Down, not out

Studio chiefs don’t usually apologize. But on a recent morning, Paramount Motion Picture Group Chairman Sherry Lansing stood in front of 15 top talent agents in a conference room at the Creative Artists Agency, saying the studio had to mend its ways. “I don’t want to play it safe,” Lansing told the assembled CAA staff. “I want to change the tide.”

The usually buoyant Lansing was surprisingly contrite. It’s rare a mogul of her status would actually visit an agency and rarer still that she would admit that the studio’s heralded movie-making philosophy needed an overhaul.

Throughout the 1990s, Paramount was Hollywood’s most stable studio, flourishing under a philosophy intended to eliminate risk from the movies. But according to interviews with more than three dozen agents, producers and executives, that very idea has, in the span of a mere 18 months, turned Paramount into a shadow of its former self.

The studio is ablaze in Christmas lights, but the mood on the lot these days is hardly festive. Not only is the studio riding a string of bombs, including such tired fare as the $80-million “Timeline” and “Beyond Borders” (which grossed only $4.4 million, worse even than Sony’s “Gigli”), but it’s also operating without either a marketing or production chief, both of whom left their jobs in the last few weeks. Earnings for parent Viacom Inc.’s entertainment unit, of which Paramount is the mainstay, have plummeted 32% in the last nine months, by far the worst drop of any of Viacom’s six divisions, and Paramount’s box-office market share trails all the major studios except for perennial also-ran MGM.

The 59-year-old Lansing, the first woman to run a studio and one of the few chiefs to have actually produced movies, vows she’s not leaving. “I view this is as an opportunity to change in a positive way,” she says. Since Thanksgiving, she has been meeting with candidates for Paramount’s open executive jobs and beating the pavement to convince the creative community that Paramount is moving away from its bean-counting zeal and is interested in making risky movies rather than risk-minimizing deals.

If she can do it, it will be the Hollywood comeback story of 2004.

Strategy backfires

Every studio suffers cold spells, but Paramount’s troubles can be seen as a parable of how an obsession with the bottom line in a creative business can ultimately backfire.

Few in Hollywood have ever waxed as romantically about deals as Lansing’s boss, Viacom Entertainment Group Chairman Jonathan Dolgen. One agent recalls that a few days before “Star Trek: Nemesis” debuted in late 2002, Dolgen said he was proud of the film. “Why?” the agent asked. “Because it only cost $65 million,” Dolgen replied. Dolgen doesn’t deny the story. But the “Star Trek” film was widely panned and performed so poorly it killed off the once-lucrative franchise, a part of Paramount’s film slate since 1979.

Over the last few years, while other studios gambled with pricey (and ultimately hugely profitable) franchises such as “Spider-Man” and “The Lord of the Rings,” Paramount played it much safer. The studio was content to make money hitting doubles and singles, hoping for the occasional triple. Its hits included Ashley Judd girl-in-danger movies like “Double Jeopardy” and “Kiss the Girls” as well as modestly budgeted comedies like “How to Lose a Guy in 10 Days” and “School of Rock.”

Sometimes, Paramount settled for cheap knockoffs of bigger movies made by its counterparts. Instead of making “Armageddon,” Paramount made “The Core,” and rather than splurge on Adam Sandler, it made David Spade’s “Dickie Roberts: Former Child Star.” Both films were quickly forgotten.

Dolgen preached rigid fiscal austerity. At the center of his philosophy was finding financial partners to underwrite the costs of almost all of Paramount’s movies. At first derided by the other studios, it’s a practice now common in Hollywood.

Paramount has boasted that it has never made movies where it paid out more than $90 million (in a world where “The Last Samurai,” for instance, costs $140 million). With the exception of Tom Cruise’s deal on the “Mission: Impossible” films, the studio also shied away from sharing more than 25% of a film’s profits with talent.

These days in Hollywood that makes it difficult to hire top-notch actors and directors, some of whom can command more than 30% of the combined gross. The studio was also reluctant to hire emerging filmmakers; over the last three years, only two of its films were made by first-time directors. Whoever Paramount did hire was subjected to the studio’s notorious brass-knuckles negotiating style, which often involved asking principals to slash their fees and production budgets on the eve of production.

That risk-aversion strategy also dimmed Paramount’s creative vision, numerous executives, producers and agents say. “What should drive the movie strategy are the movies themselves and the people making them, not just complex financial deals that discount creative vision,” says Jeff Berg, the chairman of International Creative Management, a leading talent agency.

While the cost-sharing strategy certainly protects Paramount’s pocketbook, films in which they have little money at risk still eat up a huge amount of marketing and production resources. Limited downside also means limited upside. Most of the studios like to keep their tent pole franchises all for themselves, including the millions in merchandising profits. Warner Bros., for instance, owns all of the “Harry Potter” movie series.

When its Nickelodeon Movies unit acquired rights to “Lemony Snicket: A Series of Unfortunate Events,” Paramount saw in the children’s book a chance to launch a “Harry Potter”-like franchise. But as has happened repeatedly to Paramount in recent years, the project was derailed by last-minute budget battles that nearly cost the studio its relationship with its most respected producer, Scott Rudin.

Rudin spent a year working on a “Lemony Snicket” screenplay with director Barry Sonnenfeld (“Men in Black”) and hired Jim Carrey to star. Just as carpenters began building the film’s sets, however, the deal became unglued as Paramount asked that the filmmakers cut their already reduced fees further and to trim $10 million from the film’s $95-million budget. Rudin walked off the project. Sonnenfeld was fired, and the studio sold off half of the “Lemony Snicket” franchise to DreamWorks. Ironically, the budget now stands at at least $140 million.

Studio chiefs’ stature

In Hollywood’s golden years, movie studios were stand-alone empires and their bosses were kings. Now studios are but one business unit in vertically integrated conglomerates, and studio chiefs are middle managers, if they are remembered at all.

About a year ago, Viacom President Mel Karmazin laid out his vision of the company for a group of financial analysts. He did not mention Paramount until asked about the studio in a question-and-answer session. According to one attendee, Karmazin was dismissive, saying Paramount at the time “was not a growth business.” Karmazin was not available for comment.

Dolgen says that movie-making can in fact generate increased profits and that over the last decade, two-thirds of Paramount’s movies have been profitable. He insists the studio has enough money to be competitive. “We’re sitting here with plenty of money to make money,” he says. “In 10 years, they’ve never asked us to limit our spending.”

All the same, Paramount’s parsimony has crippled its specialty film division. Every studio now has its own such unit, but Paramount’s is considered lackluster, in part because it doesn’t have any money to bid on films, let alone make them.

In fact, Paramount could stock an entire art-house division with movies its own producers took elsewhere, such as David O. Russell’s “I Heart Huckabee’s,” and Kenneth Lonergan’s coming movie -- both produced by Rudin -- or the well-received “Shattered Glass,” produced by Cruise’s company. The studio wanted to make Alexander Payne’s “Sideways,” but the filmmaker, who rose to stardom with Paramount’s “Election,” said he had no confidence in the studio’s ability to market the film; it is being made by Fox Searchlight.

Bleak premiere

Movie premieres are supposed to be cause for merriment, but the November party marking the opening of “Timeline” was so grim even Paramount’s own executives couldn’t put on a good face as the audience openly laughed at the film’s unintentionally funny dialogue.

At the reception at the Armand Hammer Museum after the screening, one agent offered a Paramount executive the ritualistic congratulations. “For what?” the executive replied.

It’s the kind of awkward scene that Lansing, who basked in the glow of “Titanic,” the highest-grossing movie ever made, doesn’t want to repeat. She’s been personally negotiating talent deals but wants to hire a production chief who will not simply rubber-stamp her ideas. “I am determined to fix this,” she says. “If you look to the future, you can already see some fixes coming.”

In recent days, Paramount has agreed to make “The Few,” a big-budget World War II drama starring Cruise and directed by Michael Mann (“The Insider”). The studio also bought a chancy “American Beauty”-type drama, “The Weather Man,” for actor Nicolas Cage and “Pirates of the Caribbean” director Gore Verbinksi.

Even Viacom Chief Executive Sumner Redstone says the studio “will take more chances. If they have a script they love that requires $125 million, I expect they will make it.”

Agents who do business with the studio like what they are hearing and seeing. “She [Lansing] is hungry again, the way she was when she was a producer,” says Bryan Lourd, a CAA partner. “No one should count her out.”

“Lemony Snicket” producer Rudin says he has reconciled with the studio and is making two of its most important movies for next year, a remake of “The Manchurian Candidate” with Denzel Washington and the dark comedy “The Stepford Wives” with Nicole Kidman.

“Sherry at her best is as good at picking movies as anybody in the movie business has been, but there has been a lot of distraction in the last few years that have taken her away from that,” says Rudin, the maker of its Oscar-winning “The Hours.”

“I’ve missed her day to day as a presence as my partner on the pictures we’ve made together. She has been great in the job. There’s no reason to think she can’t be great in the job again.”