Here are some further thoughts on the Cruise-Paramount split (Part 1). This post takes to look at Tom Cruise as a business by comparing the profitability of his two most recent films.
Cruise’s last film prior to Mission: Impossible 3, (MI3) was War of the Worlds (WOTW) which grossed $594 million worldwide. MI3 grossed $393 million. According to BoxOfficeMojo.com, WOTW had a production cost of $132 million and MI3 had a production cost of $150 million. It is probably safe to assume that marketing expenditures on both films were similar and recent press reports use a figure of $100 million for MI3. Press reports also indicate that Cruise’s production company had a deal with Paramount giving it 10%-20% of the worldwide box office gross before theatre splits. A good rule of thumb for DVD revenue is 1 times the domestic box office. For WOTW, domestic box office was $234 million, while MI3 pulled in $132 million. Another good rule of thumb is that TV rights are sold for 35% of domestic box office.
Let’s look at the theoretical profits on each film assuming Cruise gets a 15% cut of the gross:
On WOTW, Cruise’s production company would have pulled in $90 million. Paramount’s take of the box office would be 55% of $594 million, or $327 million. Steven Spielberg directed WOTW and it is probalby fair to assume that he had a similar gross participation deal to Crusie. Subtract Cruise adn Spielberg’s takes, and Paramount is left with $146 million, leading to a loss of $85 million on the theatrical run against production and marketing costs of $232 million. DVD revenue of $234 million could have had an operating margin to Paramount as high as 60% (Paramount’s DVD costs likely included a participation for Cruise adn Spielberg). That is $140 million in operating profits to Paramount from home video. TV rights including domestic network, domestic cable, domestic pay TV and all international is another $80 million to Paramount at a margin that could be as high 80%. Add another $65 million in operating profits to Paramount. So before merchandise sales, on WOTW, Paramount might have had an operating profit of $120 million against production and marketing investment of $232 million. Not too bad.
On MI3, the numbers aren’t quite so good for Paramount but are still pretty darn good for Cruise. 15% of worldwide box office brings Cruise and his production company $59 million. Paramount’s take of the $393 million box office is $216 million. Deduct Cruise’s cut and Paramount is left with a loss of $93 million on the theatrical run after production and marketing costs of $250 million (I’ve read on a usually reliable blog it could be as high as $280 million). Since the DVD market has weakened considerably over the past year and MI3 wasn’t a smash hit, let’s say DVD revenue is 80% of domestic box office at a 50% margin reflecting higher marketing and distribution costs. That still leaves around $50 million in profits from the home video window for Paramount. Again, let’s adjust TV rights downward to account for the lower popularity of MI3, say 25% of domestic box office still at an 80% margin. That is another $25 million in profits to Paramount. So all in, MI3 will probably lose $10 million or $20 million, maybe as much as $50 million if the production budget really was as high as $180 million.
Now let’s turn to negotiations over Cruise’s new deal….

Paramount figures Cruise is broken goods, suffering a permanent lowering of his appeal. They baseline the MI3 results and decide to take a hard line in negotiations on a new deal. Cruise is insulted and has advisors whispering in his ear that hedge funds will pony up $100 million if he self produces. Despite his bad press, in Hollywood Cruise is known as a hard worker when it comes to promoting his films, even if he is increasingly difficult to work with on the set because of his religious beliefs and star treatment requirements.
What makes the most sense for all concerned? Cruise and Paramount go their separate ways. Cruise banks on his enduring popularity and gains a greater degree of control. Redstone spouts off about how Cruise’s erratic behavior reflects poorly on Paramount and Viacom (VIA). Redstone has an excuse if Cruise hangs his shingle with another studio and produces a few more $500 million plus global blockbusters. Everything works out fine for all concerned.
Except that if I were a Viacom shareholder, I’d sure be hoping that Sumner is right about Cruise’s future. Cruise was the only bankable star on the Paramount lot prior to the arrival of Spielberg, Dreamworks and Brad Pitt. Pitt has brought in $1.4 billion domestically on 22 pictures, or $64 million per film. Cruise has brought in $2.7 billion on 27 films, or $100 million per picture. Spielberg has brought in $3.4 billion on 23 pictures, or $150 million per film. Sumner thinks Cruise has peaked but since 1998 Cruise has grossed $1.3 billion, while Spielberg and Pitt have each grossed $700 million.