*Cruise is out at Paramount

Paramount Pictures is ending its 14-year relationship with actor Tom Cruise, the Wall Street Journal is reporting tonight. Sumner Redstone, chairman of Viacom Inc., which owns Paramount, cited the actor's controversial and sometimes erratic behavior of the past year. "As much as we like him personally, we thought it was wrong to renew his deal," Redstone said in an interview with the Journal. "His recent conduct has not been acceptable to Paramount." Cruise, of course, has seen his popularity sour over, among other things, comments concerning his faith in the Church of Scientology and his over-the-top criticism of antidepressant drugs. There could be a bit more to the story - remember just a couple of weeks ago Paramount head Brad Grey said the studio was not in a position to renew the same contract with Cruise's production company after it expired last month. He was after some pretty big pay reductions. The studio is expected to just break even on the actor's latest movie, "Mission: Impossible III" - in part because Cruise took such a large cut. Cruise's people have a different story (what a surprise!) They say that the actor's production company had decided to set up an independent operation financed by two unidentified hedge funds. Where is Oprah when we need her?

*Backgrounder: Edward Jay Epstein offers a revealing look at Tom Cruise the entrepreneur in a 2005 Slate piece. He points out that Cruise got 22 percent of the gross revenues received by the studio on the theatrical release of "Mission Impossible."

The more radical part of the deal involved the video earnings (the deal was negotiated before DVDs became omnipresent). As videos became a cash cow for Hollywood in the 1970s, each studio employed a royalty system in which one of its divisions, the home-entertainment arm, would collect the total receipts from videos and pay another one of its divisions, the movie studio, a 20 percent royalty... The justification for this system was that, unlike other rights, such as television licenses, which require virtually no sales expenses, videos have to be manufactured, packaged, warehoused, distributed, and marketed. So, the home-entertainment arm keeps 80 percent of the proceeds to pay these costs. The stars, directors, writers, investors, actors, guilds, pension funds, and other gross participants get their share of just the 20 percent royalty...But not Cruise. He insisted on—and received—"100 percent accounting," which means that the studio, after deducting the out-of-pocket manufacturing and distribution expenses, paid Cruise his 22 percent share of the total receipts. As a result, Cruise earned more than $70 million on Mission: Impossible, and he opened the door for stars to become full partners with the studio in the so-called back-end.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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