Why Viacom's Paramount is Short on Cash and What's Wrong With Movie Marketing
CNBC Media and Entertainment Reporter
Since the news broke that Paramount is delaying the release of its Martin Scorsese thriller "Shutter Island" from October until February, I've talked to a lot of Hollywood insiders about what this says about Paramount's weakness. I've also heard plenty of rants about how this delay speaks to exactly what's wrong with the hundreds of millions of dollars spent every year on movie marketing.
The Leonardo DiCaprio picture had plenty of buzz, and trailers promoting its October release were already in theaters, which is why delaying its release comes as a surprise. Paramount's CEO Brad Gray admitted flat out that the company just doesn't have the money to market the film, pointing to the "different economic climate" than when the slate was green lit. But the overall box office is higher this year than last, so is it that the economic climate has changed, or just that Paramount's situation has changed?
Paramount released the biggest hit of the year -- Transformers 2 -- so what went wrong? For one thing, it had to share the winnings from Transformers with co-producer DreamWorks Studios. Industry sources tell me that the studio spent much more to market "G.I. Joe: The Rise of Cobra" than expected. I'm also told that this is exactly why "Star Trek" was delayed from a release in December of last year to May. Sources say Paramount was so short on cash to market the film, the studio reached out to production company Spyglass Entertainment to invest in the movie, ultimately giving up a chunk of change on what turned out to be a huge hit. The fact that "Imagine That" cost $55 million to make and only grossed $17 million worldwide certainly didn't help.
Paramount's accounting calendar is also part of the problem. If a movie comes out in September or October, DVD revenues don't come in until the following fiscal year, so the balance sheet is weighed down by hefty production and marketing and distribution costs without significant revenues to balance it out. I'm also hearing that the studio is under more financial pressure than some of its rivals, that say, a Sony or Disney would have been able to find
Then there's the whole Oscar issue. Stars and filmmakers pressure studios to spend tens of millions of dollars to advertise Oscar fare to the Academy, often spending far more to earn a golden statuette than they ever make back in box office gross. Does Paramount think that delaying the film past traditional Oscar-movie season will mean it won't have to spend as much on marketing? Or will it just have to spend more a year later to remind people about the film from back in February. And this year the Academy is changing the game by expanding the number of movies that are nominated for best picture from five to ten. Some industry insiders tell me that an Oscar win won't mean as much, which could be one reason Paramount is delaying the release of this Scorsese film, which seems like natural Oscar bait. But I'm more skeptical, I think that while studios should try to minimize marketing costs, they'll still have no choice but to pay to push films and stars for Oscar nominations.
This delay also raises questions about whether Paramount is less flexible than some of its rival studios. Some of my Hollywood sources are speculating that other studios, like a Sony or Disney would be more likely to find some extra cash from their parent companies should a budget shortfall keep them from sticking with their release schedule. Are tight purse strings at parent company Viacom and pressure from Chairman Sumner Redstone putting the studio in a tight spot?
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