Case 1

For months starting in the fall of 1993, two media titans, Sumner M Redstone and Barry
Diller, fought each other for what was then the entertainment industry's ultimate prize:
Paramount Pictures, the 62-acre studio behind classic films like The
Godfather and Chinatown and contemporary blockbusters like Top Gun and Beverly
Hills Cop.

The home entertainment boom was showering Hollywood with cash. But Paramount was
more than a money machine. Legacy studios like Paramount — founded in the 1910s,
operating sumptuous soundstage complexes and controlling vast film libraries — rarely
came up for sale. Owning one made you a permanent power player, a certified member of
the cultural elite.

With a bid of $9.75 billion, or $17 billion in today’s money, Redstone’s Viacom took the
spoils. “Don’t tell me I don’t buy you anything for your birthday,” he told his then-wife,
Phyllis, as they celebrated with lawyers at the 21 Club in New York.

Flash forward 25 years, and Paramount once again finds itself at the center of a battle. Only
this time the historic studio is not the belle of the Hollywood ball, not even remotely. Today,
Paramount is fighting for its very existence.

Almost slapstick mismanagement by Viacom — cleaving off a lucrative TV business, firing

the horror maestro Jason Blum, missing the opportunity to buy Marvel Entertainment,
describing Steven Spielberg as “completely immaterial” — has left Paramount on life
support. The studio racked up nearly $900 million in losses between 2016 and 2018. It has
placed last at the domestic box office for seven years running. The 29-soundstage
Paramount lot is long overdue for improvements; $700 million in upgrades, unveiled in
2011, have yet to happen.

Paramount, along with the rest of Hollywood, is also colliding with Silicon Valley. Netflix,
which occupies a rented office tower six blocks from Paramount headquarters, has been
swallowing the entertainment business whole. This year, the streaming service will pump
out about 90 movies, including documentaries. To compare, the five conventional studios
left standing — Paramount, Universal, Sony, Disney and Warner Bros — will make about
that many combined. Paramount is set to contribute 13. The old-line film business is only
going to become tougher as streaming services proliferate. Apple intends to roll out its
multibillion-dollar TV and movie offering in the months ahead. Facebook has recently gotten
serious about marketing its Watch video-on-demand platform.

Scrambling to keep pace, entertainment companies like Disney and Warner Media have
bulked up — Disney with its $71.3 billion purchase of 21st Century Fox assets and Warner
by selling itself to AT&T for $85.4 billion — and plan to introduce their own megawatt
streaming services by the end of the year.

Next to those supertankers, Viacom is the corporate equivalent of a canoe.

All of which has agents, directors, writers and producers confronting uncomfortable
questions. Can Paramount — the studio that, more than any other, symbolises Hollywood
itself — find a path forward as a stand-alone studio? Or, as they did at Fox, could its end
credits roll?

“I knew it was challenged,” said Jim Gianopulos, a veteran film executive who took over as
Paramount’s chairman in 2017 and is leading a resuscitation effort. “I didn’t know how
much.”

“Suddenly people’s eyes light up. Yours just did.”

Stroll around the Paramount lot, as we did one afternoon late last year, and you’ll see a
frenzy of activity. Fleets of forklifts carry newly fabricated sets from the in-house
woodworking mill. Gardeners tend the hibiscus hedges. Electricians hang lights. Production
staffers whiz around on golf carts. At a glance, Paramount seems every bit as vibrant as it
was when Redstone took over in 1994.

But the bustle is mostly an illusion. Few movies are shot in Los Angeles anymore, by
Paramount or any studio. Of the 100 top-grossing films in 2017, only 10 were shot in
California, according to Film LA, which tracks production. It’s cheaper to make movies in
states like New Mexico and Georgia, which offer fat subsidies. TV series are still taped on
studio lots, but Redstone chopped his business empire into two pieces in 2005, and
Paramount’s entire small-screen division went to the CBS Corporation.

Paramount in many ways has become a glorified rental property. HBO leases Stage 17
for Barry, a comedy about a hit man who wants to change professions. The weepy This Is
Us, a Fox production that airs on NBC, sprawls across three stages. Sony and Amazon rent
other Paramount stages.

“The decision to move all of Paramount TV really crippled Paramount Studios,” said Frank J
Biondi Jr, who ran Viacom from 1987 to 1996.

Along with filling stages, TV production provides studios with a stable revenue stream —
something to fall back on when big-budget films bomb, as some inevitably do. TV has also
been Hollywood’s growth engine over the last decade. At least 495 original scripted
programs aired in 2018, up from 288 in 2012, the result of new buyers like Netflix and Hulu.

To pull Paramount back from the brink, Gianopulos and a new lieutenant, Nicole Clemens,
are rebuilding the studio’s TV operation. Paramount restarted television production in 2013
and now has nine series running, including The Alienist on TNT and Jack Ryan on Amazon
Prime. Gianopulos said he hoped to have 20 series in production by the end of the year.
Viacom said Paramount Television generated $400 million in revenue last year; Gianopulos
said the division’s profit was on track to double this year compared with 2018. With the
pressure on her to deliver, Clemens was still zealously working at 6 pm on a recent Friday.
As we waited outside her office door, two assistants dialed phones as if their lives
depended on it.
Clemens eventually came out from behind her desk. “Oh, this is calm,” she said. “You
should have seen us earlier.”

As important as TV is to Paramount’s financial future, Gianopulos said movies would always

be the company’s anchor. To that end, in September 2017 he hired one of Hollywood’s top
producers, Wyck Godfrey, whose resume includes the Twilight blockbusters, as president of
the film division. Supporting Godfrey are new marketing, publicity and animation chiefs.

“It sounds trite, but you are only as good as your team,” Gianopulos said. “And all of the key
people that I have brought in are accomplished, experienced executives.” He added of the
new hires, perhaps commenting indirectly on hotheads who have left the studio: “None of
them are screamers. None of them are hyperbolic. They’re all grown-ups. They’re all
collaborative.” Godfrey had experienced Paramount's dysfunction firsthand as a producer.
In 2016, the studio abruptly pulled the plug on one of his projects, a movie adaptation of
John Green’s novel Looking for Alaska, amid a casting dispute.

“From my outsider's perspective, this place had become very fear-based, and so my first job
was to try and change that,” Godfrey said. “I've said to anyone who will listen, ‘We are going
to start taking real chances on things we believe in.’ I will take the responsibility, the heat,
when we miss, which is inevitable. But just go for it.

“We have to make more movies and also movies that stand the test of time,” he continued.
“We have no choice. It’s the only way.” Paramount hopes to make 17 movies in 2020.
Godfrey's coming film lineup emphasizes big-budget, global-audience movies, known in
Hollywood as tentpoles. A long-gestating Top Gun sequel is finally happening. Godfrey is
working to breathe life into the tired Teenage Mutant Ninja Turtles Terminator, Star
Trek and G I Joe franchises. Paramount also has high hopes for films tied to Viacom’s cable
networks, including Dora the Explorer, a live-action, big-screen adaptation of the
Nickelodeon cartoon.

Whatever its box-office viability, though, such fare doesn’t quite scream “stand the test of
time.”

But Godfrey insisted otherwise. Imagine, for instance, Paramount giving Star
Trek to Quentin Tarantino. “Suddenly people’s eyes light up,” Godfrey said. “Yours just did.”

He also pointed out that "Mission: Impossible — Fallout," released by Paramount in August,
had proved naysayers wrong. That film, the sixth chapter in a 23-year-old series, received
euphoric reviews and generated $791 million in global ticket sales, 16 percent more than its
franchise predecessor. Two more "Mission: Impossible" installments starring Tom Cruise
are moving ahead.

Fallout and another unexpected hit from last spring, A Quiet Place, helped Paramount post
an operating loss of $39 million for 2018, compared with a loss of $280 million a year
earlier. To compare, the industry leading Walt Disney Studios had 2018 profit of $2.98
billion, up from $2.36 billion.
More recent Paramount movies have delivered mixed results. Bumblebee, a well-
reviewed Transformers prequel, has taken in roughly $370 million, a respectable number if
not exactly a breakout hit. A pair of fall comedies, Nobody’s Fool and Instant Family, fizzled
at the box office.

Gianopulos said a turnaround was still early. He expects the studio to return to profitability
this year. “In a four-quarter game,” he said, “we’re halfway through the second quarter.”
“You see the studio eating itself” Ask Hollywood’s power brokers how Paramount went from
prestige to debris and they will say they don't want to speak ill of the dead. And then they
will proceed, at length and with great verve, to speak ill of the dead.

Gianopulos’s predecessor, Brad Grey, who led the studio for 12 years, resigned under
pressure in February 2017. He died from cancer three months later, stunning the movie
capital. Almost no one knew he was sick.

Looking back, there were signals. Toward the end of his run, Grey was rarely seen at
Paramount. A rumor took hold, calcifying into legend, that his chauffeur would drive the car
onto the lot and park — so it would look as if Grey were somewhere on the premises — and
then take a taxi home. The studio’s vice-chairman, Rob Moore, was also frequently away.
He spent a lot of time in China, where he worked on an unconsummated deal to sell a
minority stake in the studio. He was also dating a Chinese TV host.

An absentee overlord may have contributed to the studio’s decline, but the decay can be
traced to Redstone’s battle with Diller in 1993. Redstone, viewed by Hollywood as cocksure
and uncouth, wanted to acquire Paramount to prove that he’d made it — that he belonged.
That he was more than his cable business of VH1, Nickelodeon and MTV, a media
company that the real bigwigs called The House That Beavis and Butt-Head Built.

Diller also had emotional ties to Paramount; he had run the studio from 1974 to 1984,
finding hits like Grease, Raiders of the Lost Ark and Beverly Hills Cop. But Diller had visions
of using Paramount to push Hollywood into a new era: that a budding “information
superhighway” called the internet might someday run through the studio, bringing movies
and TV shows directly to computers. In other words, Netflix.

Redstone, who ended up acquiring Blockbuster (yes, that Blockbuster) to get the deal done,
and his lawyers, made fun of Diller’s interest in the internet. They ribbed him for bringing a
computer — one of Apple’s early brick laptops — into the negotiating room. The joke, it
turned out, was on Redstone, whose Viacom would miss internet opportunities at nearly
every turn over the next 25 years. Diller went on to found IAC, a thriving collection of web
businesses.

Other shortsighted decisions by Redstone and his cronies — rooted in hubris and old-
fashioned greed — dragged Paramount down. Longtime entertainment executives likened
the studio’s mismanagement under Grey and his boss, Philippe P. Dauman, who ran
Viacom from 2006 to 2016, to an old horror movie. Perhaps Invasion of the Body Snatchers.

“You have this aching sensation in your belly when you see the studio eating itself,” said
Jonathan L Dolgen, chairman of Paramount in the 1990s.
The real debacle started in 2005. To fortify Paramount’s slate, the studio bought
DreamWorks SKG, bringing Steven Spielberg, Jeffrey Katzenberg and David Geffen into
the fold. But the alliance quickly became a clash of personalities. At one point, Dauman told
investors that Spielberg — the most powerful director in Hollywood then and now — was, in
effect, “completely immaterial” to the company’s earnings. Geffen pried DreamWorks loose
from Paramount and Viacom in 2008.