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Money Is the Real Star in Hollywood

Celebrity matters, but the bottom line is what counts for studio chiefs. Tom Cruise's dismissal is evidence of a changing financial landscape.

August 24, 2006|Charles Duhigg, Chris Gaither and Kim Christensen Times Staff Writers | Times Staff Writers

Being a big Hollywood star means getting luxury cars as gifts, visiting exotic locales on the studios' dime and cashing checks with lots of zeros.

But the traditional -- and often extreme -- deference shown A-listers is changing along with the economics of Hollywood, as demonstrated by Tuesday's public eviction of Tom Cruise from Paramount Pictures' back lot.

The Internet is growing fast as an entertainment channel, and the cost of producing blockbusters is rising almost as quickly. That emboldens studio chiefs working for publicly traded companies to challenge the fickle power of the most popular stars.

To be sure, celebrity still matters, blockbusters still fill theater seats and movie stars still live like, well, movie stars. But the same shifts in technology and audience tastes that changed the music industry are starting to influence the movie business.

At the same time, media companies afraid of missing the next big thing are making big-budget bets on no-name Internet stars who draw millions of viewers.

"Celebrity is less powerful now," said Jeff Fenster, an executive at Jive Records who helped discover pop superstars Britney Spears and the Backstreet Boys. "Just because a film or album stars a big-name celebrity doesn't guarantee success anymore. And Hollywood craves making money above everything else."

Even Sumner Redstone, chairman of Paramount owner Viacom Inc., suggested in an interview Wednesday that parting with Cruise after a 14-year business relationship had more to do with the profitability of his recent films than with his off-screen antics.

"There is no question that the box office is affected by other distractions such as the Internet and video games," Redstone said. "Studios make peanuts compared to the stars, and unless they learn how to say no and demand more for less, they won't survive."

Cruise, for instance, may end up making as much as $80 million for his role in Paramount's "Mission: Impossible III," which is expected to gross $400 million at the box office and an additional $200 million in DVD sales. Paramount, by contrast, is expected to make several million dollars in profit, one studio executive said.

Of course, studio accounting is notoriously difficult to decipher, and executives since Louis B. Mayer have resented their actors' big salaries and extravagant demands. As of last weekend, though, domestic box-office receipts this year totaled $6.29 billion, up 7% from the same period last year.

Despite the rise in ticket sales, attendance is up less than 4%. Hollywood worries that younger audiences growing up with computers, TiVos and iPods would rather watch movies at home or on the go than pay for a ticket at the theater.

Cruise and Paramount's divorce came after the scuttling in recent months of projects by such stars as Jim Carrey and Ben Stiller over cost concerns. Lindsay Lohan was reprimanded by her studio backers for a partying lifestyle that allegedly caused delays and budget overruns on her current film.

"The entertainment business is and always has been about money, and it's about, 'Does that person merit that salary?' " veteran producer Mike Medavoy said. "The fact is that that the business, in my view, has been somewhat bankrupt for years -- only the new media made it viable."

Hollywood's renewed focus on how much above-the-line players contribute to the bottom line comes as profit margins tighten on DVD sales and television distribution deals. That limits how much studios can recoup big investments that miss at the box office. Studios also complain that global online piracy eats into their ability to penetrate foreign markets, where big-name stars are thought to sell more tickets.

"Most studios are cutting back on their overhead and production deals," said Rick Sands, chief operating officer at Metro-Goldwyn-Mayer Inc. "The cushions that used to be there are slimmer. Home video and television doesn't save you from a bad decision anymore. It isn't that the system is broken; it's that it now is a question of risk management."

Balancing costs against payoffs long has been a challenge for Hollywood executives.

Former Walt Disney Co. studio Chairman Jeffrey Katzenberg drew unwanted attention in 1991 when a 28-page, 11,000-word memo he sent to his top lieutenants was leaked to the media. The manifesto questioned whether big-budget star-driven movies such as "Dick Tracy" were worth the expense, saying the studio had traded its cost-conscious strategy for a blockbuster mentality.

"At some point," Katzenberg wrote, "we seemed to have replaced it with a strategy that might best be called the 'Yes, but philosophy,' as in, 'Yes, he's expensive but it's a great opportunity for us,' or 'Yes, that's a lot to spend on marketing, but we have too much at stake not to.' "

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