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Paramount Pictures Still Causing Headaches at Viacom

By Motley Fool Staff - Aug 28, 2016 at 12:22PM

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Failures at the movie studio, and the resulting push to spin off the segment, may have cost the CEO his job.

For years, Viacom (NASDAQ: VIA) (VIAB) CEO Philippe Dauman had the support of Sumner Redstone, the media mogul who held a controlling interest in the company through his National Amusements theater chain.

However, efforts to split Paramount Pictures from the company resulted in Dauman losing that support. And with Redstone's declining health, his daughter Shari is now calling the shots.

In this episode of Industry Focus: Consumer Goods, Fool.com contributor Daniel Kline joins Vincent Shen to look at what has gone wrong with the studio, including discussing its latest box office disaster. They also consider just how difficult a task it will be for Shari and the new CEO to turn the business around.

A full transcript follows the video.

This podcast was recorded on Aug. 23, 2016.

Vincent Shen: So, the plot thickens there. Do you feel like shareholders at this point are reassured though that company leadership can return its focus to the business? Or do you feel like the optics around this whole power struggle still have investors concerned that this isn't really necessarily over yet?

Dan Kline: If I was an investor, I'd be very concerned about this management. You've watched two rivals, at least on the Paramount side, Disney and Comcast, snap up guaranteed hits -- Disney with Marvel and Pixar, Comcast to a lesser extent with DreamWorks Animation, where they bought some big-name properties. And then you have Paramount, which doesn't have any of those. If you look at their movie slate, there's a few sort of tired sequels in the pipeline, but they don't have Jurassic World or Star Wars or Indiana Jones, or anything that's going to be an obvious billion-dollar franchise. So, as all these deals were getting done, I have to question, where was Viacom management? Where was Paramount? And does this group have the wherewithal going forward? They've done well in the TV side, but maybe it's time to merge that back with CBS.

Shen: Yeah. I should note, on the investor side, with the company, in terms of its business segments, its media networks is the bigger business. Obviously, I think the filmed entertainment with some of the blockbuster releases gets some attention, too, but it's really quite smaller. A recent example of how the company and Paramount struggle -- and I think that was a starting off point for a lot of the debate among what to do with Paramount -- they had a huge misstep again this past weekend, really poor showing for their religious epic Ben-Hur. I think it had something like a $100 million production budget, not even including marketing and advertising. The movie managed to generate about $11 million domestically in its opening weekend, pretty significantly below expectations.

Kline: It's an epic flop. They were marketing it to a religious audience, and that audience has done very well taking a small-budget movie and making it a mild hit. Really, aside from Mel Gibson's The Passion of the Christ, you have not seen a big-budget faith-based movie justify the expense. So you took a film that, nobody was clamoring to have Ben-Hur remade. They failed pretty badly at getting the target audience excited. So it's going to go down to be an epic bomb, and it's also doing very badly on foreign soil, so this is not one of those movies that's going to tank in the U.S. but China or some other foreign market is going to somewhat mitigate it. This is a movie that's going to end up losing maybe over $100 million, which is pretty hard to do these days.

Shen: For 2016 overall, from what I saw, Paramount had about nine or 10 films out. Only one of them, the recent Star Trek Beyond, has managed to break $100 million for domestic box office. So, this is obviously part of their trend, where they have been struggling.

Kline: Yeah, and even the Star Trek franchise has been a disappointment. It's sort of like the X-Men movies versus the Marvel movies. They do OK, they're almost hits, they're kind-of hits. But Star Trek especially does not have some of the same foreign appeal as, maybe, a Star Wars or a Jurassic Park. So, once again, this is a company that needs hits. And they'll do Star Trek 4, but there's no guarantee that it's going to do any better than Star Trek 3.

Shen: Last question before we move on -- what do you think should be the first priority on Shari Redstone's to-do list now?

Kline: I think she has to figure out what they're going to do with Paramount. And that probably means overhauling it top to bottom. Is Tom Dooley they guy who could lead that? Maybe he is. He has good relationships, he has a lot of capital within the company. But clearly they need to be more aggressive, and they need to be smarter.

When you're spending $100 million on a movie that does not have the religious audience pre-sales and all the things you would need to guarantee you're going to get some of your money back, then you really have to look at everything from the marketing department to who's green-lighting these movies.

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