with Disney that he had mastered the artful deal that amazed even Hollywood.
PLUS ÇA CHANGE:
PARAMOUNT’S REGIME CHANGE
The principal asset of a modern studio nowadays, aside from its library of movie titles and other intellectual properties, is its human capital, which includes executives with the negotiating skills, judgment,charm, and goodwill within the industry to get top stars, make favorable production deals, and profitably organize the release of movies. In the spring of 2004, following a string of six box office flops in 2003, Sumner Redstone, the chairman of Paramount’s parent company, decided Paramount needed a new infusion of human capital. In the regime change, Jonathan Dolgen and Sherry Lansing, who had run the studio for the past decade, were out. Brad Grey, a dynamic forty-seven-year-old television producer and talent manager, would replace them. Even though he had no previous experience in running a movie studio, Redstone gave him a mandate to turn the studio around.
But turn around from what? Despite its flops, the Dolgen-Lansing decade was hardly a disastrous one. During that period, 1994-2004, Paramount released six out of its ten highest grossing films in history, including
Titanic
, the all-time biggest money-maker, and in eight out of their ten years their division (which included television as well movies) scored record profits. They set up lucrative co-production deals with Dreamworks SKG, established the
Mission Impossible
franchise with Tom Cruise, and created three profitable distribution labels—MTV Films, Nickelodeon Films, and Paramount Classics. Dolgen’s skill was the art of the deal which reduced Paramount’s risk by usingOther People’s Money, his specialty being offbalance sheet financing and foreign subsidies to pay for a large part of a film’s production costs. Through them, Dolgen and Lansing managed to achieve an average return on invested capital of nearly 60 percent during their ten years. Even in their worst year, 2003, they hit their targeted profit numbers.
Enter Brad Grey. He wasted little time in dismantling the team that his predecessors had built. Within six months, almost every senior executive “ankled,” as
Variety
colorfully describes exiting a studio, including Rob Friedman, the head of worldwide distribution and marketing; Thomas Lesinski, the president of the Home Video division; Donald DeLine, the head of film production; Jack Waterman, the president of pay-TV; Gary Marenzi, the head of international TV; and Tom McGrath, the architect of the studio’s offbalance sheet financing strategy. In all, over 100 executives were either fired or left Paramount in the regime change. “Even by the harsh standards of Hollywood such wholesale bloodletting is unprecedented,” one former Paramount executive said in an email.
Gray also cancelled most, if not all, of the movie projects in process in 2005. Letting it be known that Paramount would place less emphasis,as part of the regime change, on deal-driven movies, he cancelled five such projects based on German and Spanish tax deals, which would have produced about $50 million in bottom line profits. (The financial vice president working on these deals, getting the message, promptly resigned.) But replacing such projects, and packaging scripts with stars, directors, and financing, takes many months, if not years. And by the fall of 2005, Paramount still did not have enough viable projects in the pipeline to provide the studio’s distribution arm with product for 2006 and 2007. The solution Grey found was for Redstone to buy Dreamworks SKG for $1.6 billion.
To finance this deal, Redstone sold Dreamworks’ movie library to hedge funds for $900 million. As a result, Paramount got thirty-odd Dreamworks projects—including
Dreamgirls
and
Transformers
—to replace the Dolgen-Lansing development projects.
The new regime, at Redstone’s prodding, also ended its deal with Cruise-Wagner Productions, which had
PLUS ÇA CHANGE:
PARAMOUNT’S REGIME CHANGE
The principal asset of a modern studio nowadays, aside from its library of movie titles and other intellectual properties, is its human capital, which includes executives with the negotiating skills, judgment,charm, and goodwill within the industry to get top stars, make favorable production deals, and profitably organize the release of movies. In the spring of 2004, following a string of six box office flops in 2003, Sumner Redstone, the chairman of Paramount’s parent company, decided Paramount needed a new infusion of human capital. In the regime change, Jonathan Dolgen and Sherry Lansing, who had run the studio for the past decade, were out. Brad Grey, a dynamic forty-seven-year-old television producer and talent manager, would replace them. Even though he had no previous experience in running a movie studio, Redstone gave him a mandate to turn the studio around.
But turn around from what? Despite its flops, the Dolgen-Lansing decade was hardly a disastrous one. During that period, 1994-2004, Paramount released six out of its ten highest grossing films in history, including
Titanic
, the all-time biggest money-maker, and in eight out of their ten years their division (which included television as well movies) scored record profits. They set up lucrative co-production deals with Dreamworks SKG, established the
Mission Impossible
franchise with Tom Cruise, and created three profitable distribution labels—MTV Films, Nickelodeon Films, and Paramount Classics. Dolgen’s skill was the art of the deal which reduced Paramount’s risk by usingOther People’s Money, his specialty being offbalance sheet financing and foreign subsidies to pay for a large part of a film’s production costs. Through them, Dolgen and Lansing managed to achieve an average return on invested capital of nearly 60 percent during their ten years. Even in their worst year, 2003, they hit their targeted profit numbers.
Enter Brad Grey. He wasted little time in dismantling the team that his predecessors had built. Within six months, almost every senior executive “ankled,” as
Variety
colorfully describes exiting a studio, including Rob Friedman, the head of worldwide distribution and marketing; Thomas Lesinski, the president of the Home Video division; Donald DeLine, the head of film production; Jack Waterman, the president of pay-TV; Gary Marenzi, the head of international TV; and Tom McGrath, the architect of the studio’s offbalance sheet financing strategy. In all, over 100 executives were either fired or left Paramount in the regime change. “Even by the harsh standards of Hollywood such wholesale bloodletting is unprecedented,” one former Paramount executive said in an email.
Gray also cancelled most, if not all, of the movie projects in process in 2005. Letting it be known that Paramount would place less emphasis,as part of the regime change, on deal-driven movies, he cancelled five such projects based on German and Spanish tax deals, which would have produced about $50 million in bottom line profits. (The financial vice president working on these deals, getting the message, promptly resigned.) But replacing such projects, and packaging scripts with stars, directors, and financing, takes many months, if not years. And by the fall of 2005, Paramount still did not have enough viable projects in the pipeline to provide the studio’s distribution arm with product for 2006 and 2007. The solution Grey found was for Redstone to buy Dreamworks SKG for $1.6 billion.
To finance this deal, Redstone sold Dreamworks’ movie library to hedge funds for $900 million. As a result, Paramount got thirty-odd Dreamworks projects—including
Dreamgirls
and
Transformers
—to replace the Dolgen-Lansing development projects.
The new regime, at Redstone’s prodding, also ended its deal with Cruise-Wagner Productions, which had
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