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September 18, 2007
Paramount Pays $600m For 3 Yrs Of DreamWorks, But Can DW Find A Billion To Put Par In The Rear View?
A rather stunning 38 minute conversation with Viacom Philippe Dauman, Viacom, Inc. President & CEO, chatting at the Goldman Sachs 2007 Communacopia Conference. You would wonder, through most of the chat, whether Viacom will still be in the business of owning a full service movie studio in the years to come. The focus was almost completely on the ongoing efforts around the company’s cable divisions and not the movie business. And reasonably enough, Dauman has seemed to make real inroads in focusing and building those mature businesses with new, creative, and opportunistic ideas.
But what about Paramount?
The studio, aside from DreamWorks, has released six films this year that have grossed just over $185 million domestic… or in rentals (roughly $100m), less than the cost of just advertising those six films domestically.
On the DreamAmount side, $606 million domestic out of four films, plus $321 million domestic on Shrek The Third, which Paramount has no ownership on at all, generating distribution fees of about $32 million.
Dauman did not speak to (and was not asked) about DreamWorks until about 26 minutes into the conversation. DreamWorks, he said, “has served as a bridge for us… from a point in time where we need to build up our pipeline to the future. What did we acquire with Dreamworks? We acquired their library, which we modified to dramatically reduce our purchase price. We only had about $600 million into the deal. We filled in holes in our organization. We built up our international organization. By the way, international organization of Paramount has tremendous potential as we move forward, including distributing third party product. It brought us a slate of movies which represents the most successful year in DreamWorks history and happens to be under our ownership. And it brought us all the projects in development. And the sequel rights to all of the projects in the portfolio, including Transformers.”
“Steven and his team have the right to leave, if they choose, at the end of next year. At that point if there someone who steps in with a billion dollars, two billion dollars, stepping into the Paul Allen role of a decade ago, to start a movie studio from scratch, it’s a possibility. And we are planning for that.”
“The financial impact to Paramount first and especially to Viacom overall, would be completely immaterial if someone, in the event, somebody turns up to help them start a studio from scratch.”
The entire DreamWorks section of the conversation lasted about four minutes.
Equally odd... a discussion of whether Paramount will be able to renew their Showtime deal... you know, the one with the cable net also owned by Sumner Redstone. Oy.
And on the HD choice - “We felt that HD TV had lower price hardware. We felt it was important for us to commit to a platform. In our company, we always look to the consumer first. That would be another example of it.”
“We’re not married for life to anyone… I’m all about monetizing everything that we have as much as possible.”
(You can listen to the whole thing here)
Posted by poland at September 18, 2007 11:23 PM
Comments
“We felt that HD TV had lower price hardware. We felt it was important for us to commit to a platform. In our company, we always look to the consumer first.
Yeah . . . needlessly prolonging a useless format war is really looking out for the consumer. I'm sure it had nothing to do with the $$$$ the HD-DVD camp funneled in their direction.
Posted by: Krazy Eyes ![[TypeKey Profile Page]](http://www.mcnblogs.com/thehotblog/nav-commenters.gif)
at September 19, 2007 05:47 AM
I personally would just like to be able to say at some point in my life: "We only had about $600 million into the deal."
Posted by: TuckPendleton at September 19, 2007 10:55 AM
They are making the combo-players cheapers at least, but BLU-RAY will win. Paramount needed some extra cash and decided to take it. This is what happened. It would be nice if that guy could say; "Dave; look at our bottom-line. We could use this bonus they are giving us. WE BROKE DAVID! WE BROKE! WE NEED THE MONEY!" That would send the stock price through the roof!
Posted by: IOIOIOI at September 19, 2007 10:59 AM
Interesting. Also heartless, chilling and delusional.
In short, a smug rendering of the DreamWorks dream team as devolved into the role of vitamins for an ailing body that takes what it needs and pees out the rest.
Dauman finds sanction in the corporate church of Money as Motivator, more important than marriage, he says, backing up this credo by inflating the price (1-2 billion) while debasing the partnership - and the spirit of partnership.
So tell me, Dreamworks - isn't that boy in the clouds fishing for finer dreams?
Posted by: seenmyverite? at September 19, 2007 11:48 AM
Well, one interesting thing about it, seenmy, is that DreamWorks has a similar attitude.
The billion five has become like a muscular bridge loan, taking the heat off of DreamWorks. They were, indeed, drowning in the debt. The illusion, which Anne Thompson buys in her blog coverage, that DreamWorks success this year was just lucky timing because their development slate had matured is bizarre to me. The idea of it all being on multi-year cycles is sooooo five years ago. DreamWorks bought out the Stiller franchise - and its off-shoots with them - after Stacey landed. Same with Ferrell. And there was always going to be a Transformers partner, no matter what happened to DreamWorks, though I suspect that DW got a bigger piece after joining Par than they would have had they needed Par (or someone else) to take on a bigger part of the funding on paper.
The biggest undiscussed issue at this point is the 900 million float for the DreamWorks library, which is way over value. Something is going to have to happen on that in the next 18 months too, it seems. And someone is going to have to eat a few hundred million.
I don't actually foresee, as Dauman projects, SKG looking for money for a standalone studio ever again. They learned the lesson that a 2 billion studio is both too big and too small a business in this film economy. If they re-launch, you can be pretty sure they will make a play top buy an already functional studio. And really, wouldn't the most logical thing be for SKG to buy Paramount from Viacom, lay seriously delivery-driven distribution relationships with the Viacom TV brands into the deal, let those properties go over to Les Moonves, and move sanely into the future?
Posted by: David Poland at September 19, 2007 12:10 PM
DP - I like your idea re DreamWorks buying Paramount. Offense over defense. It's the sort of ballsy move I'd love to see them maneuver in the next 12 months.
With respect to Thompson (she has mine) - I would hope the last thing DreamWorks wants is a "safe harbor" like "Universal or Warners." It seems to epitomize that definition of insanity - doing the same thing over, hoping for a different result. And after all this, does Spielberg want to end up back at Universal? I hope their aim is higher and their pockets (much) deeper. I also agree that trying (again) to build a studio from scratch would be more insanity.
Re your idea - unfortunately, I can't imagine Viacom or Redstone going for it - their egos and pockets are too deep. And then there's the financial pomposity. What price tag would they put on it? How many Paul Allens would it take? How many to really make the break, pay them off and not be cuckolded by the head-splitting, lawyer-enriching negotiations over endless distribution & auxiliary rights, etc?
Seems to boil down to the deal and whether DWorks can still work with Para in any way, or if they need to cut bait. Three possibilities:
- DWorks makes a clean break with Para by leaving, treating the loss of distribution and auxiliary rights, etc, that Para will retain as a sunk cost of a mediocre affair gone bad.
- DWorks makes a clean break with Para by buying them out.
- DWorks remains a company within a company - but increases autonomy by taking over Para (Snider as CEO) while still under the Viacom roof.
The third seems both easy and gutless in its way. Dauman and Redstone pack such a sleazy one-two punch, that I hope DreamWorks gets the hell out of Dodge. I hope they find big backers and a structure that provides them with a truly independent home, where they can keep their artistic & financial freedom, their soul and their sanity. The current deal with Paramount ain't it.
Posted by: seenmyverite? at September 19, 2007 06:02 PM
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