Fu Panda is DreamWorks Animation. Paramount has a 10% distribution fee (which they paid to get) coming to them… and that’s it. So if the film matches a movie like Madagascar and does $500 million worldwide? $50 million to Paramount… hundreds of millions to DreamWorks animation.
And Tropic Thunder, which is one of the most dangerous of the films in play, a broad comedy with a production cost of just around $100 million, is a DreamWorks film made with Viacom money. So if this film can find profitability… which is a question mark… Ben Stiller will be eating a nice percentage of the back end. (If the film does Dodgeball business, $170 million worldwide, it is still a question mark to break even, even with DVD.)
(Graph above edited for budget and gross players, 5/6)
So… if these four films were to actually push Paramount distribution up over $2 billion in worldwide grosses for the summer, the studio is looking at around $150 million in net revenues.
$2 billion is an impressive number. Less than 10% profit on that number, which is about as good as it gets on a macro level, is not.
Success and failure in the film business is not being terribly well reported these days. The big story is, as it has been for a couple of years now, that the multinationals that own the studios are getting out of the business of funding movies. There is too much risk there, while distribution and marketing is profitable, even if the movie is a loser.
The trick is to own the movies that the studio feels are near-locks outright. This is Warners’ great success on Harry Potter. Not only does it generate a gross of at least $800 million worldwide each time, but they own the franchise, with only the author getting a big bite. That said, Warners has been selling off a lot of stuff as well. This summer’s The Dark Knight is split with Legendary.
Disney has one split, Prince Caspian and one owned film (though it’s Pixar, so there are probably some personal points in play), Wall-E.
And Sony stands to have the movie that is most profitable for any studio this summer with Hancock, which they own outright, though Will Smith and James Lassiter’s Overbrook Entertainment will eat a big piece of the gross… though not nearly as much as on Indy.
In fact, Sony has the real chance of being the most profitable studio of the summer while not being close to the top in gross. They have Hancock. They have Adam Sandler, whose box office clout and limits the company knows quite well. Step Brothers was made on a tight budget. And they have two lower budget films with a lot of potential upside in The House Bunny and Pineapple Express.
And that, in the end, is the game. Amy Pascal learned this lesson years ago. You don’t give up everything for an image success. Profits first. All else is publicity.

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