By now, everyone has heard about the soured relationship between Tom "Couch Jumpin'" Cruise and Viacom's (NYSE:VIA) Paramount movie studio. What does it all mean?
On the surface, it would seem that Sumner Redstone and Viacom simply got sick of Cruise and his antics. According to an article in The Hollywood Reporter, Redstone believed that the star's behavior simply was not something to be associated with.
Interestingly enough, the article goes on to state that some observers believe that Cruise's schtick wasn't necessarily the catalyst of the breakup. It may actually have more to do with the current economic climate of the box office and the DVD market.
As we all know, movies are very expensive to make. Think about Time Warner's (NYSE:TWX) Superman Returns, for instance. According to Boxofficemojo.com, that film had an astronomical production budget of $270 million. Considering that studios receive roughly 55% of the total reported box office gross of a project, Superman Returns needed to be super, indeed, to score any sort of return.
Since the box-office business has seen its challenges lately, studios have relied on ancillary sales -- such as home video and television -- to make money from its celluloid operations. But DVD product sales have matured and growth is not as robust; it's still a valuable business, of course, but studios like Disney (NYSE:DIS) -- which recently addressed the issue of movie costs by cutting output -- are more reticent than ever before to greenlight super-budgeted productions.
Back to Cruise, it seems as if the slowing home-video market might be the reason why Viacom decided to part ways. It's impossible to say for certain, but the theory has legs. Since Cruise always wants a substantial cut of the gross dollars from the distribution of his films, it shouldn't come as a surprise that some of the bean counters might be saying, "Hey, wait a minute -- why shouldn't the company control all of the cash flow, especially when home video is suffering?" A quote from a Hollywood insider in the Reporter supports such thinking, as the insider stated that it isn't so much the money paid to talent, but the participation schedule (the profit take, in other words) that ruins it for the studio.
To which I say, "Right on!" I've long thought that the participation percentages were out of whack (I mentioned this concept in an article on the old Viacom's quest for cheaper movies). Stars shouldn't get the profits -- shareholders should (that's why I've agreed that more disclosure is necessary concerning these lucrative profit-sharing deals with celebrities). Plus, let's really think about what drives the success of a movie -- is it an A-list cast? Granted, stars can bring in an audience on opening weekend, but they don't always. Harrison Ford can have a flop just as easily as a newcomer could, and the converse holds as well -- i.e., a vehicle with no celebrity fanfare can come out of nowhere and scale the multiplex heights. My favorite example is the micro-budgeted The Blair Witch Project. Let's do a comparison. Boxofficemojo.com says that Blair Witch made $140 million at the domestic box back in summer 1999 on a budget of $60,000; as of this writing, Cruise's Mission: Impossible III has taken in almost $134 million. While the latter has already made substantially more in total worldwide gross than Blair Witch did, I think my point is clear: You can spend a ton of money or a minimal amount, but there's not always a direct relationship between big budget and viewership.
Shareholders should demand that their studio make movies where the deal structures favor them and not the stars. Viacom was right in its decision, but I'm skeptical that this new cheaper movie zeitgeist will last. Since I own Disney and General Electric (NYSE:GE) -- the owner of NBC Universal -- I'm hoping it sticks around for a while.
Cruise on over to some more Takes:
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Fool contributor Steven Mallas owns shares of Disney and General Electric. The Fool has a disclosure policy.
