Viacom's (NYSE:VIA) Co-Chief Operating Officer Tom Freston made an interesting comment while speaking at the Merrill Lynch Media and Entertainment conference. An article in the Hollywood Reporter quotes him:
"Instead of spending $120 million on The Stepford Wives, we could have made three pictures targeted at a younger audience that could be a lot more profitable."
This statement was made in an overall context regarding Paramount's less-than-stellar success as of late in the business of celluloid distribution. My reaction? Well, hallelujah!
In all seriousness, if Freston can deliver on the promise of such a bold proclamation, Viacom shareholders will be quite happy down the line. The high costs of movie production bug me -- they just absolutely get under my skin like one of those horrific beetles from the recent Mummy films. I couldn't agree with him more, but I would try and squeeze one more project out of that $120 million figure and go for four flicks instead of three. It can be done. The studio divisions at Disney (NYSE:DIS), Time Warner (NYSE:TWX), Fox (NYSE:FOX), and General Electric (NYSE:GE) need to learn that costs must be controlled with a consistent diligence that is both intelligent and innovative so that the returns on negatives (i.e., the films) can be amplified.
I've written on this subject before; that piece concerned Disney and its own concerns about movie economics. That company's mindset appears to be (for now, at least) prejudiced toward producing a fixed number of films per year as a way of reducing capital expenditures in this operating segment. I think there is merit to this, but it doesn't really address the issue to my complete satisfaction, because there's more here than meets the eye. Let's say a movie studio decides to only make 10 films per calendar year as a way of keeping expenditures lower. Here's the correlating question: Will they be star-driven? If so, then how complex will the above-the-line contracts be? In other words, how much of the cash flow generated by a negative will reach my company's coffers?
In my opinion, part of the reason the movie business generates such dubious returns has not only to do with costs associated to produce and distribute a negative, but also with the beneficial clauses and codicils tucked away in the contract of a Cruise or a Hanks. This is part of the reason why Michael Eisner couldn't come to terms with Steve Jobs over at Pixar (NASDAQ:PIXR). Jobs wanted to monopolize the cash flow generated by future Disney-distributed Pixar pictures. Fair enough; Jobs was doing what was in the interest of Pixar stakeholders. Eisner was doing what was in his people's interest. This is what it's all about: keeping more of that gross.
Lower-budgeted, youth-targeted films will work well at any studio, but especially at Paramount. They got the MTV Networks (also owned by Viacom) as a wonderful marketing platform. Then again, Time Warner also has the WB netlet at its disposal, come to think of it. See, it can be done, and it needs to be done. I'm not saying that every genre should be shunned in favor of high-energy, high-concept horror films aimed at teens, but as a basic engine of growth, such a scheme could be used as a core paradigm to fuel a filmed-entertainment operating segment.
So, to the studio powers that be, get out there and scour the halls of film colleges across this great nation and find new talent before someone else finds them. Pay cheap money for it, and then let the next studio lavish a lush pay package on the burgeoning egos. No different than finding an undervalued stock and then letting go of it once the market realizes it's valuable. There are all kinds of Napoleon Dynamite-type bonanzas out there waiting to be discovered.
More on Viacom and movies:
David Gardner has recommended both Time Warner and Pixar for Motley Fool Stock Advisor subscribers. Want to see which other companies have gotten the nod? Subscribe today with a six-month, money-back guarantee.
Fool contributor Steven Mallas owns shares of Disney.
