It’s been a brutal few years for Paramount and its chairman Brad Grey.
Buffeted by a tortured relationship with an unwilling dance partner in DreamWorks, fighting a hostile industry rumor mill and shadowed by an endless court case with disgraced Hollywood detective Anthony Pellicano, the studio finally faces the summer of 2009 on calmer, and more stable ground.
“Star Trek,” the first of two summer tentpoles rolling out on Friday, gives Paramount the chance to relaunch a classic franchise that could produce steady blockbuster spinoffs for years to come.
The early signs are that J.J. Abrams has come up with a big-budget winner, successfully preserving enough to satisfy old-school Trekkies, while investing the story with enough depth of emotion to engage new viewers. Reviews called the film “cool” (Newsweek) and “exhilarating” (Rolling Stone), and tracking on the film is strong.
That will be followed in late June by “Transformers: Revenge of the Fallen,” a sequel to the blockbuster made in collaboration with DreamWorks, with director Michael Bay and star Shia LaBeouf back in action.
“We’re going to have the best year in our history,” crowed Viacom chief Sumner Redstone at a conference last week. “Paramount will take more market share.” (For the rest of Paramount's 2009 summer slate, see accompanying story.)
But that would be a notable feat, since the studio will be releasing fewer movies than last year’s 14, when it came in second among the majors, with 16.4 percent market share. (The studio also releases DreamWorks Animation and Marvel movies.)
Viacom’s earnings (NYSE: VIA-B) fell 34 percent in the 2009’s first quarter, with a loss of $123 million in the film division. And just as disturbing, operating income for Viacom’s filmed entertainment division has been in decline for two years running, with a shocking 75 percent drop in 2008, and dropping 22 percent in 2007. (See charts.)
The earnings loss came mainly because of slower international film sales, which are hampered (ironically) by a strong dollar, and because of marketing costs for DreamWorks Animation’s “Monsters vs. Aliens.” (Other studios are suffering too; Disney announced a 46% drop in profits.)
All that has been enough to spark a brutally worded "sell" recommendation from one stock analyst, Rich Greenfield at Pali Research.
“While we continue to believe Viacom’s assets are undervalued,” he wrote in an April 20 report, “we simply do not believe its management team is capable of closing the valuation gap, particularly given a pattern of poor decision-making, the lack of respect (Viacom President and CEO Philippe) Dauman has from his employees, peer media company managements and investors, as well as a board of directors that continues to excessively reward underperforming management.”
Greenfield also noted declining ratings and a 20 percent drop in revenues at MTV.
Viacom executives complained that Greenfield had made his criticisms personal in a fit of pique over not being invited to Paramount screenings.
But in an April 30 call with analysts, Dauman recognized that Paramount needed to improve the company’s bottom line performance.
