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Paramount’s low-cost, low-stakes strategy

Studio to doubters: Market share isn't all that important

The refrain that Paramount took the year off has been heard in Hollywood throughout 2012, fueled by its lack of a midsummer tentpole, last-minute schedule changes and a slip to seventh place in market share. But even as the slate has sputtered back to life with eight pics over 10 weeks — including “Rise of the Guardians,” the last in Par’s DreamWorks Animation pipeline — Paramount brass and analysts who cover the studio are quick to remind skeptics that market share isn’t everything.

To the folks on Melrose, it isn’t even the primary thing.

“Market share can be something that you lose yourself in because it’s a competitive marker against other studios, but what matters is how you perform economically — that both the creative and the bottom line are strong,” Paramount Film Group prexy Adam Goodman told Variety.

The trick to navigating narrowed revenues is controlling costs, and Par seems to have pulled that off: In last month’s quarterly earnings, parent company Viacom

reported that though filmed entertainment revenues for the fiscal year fell 19% to $4.8 billion, Par’s fourth-quarter operating profit grew 5% to $195 million.

“It’s remarkable to me that Paramount essentially hasn’t made a movie in 2012, and yet the operating income for the studio was the same as it has been in previous years,” says Todd Juenger, senior media analyst who covers Viacom for Bernstein Research.

But even the notion that Par made and/or released fewer movies doesn’t square with reality: The studio’s 14-title slate is about in line with the past five years, when Paramount’s 13-16 films helped the studio rank No. 1 or No. 2 in global market share, commanding 14%-20% of worldwide grosses. The difference during that go-go time was outsized homegrown hits like the first “Transformers” movie in 2007, with momentum sustained by that pic’s sequels, the first Marvel movies and the DreamWorks Animation crop.

Paramount’s seven inhouse movies this year have been lower-profile projects, including “The Dictator,” “Paranormal Activity 4,” “Fun Size” and “Flight.” Still to come are “The Guilt Trip” and “Jack Reacher.” While the studio’s lower-risk, lower-return titles have commanded less global market share in 2012, they also helped the studio avoid a costly flop. And fewer films in production meant costs were slashed.

Much of the impact of the more modest 2012 slate will be felt next year, when Wall Streeters expect Par’s profits to stay even or retreat slightly, in spite of a fuller pipeline that includes new installments in the “Star Trek” and “G.I. Joe” series; the zombie movie “World War Z,” starring Brad Pitt; and its reboot of the Jack Ryan franchise.

Alan Gould, a media and entertainment analyst for Evercore Partners, said he anticipates profits next year to come in at just over $300 million, down almost 7% from the studio’s 2012 fiscal profits of $325 million. “These companies all have large libraries,” Gould said. “In particular, Paramount benefited from a strong 2011 fiscal year.”

The idea that Par hit a bare patch took hold when it bumped “G.I. Joe,” its lone summer tentpole, to March 29, on the heels of having moved “Hansel and Gretel: Witch Hunters” to 2013. That gave Par only five movies in the first nine months of the year, causing it to fall out — and stay out — of the top six, as emergent Lionsgate released “The Hunger Games.” Though Par is ending the year as the busiest studio by far, its four remaining releases — “The Guilt Trip,” “Cirque du Soleil: Worlds Away,” “Not Fade Away” and “Jack Reacher” — aren’t likely to lift it out of what’s essentially last place among the majors for 2012.

But studios don’t use the Gregorian calendar when parsing success — Par prefers to focus on its most recent fiscal year (Oct. 1-Sept. 30), which included four 2011 hit releases: “Paranormal Activity 3,” “Mission: Impossible — Ghost Protocol,” “Puss in Boots” and “The Adventures of Tintin.” During the 2011-2012 fiscal year, Paramount released 13 films, which together cost approximately $982 million and brought in a collective worldwide theatrical tally of $4.075 billion.

The loss of DreamWorks Animation — as well as the lucrative Marvel distribution deal that included a share of “The Avengers” coin and ends with “Iron Man 3” — certainly will be felt on the Par lot, especially next year which, as it stands, lacks any kiddie fare. Of the studio’s more than $4 billion in theatrical revenues for the fiscal year, DreamWorks Animation contributed $1.3 billion globally between “Puss in Boots” and “Madagascar 3.”

Still, Goodman says operations of the studio’s new Paramount Animation division are heating up, and creatively speaking, he maintains the studio isn’t concerned with next year’s vacant family spot.

“We don’t ever program movies based on genre or a certain kind of product mix,” Goodman said. “We work to build a slate that is balanced (and) ambitious while at the same time mitigating the bigger risks with safer bets as complements.”

Studio insiders say the 2013 slate is the closest thing to what Paramount Pictures chairman Brad Grey hoped to create when he came on as prexy-CEO in 2005.

In the current fiscal year, Par has midrange-budgeted pics “Flight” (budgeted at $31 million) and “Pain and Gain” ($25 million) to help offset the pricetag of summer tentpole “World War Z,” which cost $160 million to produce. Par decreased its exposure on that pic by partnering with three separate financial backers — Hemisphere Media Capital, GK Films and Skydance Prods.

“Flight,” meanwhile, has collected almost $75 million domestically, with a potential $100 million finish line; Michael Bay’s action comedy “Pain and Gain,” which stars Mark Wahlberg and Dwayne Johnson and bows April 26, appears to be another safe bet.

“Nobody thinks of Paramount as extravagant,” Juenger noted. “Usually their more expensive Tom Cruise vehicles, for instance, have a certain amount of built-in certainty.” (“Jack Reacher” cost just $60 million.)

The studio’s safest financial bet by far over the past four years has been its “Paranormal Activity” franchise, even with diminishing returns at the box office. In total, the four-pic scarer series has cost less than $15 million to produce and has earned $670 million and counting worldwide. Par is already committed to releasing a Hispanic-targeted “Paranormal” spinoff next year and has dated a fifth franchise installment.

Lest the idea linger that Paramount isn’t making movies anymore, Goodman notes that every producer on the lot is currently in production, pre- or post-production.

“It creates a really healthy lot, because no one feels the need to sell us a bunch of half-baked projects simply to justify their existence,” Goodman said. “Instead, what ends up happening is that if everyone has enough going on, then people are being smart about the movies they’re bringing us as well.”

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