Tom Cruise Paramount And Hollywood Power s Shift And Now Hedge Funds
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Tom Cruise, Paramount, and the Shifting Powers of Hollywood: Enter the Hedge Funds
The Landscape of Hollywood Power Dynamics
In the early days of Hollywood, leading up to the 1950s, seven major studios dominated the industry. These studios were headed by moguls, primarily men of Eastern European descent, who wielded creative control with an iron grip, much like the monarchs they emulated. These moguls managed the creative side, while financial oversight was maintained by the so-called "Suits" of New York.
This balance of power, rooted in Hollywood's beginnings before 1920, persisted for over four decades. The system thrived on a rigid hierarchy, where actors were bound to specific studios, with no say in their roles and paid annually. They were, in effect, almost like serfs in a feudal system, reminiscent of how baseball players were treated until significant changes were enforced by the Supreme Court.
Cracks in the System
In the 1950s, the Hollywood caste system began to unravel when Kirk Douglas, father of Michael Douglas, broke away to form Bryna Productions. This independent studio produced hits like "The Vikings," "Spartacus," and "Seven Days in May." With this shift, the traditional studio system collapsed, and actors began to emerge as brands in their own right.
Corporations and Star Power
The dynamics started shifting in the 1960s with two key developments: Hollywood studios were acquired by big corporations and eventually by multinational giants eager for global influence. Meanwhile, stars began to assert their power. Large corporations like Sony, Newscorp, and Viacom were not pleased with the clout stars were gaining. In recent years, A-list actors such as Tom Cruise, Johnny Depp, and Robert Redford have secured profit participation deals, albeit reluctantly granted by studios.
Initially, this didn't seem to matter much due to Hollywood's notorious accounting practices, where films often appeared to lose money on paper. Stars quickly adapted, opting for upfront participations?"taking a share of ticket sales from the outset. After 35 years in Wall Street finance, I can affirm that backend profits rarely materialized for anyone; somehow, success never translated into backend earnings.
The Media Giants' Discontent
Today, media conglomerates with global reach are exasperated with the demands of big-name stars. Mel Gibson faced backlash over his personal conduct, leading Disney to cancel a Gibson-related project. Recently, Tom Cruise had a high-profile split with Sumner Redstone of Viacom, officially over Cruise's recent behaviors?"a reason seldom given when studios part ways with stars. There's a personal aspect at play here.
Rumors suggest Viacom offered Cruise a reduced $2 million production deal, down from $4 million, plus a $6 million project development fund. However, the real issue revolves around Cruise's 25% cut from Viacom's earnings on "Mission Impossible III," which grossed nearly $400 million worldwide. With theaters and Viacom splitting the gross, and Cruise taking 25% of Viacom's share, Viacom essentially broke even after production and marketing costs, while Cruise pocketed a significant $50 million. This financial dynamic explains Redstone's frustration.
The Future with Hedge Funds
Despite this, Redstone may still have the last laugh. The global corporations owning studios never intended to rely solely on theater gross. Movie ticket sales only represent a third of a film's earnings, while the rest comes from DVDs and TV rights?"streams from which profits are not shared. These figures are buried in corporate financials, undisclosed to public scrutiny.
Thus, Viacom will see substantial earnings from "Mission Impossible III," beyond initial box office receipts. Meanwhile, Cruise's production partner, Paula Wagner, mentions that Cruise is seeking $200 million from hedge funds to finance future projects. However, these Wall Street investors may find themselves perplexed by Hollywood's elusive accounting practices. The entertainment industry isn't just about potential losses?"often, it's about discovering them far too late.
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