Paramount Pictures Is Hollywood’s Comeback Kid

(Bloomberg Opinion) -- Looking back on his 1994 victory in the fierce battle for the Paramount Pictures film studio, Sumner Redstone proclaimed some years later, “This so-called deal from hell – which is what they called it – became a helluva deal.”

But “they” were right. When Redstone made those remarks, Paramount’s best days were already behind it. The last time the studio would lead the U.S. box office was in 1997 with “Titanic.” By 2017, its share of ticket sales had shrunk to 4.8 percent, down from about 16 percent a decade earlier. In its most desperate moments, Redstone’s Viacom Inc. nearly sold off a piece of Paramount to help pay down debt. And today, Viacom itself is worth little more than the $10 billion it paid for the onetime movie-producing prize.

A turnaround is underway. Tasked with restoring Paramount is Jim Gianopulos, a veteran studio executive who took the helm in April 2017 after spending more than two decades at 21st Century Fox Inc. There, he oversaw some of Fox’s greatest hits, from “Avatar” to “Deadpool.” He’s brought to Paramount a strategy for better movie selection and a renewed focus on profitability. He also has a plan to make the film business fit in more with the rest of the Viacom empire, which generates the bulk of its revenue from TV networks such as Nickelodeon and MTV. 

Gianopulos, 66, is at an age when most are headed toward retirement. Instead, he’s taken on perhaps the hardest job in Hollywood. “That’s what makes it exciting,” he said in a Jan. 8 phone interview, with an upbeat tone genuine to his words. “The fun is to take something that deserves to be what it can be and restore it to that, along with a great team of people.”

Redstone himself didn’t become a media mogul until his 60s, and Gianopulos fulfills Paramount’s need for fresh blood and someone with a proven track record. Despite a successful run at Fox, the company had let him go rather unceremoniously in 2016. (The world would later learn that Rupert Murdoch and his sons were selling Fox’s entire film business as part of a deal with Walt Disney Co.) The timing couldn’t have been better for Viacom as the Redstones commenced a management shakeup.

He’s part of a team led by Viacom CEO Bob Bakish, who is trying to revive the company ahead of a likely recombination with CBS Corp., as the whole industry consolidates. (CBS board members are meeting later this month to discuss the potential merger.) And in Gianopulos’s short time there, Paramount has gone from being Viacom’s unloved child and a possible castoff, to a comeback kid that's helping to improve the Redstone family’s fortunes.

From January through September, Paramount earned $91 million, a significant improvement from the brutal $445 million loss it suffered in all of fiscal 2016. Last year’s boost came from “Mission: Impossible – Fallout,” the top-grossing film in that series, and the sleeper hit “A Quiet Place,” which cost just $17 million to produce, but raked in about $341 million in worldwide ticket sales. “Bumblebee,” the “Transformers” prequel that was released in December, has so far grossed more than $300 million globally. (All movie-ticket data courtesy of BoxOfficeMojo.)

Gianopulos has always been more focused on profitability than market share – it’s a business, after all, he said. While at Fox, the studio’s operating margin was typically among the industry’s highest, according to data compiled by Bloomberg. Meanwhile, as Paramount’s slate dwindled in recent years, the studio fell into a habit of making niche films at over-sized budgets. Remember “Downsizing,” starring Matt Damon, in 2017? You’d be forgiven if you didn’t. The movie, which preceded Gianopulos, reportedly cost $68 million to make, but disappointed at the box office with just $55 million in tickets sold. Damon, in an interview promoting the film, even said gratefully: “I couldn’t believe that anyone was going to pay for it because it’s a big movie, it’s an expensive movie.”

There’s no scientific formula to picking the right films, but Gianopulos goes by his mantra, “Make a movie for someone, or make it for everyone.” That’s speaks to how he analyzes the value and risk of potential projects and constructs a balanced slate to target a variety of audiences. On Viacom’s fourth-quarter earnings call in November, Gianopulos said that 2019’s offerings range in production budgets from $10 million to $140 million. He said 10 of the year’s 13 films will be at a net cost to Paramount of less than $50 million each, and 20 percent of the slate will be co-financed. 

Although Paramount has already improved significantly, Hollywood talent agents tell me that its lack of a major film franchise represents a potentially worsening cavity. Disney has its Marvel superheroes and “Star Wars” library – milking those acquisitions for all they’re worth – and it’s inheriting “Avatar” and “X-Men” from the Fox deal. AT&T Inc. gained “Harry Potter” and the DC Comics franchise when it acquired Time Warner last year. Comcast Corp.’s Universal has “Jurassic World,” “Despicable Me” and “The Fast and the Furious.”

Gianopulos disagrees that there’s a franchise hole, pointing out “Mission: Impossible,” as well as the “Terminator” reboot coming in late 2019. But both are aging franchises, and 56-year-old Tom Cruise, who broke his ankle filming “Fallout,” can’t be expected to do his own stunts much longer, which is a defining feature of the series. Even with the film’s success last year, it ranked eighth in the U.S. and Canada. 

“This isn’t a startup – this is one of the great institutions of the movie business,” Gianopulos said of Paramount. “At the same time, we have the humility to recognize that we still have a lot of work to do.”

An obvious failing of Viacom in the past was that it allowed Paramount to operate as an adjunct film division to an otherwise TV-focused conglomerate. Bakish and Gianopulos are working now to make the studio more central to Viacom and pluck more movie ideas from its popular shows, such as Nickelodeon’s “SpongeBob SquarePants” and “Are You Afraid of the Dark?” They also spotted an opportunity to capitalize on movies that aren’t fit for theatrical release through a new partnership with Netflix Inc.

From Gianopulos’s standpoint, Netflix isn’t going away – even though some media giants may wish it so – and thus it makes sense to bolster Paramount’s standing as a content supplier at a time when Netflix is paying up to keep its app stocked. (Already, it’s the studio behind popular Netflix shows such as “13 Reasons Why,” “Maniac” and “The Haunting of Hill House.”) The strategy differs from that of rivals such as AT&T and Disney, which are launching their own streaming services to compete directly with Netflix, something Viacom doesn’t have the scale or coffers to do.

Redstone, the billionaire behind Viacom, is now bedridden at 95 years old, and a judge recently ordered that he be placed under legal guardianship. (His daughter Shari Redstone stepped into his shoes in recent years.) But he would be pleased to see the progress made by Gianopulos and Bakish.

Sumner Redstone always said he would live forever, and while that obviously was an exaggeration, there was a time when it seemed he might outlive Viacom. Now, the company has momentum to build on, and Paramount is staging one helluva turnaround.

It stands out in an industry where women accounted for only 11 percent of the writers working on the top 250 films in 2017, according to the Center for the Study of Women in Television and Film. Diversity is something Gianopulos, a second-generation Greek American, says is simply good for business.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

©2019 Bloomberg L.P.