Until the 1950s, Hollywood was controlled by seven major movie studios. More importantly, it was controlled by magnates, all of them men of Eastern European descent, who ruled the studio in the same way that the kings of their previous countries ruled the peasants. Creative control belonged to the tycoon, while money was always controlled by New York bankers, the so-called “Suits.”
This alignment of power began with the beginning of Hollywood before 1920 and continued for more than 40 years. What kept it intact was the caste system, by which stars were controlled by individual studies. They were paid annually and had no say in the movies in which they would appear. In essence, they were slaves to the system, not unlike how baseball players were treated until the Supreme Court banned captive players for their entire careers.
Hollywood’s caste system began to break down in the 1950s, when Kirk Douglas, Michael Douglas’s father, became independent and formed one of the first independent film companies named Bryna, for her mother. They produced the “Vikings”, “Spartacus” and “Seven Days of May”. The so-called Studio system was now dead. Power passed to the individual actors, who became BRANDS in their own right.
Two developments began in the 1960s. Hollywood studios would be taken over by corporations and then repurchased by giant multinational corporations seeking global influence. The second event was that the stars began to exercise their power. Giant multinationals like Sony, Newscorp and Viacom hated the fact that the stars had so much power. In the last ten years, A-list actors like Tom Cruise, Johnny Depp and Robert Redford have started taking profit shares, which the studios only gave grudgingly.
It didn’t matter at first because Hollywood’s accounting is such that somehow the studios could always show losses on film. The stars realized that very quickly and began to participate in the tickets, a percentage of the ticket when the spectators bought their tickets. In my 35 years on Wall Street, I have participated in the financing of many films and I have to tell you that nobody ever made money from the backend. No matter how big the movie is, somehow the movie always loses money when it comes to backend holdings.
We have now reached a point where the giant multinationals that control the world’s media are fed up with what they are enduring on behalf of the brand’s stars. Mel Gibson, as you know, has gotten into trouble on the West Coast with his drinking and alleged anti-Semitic remarks that have prompted Disney to cancel a Holocaust series with Gibson’s production company.
Now Tom Cruise has had a fight with Sumner Redstone and Viacom. Publicly, Redstone has stated that he doesn’t like some of Cruise’s actions in the past year. This makes no sense. Normally, when a studio breaks with a star, there is no public statement. No giving is required, and they just separate. This is more personal.
Viacom is rumored to have offered Cruise a $ 2 million production contract, down from the $ 4 million in the previous contract, plus a $ 6 million fund for the development of film projects. Here’s the real deal. Tom Cruise made “Mission Impossible III” for Viacom, the film grossing nearly $ 400 million worldwide. Cruise had negotiated 25% of Viacom’s gross revenue for the film as a fee.
Is that how it works. The movie makes $ 400 million. Cinemas get half and Viacom half, that is, 200 million dollars each. Cruise gets 25% of Viacom’s half, that’s $ 50 million. In the end, Viacom gets $ 150 million and Cruise gets $ 50 million. Sounds great for Viacom, right? Not really, Viacom should pay for the movie that had to be $ 150 million plus advertising. Viacom gets zero and Cruise still gets $ 50 million. That’s why Viacom’s Sumner Redstone is upset and Cruise is sitting on top of the world.
In the end, Redstone will laugh one last time, why do you ask? There is still Hollywood accounting to deal with. Remember that all the original Hollywood studios were sold into the hands of multinational corporations (MNCs). Do you really think that the multinationals bought the studios for the theater money? Absolutely not. Actually, movie ticket sales account for a third of a movie’s profit power. Viacom can lose money on a movie and still make a fortune on it.