Ground Floor: I love it when business and gossip collide as they did so spectacularly with the "firing" of Tom Cruise by Viacom last week.
There were lots of defensive quotes from the bruised Cruise ego and some fairly snappy ones from Viacom too. Naturally, the issue being played out in the press is "was he pushed or did he walk?"
Pushed, obviously, though he and production partner Paula Wagner insisted that they had already lined up alternative financing to produce their own movies without the interference of the studios and, therefore, they had already walked. In fact, they claimed, the studio had somehow found out through "Wall Street gossip" that Cruise and Wagner had been looking for new sources of funding and so they decided to terminate their arrangement.
Viacom, for its part, cited Cruise's increasingly erratic behaviour as a reason why he was no longer an "acceptable" asset to Paramount, the movie division with which he has worked for 14 years.
Being realistic, the parting of the ways has to be all about the bottom line. In Viacom's recent financial report, revenues were up 24 per cent and operating income up 14 per cent; but these increases had less to do with the pulling power of Cruise and more to do with last year's acquisition of animation company DreamWorks. More pertinent for the money crunchers at Viacom is that the share price is languishing off its 52-week high and that the company has underperformed the industry index this year.
Cruise's showcase movie, Mission Impossible 3, grossed $393 million (€308 million) worldwide from a production budget of $150 million (taking $47 million in its opening weekend) whereas its precursor, Mission Impossible 2, brought in $546 million worldwide with a production budget of $125 million and took $57 million in its first weekend.
Cruise reportedly had a deal for 20 per cent of the Mission Impossible 2 box office revenues as well as a percentage of the DVD sales income, and with a similar deal for the follow-up it becomes apparent that the studio felt that its slice of a diminishing pie just wasn't enough. Furthermore, Paramount also paid Cruise-Wagner around $10 million a year as a retainer.
Paramount has undergone some changes over the past 18 months and new chairman Brad Grey clearly found this arrangement too rich for his restructured studio.
The story from the Cruise camp is that they have financing from hedge funds to keep their creative show on the road. Since hedge funds pride themselves on being able to make money whatever the market is doing, I guess they might be prepared to take a bet on a star who has become less bankable ever since he berated Brooke Shields for taking antidepressants.
They are recent players in the business with hedge fund Stark Investments having taken a shot at it by putting up some financing for the remake of Poseidon. Cruise should feel comforted by the numbers because Poseidon grossed $181 million worldwide from a production budget of $160 million. Stark, founded in 1992, manages around $7.5 billion in assets with more than 800 investors who are able to stump up the $1 million it takes to buy into the firm.
Hedge funds are not known for their caring and sharing nature and neither are their investors. They are aggressively traded and highly leveraged and have evolved significantly over the past number of years. Most people tend to know about them through their high-profile failures rather than their successes. In fact, in the early years, almost 15 per cent of new hedge funds folded.
Marin Capital, which used a convertible arbitrage strategy - generally accepted to be fairly low-risk in the world of hedge funds - found itself in big trouble when bonds in General Motors were downgraded to junk. And, of course, Long-Term Capital Management, which had more than $1 billion in investor capital, went into meltdown when the Russian government defaulted on its debt.
Although they leverage up and trade aggressively, they are not run by people who panic, which might be the difference between a hedge fund taking an investment in a Tom Cruise movie and Viacom's current situation.
It certainly seems that the studio has looked at its most bankable star - Cruise brought in 15 per cent of its revenues over the past 10 years - noted that his behaviour has bordered on the bizarre and decided to dump him before the share price fell further.
Sumner Redstone, the Viacom chairman, has also claimed that Cruise's recent antics have alienated female fans and knocked about $100 million off box office receipts from Mission Impossible 3.
Possibly, although it's equally possible that people who saw the risible Mission Impossible 2 decided they couldn't be bothered to pay good money to see Cruise flash his white teeth even as buildings blew up all around him in the sequel.
Cruise's previous movie outside the Mission Impossible franchise, War of the Worlds, grossed a very respectable $592 million from a production budget of $132 million.
Hollywood insiders have decided that the studios are trying to exert some kind of control over their highly paid and cosseted stars. More prosaically, it seems as though Viacom is trying to protect the Mission Impossible franchise rather than anything else. If that's what they're about, though, the answer is simple - get a decent storyline!
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