Hollywood's Financial Shell Game
Paramount shifted an expensive film like Shutter Island to 2010 and moved the lucrative G.I. Joe DVD to November to improve fourth-quarter numbers. Kim Masters asks: Is such short-term thinking worth it?
Business is always risky in Hollywood. Think about it: The public can flock to Saws I though V and then spurn Saw VI, stampeding instead to a tiny little movie that was lucky to find a studio to distribute it.
That film was, of course, Paranormal Activity, which cost about $15,000 to make and netted $22 million this past weekend and more than $60 million so far. Paramount is already talking about a sequel.
The studio refuses to spend more than $10 million to market Paranormal Activity—a fraction of the usual amount. Paramount argues that a big ad campaign would wreck the movie’s aura as something cool that audiences are discovering on their own.
For a studio that is perceived within the industry as a poor performer, Paramount’s news is suddenly improving. And it promises to get better. After losing $148 million in the first half of the year, Paramount is poised to start reporting better financial results—at least for the next couple of quarters. But among the old guard in Hollywood, there is an uneasy feeling that the studio is doing well in part through a series of shrewd moves that don’t quite add up to what used to be called good management.
“They’re in the business of short-term thinking,” says the head of a rival studio. “It’s like, `Oh, boy! Candy!'”
“There’s no long-term view of the film business,” concurs another veteran, adding that Paramount seems “willing to sell out the future to make the present look as decent as possible.”
To be sure, Paramount is hardly alone in attempting to shore up numbers that have been sliding at an alarming rate. Universal has all but frozen spending on new projects and scripts until January. Sony Pictures has done the same until its next fiscal year begins in April. And there’s no doubt that Paramount’s decisions are viewed with suspicion for the simple reason that its management is unpopular.
Soon after the studio announced its decision to move Shutter Island, it announced a rich deal to supply movies to Redbox, the $1 DVD rental operation. (The agreement could deliver $575 million to the studio over five years.)
That may have been the case last August, when the studio stunned the industry by pushing Martin Scorsese’s Shutter Island, a costly thriller starring Leonardo DiCaprio, from its planned release date in October into February 2010.
Again, Paramount isn’t the only studio that has shuffled some expensive and potentially troubled movies into next year. (Universal has pushed back The Wolfman starring Benicio Del Toro, and The Green Zone, a thriller from Bourne Supremacy director Paul Greengrass.) But Shutter Island’s trailer was already playing in theaters and generating some positive buzz. Variety called the decision to delay the film “a shocking reveal of how dire studio financials have become.”
It’s possible—perhaps even likely—that Shutter Island is not a great film and that Paramount was wise to avoid spending millions to open it in the crowded month of October (followed perhaps by an expensive and futile Oscar campaign). Still, shoving back the film’s release date gives the impression that the movie is damaged goods and probably won’t help when the studio tries to drum up media support for it in the dead of winter.
The good news for Paramount is that when it comes to this year’s financials, it won’t even have to acknowledge that the film exists. “If you don’t release the movie, you don’t have any accounting impact for that movie,” says a studio veteran. “They increase earnings because they don’t have to take a loss and they improve their cash position because they haven’t spent marketing money.” The question of whether Paramount might have done better by releasing the film on its original date is, of course, impossible to answer.
There are other indications that Paramount may be managing for quarterly margins. Soon after the studio announced its decision to move Shutter Island, it announced a rich deal to supply movies to Redbox, the $1 DVD rental operation. (The agreement could deliver $575 million to the studio over five years.) Meanwhile, the two strongest and best-managed studios in the business—Warner and Fox—have joined with Universal to fight Redbox in court. They contend that putting movies into the hands of consumers for a buck soon after they’ve been in theaters will damage the business by undermining already-weak DVD sales.
It’s possible that Paramount can and will opt out of this deal after only a few months. Industry analyst Rich Greenfield seems to suspect that’s the plan and he’s noted that the agreement appears—once again—calculated to bolster fourth-quarter numbers. Other studios worry that Paramount won’t be able to resist that kind of candy next year any more than it can now.
Other Paramount decisions can be viewed through the same calculating mind-set, even though they may also simply be smart business. For instance, the studio refuses to spend more than $10 million to market Paranormal Activity—a fraction of the usual amount. Paramount argues that a big ad campaign would wreck the movie’s aura as something cool that audiences are discovering on their own. Maybe that’s true. But would it help the movie if the studio loosened up the purse strings?
And earlier this month, Paramount incensed theater owners by moving up the DVD release date of two films: G.I. Joe: Rise of the Cobra and the already-forgotten Jeremy Piven comedy, The Goods. Releasing G.I. Joe in November rather than December, when it would face tougher DVD competition, may enhance sales. It also means logging more revenue in the fourth quarter.
Obviously, Paramount executives have every incentive to please their bosses at parent company Viacom. And it’s not just about making a good impression. Their bonuses are influenced not just by the studio’s earnings but by its cash position—and many of their moves will enhance that, too. But again, all of these moves seem fraught with fiscal anxiety.
“The Paramount story isn’t clear cut,” a veteran executive observes. “You can draw inferences about it but it’s not black-and-white at all.” And given the vagaries of the business, it may never be clear whether the studio has made any short-term decisions that result in long-term pain. After all, who saw Paranormal Activity coming?
Kim Masters covers the entertainment business for The Daily Beast. She is also the host of The Business, public radio's weekly program about the business of show business. She is also the author of The Keys to the Kingdom: The Rise of Michael Eisner and the Fall of Everybody Else.