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Sun 3 Sep 2006 04:00 AM

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Mission statement

Even Tom Cruise, the world’s biggest movie star, has found that Hollywood — ever more accountable to Wall Street — can be an unforgiving place to work. Boyd Farrow reports.

|~|57424518-200.jpg|~|PREMIERE ATTRACTION: Cruise clowns around for his fans at yet another red carpet event.|~|Even Tom Cruise, the world’s biggest movie star, has found that Hollywood — ever more accountable to Wall Street — can be an unforgiving place to work. Boyd Farrow reports.Another summer, another Tom Cruise blockbuster. And, inevitably, another gossip bonanza for every celebrity magazine and snarky blogger in the world. But this time round, the world’s biggest movie star is not getting divorced, married or even on a chat-show sofa. This time he’s getting canned.

Or rather, Cruise/Wagner, the production company the 44-year-old star runs with business partner Paula Wagner, has been told it will not have its lucrative pact with Paramount Studios renewed, after 13 years and a multi-billion dollar box office haul. The acrimony was supersized when Sumner Redstone, the 83-year-old chairman and controlling shareholder of Paramount’s parent company, Viacom, denounced Cruise in the Wall Street Journal. “As much as we like him personally, we thought it was wrong to renew the deal,” growled the media titan. “His recent conduct has not been acceptable to Paramount.”

Even readers of the fusty Journal would have got the reference to last year’s meltdown when Cruise – intoxicated, if not with new girlfriend Katie Holmes (now fiancée and mother of his four-month old daughter), then certainly with the Scientology cult and the sudden freedom from his controlling former publicist Pat Kingsley –derailed the marketing campaign of Steven Spielberg’s War of The Worlds.

Twelve months on, and Paramount clearly regards the disappointing US$516m that Mission: Impossible 3 grossed worldwide (compared with US$716m for the previous film; and US$613m for the original) as yet more self-inflicted collateral damage to the star’s career. The dynamics of the relationship were not helped by the fact that Cruise/Wagner pocketed 30% of M:I 3’s box office gross. Cue the non-renewal of Cruise/Wagner’s housekeeping arrangement – which cost Paramount around US$10m yearly in return for a first-look option on its projects – and the dizzying tennis match of accusations and recriminations that Variety, predictably, headlined War of the Words.

But while Wagner deemed Redstone’s comments about Cruise “outrageous and disrespectful”, to much high-fiveing around Hollywood,” Viacom’s wily old leader might just have been doing the whole film industry a massive favour in the long-term, while helping to bump all media stock through a rocky patch. Although Cruise/Wagner’s overheads cost was chickenfeed, the financial structure of any resulting projects was heavily weighed in its favour.

Redstone will be more aware than most that in the top 20 all-time worldwide box-office chart there not a single star-driven film. Instead there are three episodes of Star Wars; three Harry Potters; The Lord of the Rings trilogy; three animated films; and a mix of sci-fiers, superhero flicks and special effects extravaganzas. (Berthed in top spot is Titanic, a film that, ironically, made Leonardo DiCaprio a star).

This is precisely why a tiny handful of stars whose name is their films’ main draw are so fabulously rewarded: Often, the eyepopping salaries these ‘brands’ earn are eclipsed by the tens of millions they earn through “first-dollar gross participation” – a cut of the box-office and DVD spoils – siphoned off before the risk-taking studios have even recouped their costs.

And with so few roadworthy star vehicles out there, studio chiefs do cartwheels simply to be in “the Tom Cruise business”, say, even if the back-end deals involved mean the films may not turn a profit for years, if ever. As Walter Parkes, former head of Spielberg’s DreamWorks studio, grumbles: “Executives green-light pictures just so they can say, ‘We’re doing so-and-so’s next picture.’ It enhances the company’s image. They know the figures don’t add up, but it keeps them in a job for another year”.

Indeed, first-dollar gross deals have been responsible for growing anguish in recent years. Studios have demanded ‘event’ movies, but they still begrudge mortgaging profits from them to the talent. Naturally, stars and directors insist that they merit these bonanzas because they put their equity, in the form of their reputations, on the line. They play hardball because they believe that the studios under-report grosses from the world’s more far-flung corners, and stiff them on DVD royalties.

Studios usually pay participants out of a pool limited to 20% of DVD revenues, a formula hatched in the 1980s when Hollywood, jittery about the arrival of home video, claimed that it needed the 80% share to break even. With DVD revenues now eclipsing box office, the talent feels short-changed, while the studios insist they do not break even until the final DVD tallies are in.

Most big stars get a salary on top of whatever back-end deal they have negotiated. As percentage points have crept up, Hollywood has watched its potential profits crumble, especially as production and marketing budgets continue to head north. It is generally accepted that studios have a ceiling of 25% of box-office grosses that they write off for talent, but when a big movie has a star actor, famous director and a powerful producer, this can be a stretch. A first-dollar deal of 30% was struck for both Tom Hanks and the director Ron Howard for the recent The Da Vinci Code.

Furthermore, with studios battling to keep gross points at 25%, the biggest stars have, on occasion, bludgeoned them into cutting separate DVD deals, under which they get 50% or more of DVD revenue counted towards the gross. The remuneration for Peter Jackson, director of The Lord of the Rings, for scripting, directing and producing King Kong comprised a $20m pay cheque, plus 20% of the gross and a chunk of future DVD grosses.
Cruise takes no upfront fee for acting or producing but pockets 22% of the studio’s gross box office revenues plus television licensing and a 12% cut of total DVD receipts. He earned more than $70m on the first Mission: Impossible film. After Paramount insisted on tweaking the deal, Cruise’s cut of the gross for the second installment increased to 30% and a ‘royalty’ of 40%. From the DVDs alone, Cruise gained more than $30m on M:I 2. When Redstone realised that not only would Paramount hardly make a profit from the film but that Cruise would not reduce his cut on future movies, he took action.

Tellingly, back in February 2005, Paramount actually trimmed MI-3’s budget by 10% cent as the studio wanted send a clear message to Hollywood at a jumpy time. Last year, worldwide box office was down 7.9% according to the Motion Picture Association Of America. Only eight films made more than $200m at the US box office and the average gross for major studio releases was a mere $37m. Meanwhile the average cost to make and market a studio film fell slightly (0.6%) to $96.2m reflecting a 4% drop in production costs but a 5.2% rise in ever-spiraling marketing costs.

For the moment, US studios are buttressed by the DVD windfall but even their Wall Street paymasters have twigged that Hollywood’s biggest revenue stream is slowing and new delivery systems have not been exploited. No studio has signed a deal with Apple’s iTunes, for instance.

In an attempt to appease their corporate parents, thrifty studios are already exploring other ways to clamp down on stars’ profit participation. These include working with fewer gross players on each film; locking the talent into sequels and spin-offs before their stock rises; and gambling on unknown directors. They are also canceling star-driven projects. 20th Century Fox recently pulled the plug on the proposed Jim Carrey-Ben Stiller vehicle Used Cars, and Paramount deepsixed Carrey’s Believe It or Not.

Redstone’s comments might have actually quelled Hollywood’s residual unease. In the last few months, Disney followed Warner Bros and Paramount DreamWorks by reducing its film slate and laying off some 650 employees. And every single studio has been either scaling back producer pacts or has been renegotiating the terms. Indeed, the fact that Cruise/Wagner claims it has already raised US$100m from two hedge funds and had decided to ankle before Redstone’s chastisement, suggests that they had seen the writing on the wall a long time ago.

Nevertheless, it is ironic that, it was at Cruise’s insistence that J.J. Abrams – who directed the smash TV show Lost – was allowed to make his movie directorial debut with MI-3. Delighted with the tyro director, Paramount just signed a five-year deal with Abrams that guarantees he will receive $22.5m, including $2m a year for overhead, a $2m per year ‘draw’ as an advance against his producing or directing fees and $500,000 per year as a ‘discretionary’ fund.

In other words, it appears that when you’re really hot, nothing is impossible.||**||

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