The Incredible Shrinking Hollywood Studio: Less Movies, More Profit

The New York Times reports:

The weather wobbled between snow and rain, with ankle-deep slush in gridlocked streets. But Brad Grey, the chief executive of Paramount Pictures, refused to fret about whether the mess would keep the Manhattan elite away from a gala premiere of Martin Scorsese’s “The Wolf of Wall Street” last Tuesday.

“They’ll show up,” said Mr. Grey, speaking from the Carlyle Hotel, where he smiled from under the bill of a baseball cap as he sipped soup.

He was also confident that the movie — despite a three-hour running time, with rampant drug use and bizarre sex — will fill multiplexes when it opens on Christmas Day, joining another new Paramount hit, “Anchorman 2: The Legend Continues,” which has taken in about $40 million since its release on Wednesday. If so, the studio will have closed a surprisingly strong year.

It will also frame a troubling paradox: The less Hollywood does, the more it profits.

Paramount ranks last among major studios (and even behind the mini-major Lionsgate) in the annual box-office race, with under $900 million to date in domestic ticket sales, down by half from its recent peak in 2011. Yet Paramount has become consistently profitable in an industry where profit margins have ranged from razor-thin to nonexistent.

Studios used to publicly beat their chests over market share, or percentage of ticket sales, but profitability is the new mantra. The film business is now in survival mode, as changed viewing habits, a long decline in home entertainment sales, and fresh competition for viewers in rich foreign film markets like China take their toll.

Those shifts have prompted Paramount to adjust as well. For the fiscal year that ended Sept. 30, Viacom, which owns Paramount, reported operating profit from filmed entertainment of $234 million, down from $325 million a year earlier. Revenue (which includes the studio’s share of domestic ticket sales, plus the foreign box office, video and other sources) slipped to $4.3 billion, down 27 percent from 2011, when Paramount was the industry’s box-office leader.

Yet even as the studio makes fewer films, and as a result generates less revenue, it sees a path to a sustainable business model. That’s because the studio’s profit margin has been 5.5 percent or more for the last three years, up from less than 0.5 percent in 2008, when Paramount released blockbusters like “Iron Man” and “Indiana Jones and the Kingdom of the Crystal Skull,” and was vying with Warner Brothers to be the box-office leader.

An article well worth your time.