Is United Artists on Cruise Control?


The new production deal makes it sound as if Tom Cruise is in charge, but CEO Harry Sloan is the real star

Hollywood loves a good story. And it sure as heck loves publicity. Look at all the hubbub about how Tom Cruise and his production partner Paula Wagner are giving new life to the venerable United Artists studio. Sure, there is some "there" there—Wagner will be CEO and UA will once more have its name on pictures—but there's also a lot of spin.

Look a little closer at the press release—this is a private company so there are precious few other clues to go by—and you start to see just how vague it is. The studio, founded by Hollywood pioneers Mary Pickford, Charlie Chaplin, Douglas Fairbanks, and others, will produce four films a year, a number "which may increase in the future."

Newcomers Cruise and Wagner will be in "control of setting the company's production slate" with the ability to greenlight films "subject to certain parameters." As for where the money would come from, MGM said production of the UA movies would be "fully financed by MGM and its partners."

The Bottom Line

MGM's publicity machine deserves a bonus for the artful language. Reading between the lines, here's what you've got: Tom Cruise, who has no official title with the new company, will own a piece of it and will likely star in some UA films but (as the press release also says) he is free to go to other studios to make his films. MGM has to find partners to help it finance the films, meaning that it doesn't want to take on too much financial risk for a star whose appeal is somewhat in question.

So what's the bottom line? MGM Chief Executive Harry Sloan, who is fast emerging as one of Hollywood's shrewdest dealmakers, has struck a deal that once more puts long-forgotten MGM on everyone's lips. And MGM's notion that it is ready to pay for the films Wagner and Cruise will make for UA? That's really all about using the visibility to bring investors out of the woodwork.

It's Hollywood's latest game—hold out your hands as cash-flooded private-equity investors back up their trucks to help finance movies. NBC Universal (GE), Walt Disney (DIS), and Paramount Pictures (VIA) all have taken partners who put up hefty amounts of money to take the risk out of making flicks. Now MGM has a place at the trough, thanks to the spotlight MGM's Sloan has just put on Tom Cruise.

A High-Price Cruise

The fact is that no studio in its right mind would be banking on Tom Cruise with its own money right now. Despite the toothy grin and the wall-to-wall People, US, and tabloid covers leading up to his marriage to Katie Holmes, Tom Cruise is a shadow of his megastar self. Gone are the days when Cruise, now 44, could charm his way to huge box-office hits, such as 1996's Jerry Maguire or 1993's The Firm.

And making a Tom Cruise movie today costs big bucks. It requires hot special effects (Mission Impossible), a major league director (Steven Spielberg, War of the Worlds), or a really bankable co-star (Jamie Foxx, Collateral). All of that adds up. The average budget for Cruise's last five films was $118 million, which even in Hollywood is a lot of money. Never mind the huge amounts spent to promote a movie with the fanfare that a Cruise production requires.

Now all of this would be just fine if Cruise still had it. But numbers don't lie. As the costs for making a Tom Cruise film have climbed, box-office receipts have gone in the other direction. Mission Impossible III grossed $133 million at the box office while Mission Impossible II grossed $215 million—even though ticket prices had skyrocketed in the six years between the two flicks.

Cruise still sells well out of the country— 66% of Mission Impossible III's $396 million worldwide box office came from overseas, according to BoxOfficeMojo.com, but there's no certainty that will continue.

Negative Publicity

Little wonder then that Sumner Redstone blew his stack and sent Cruise and Wagner packing from Paramount this summer, ending a sometimes rocky 14-year marriage. Cruise's antics—his couch gymnastics on Oprah or staring down Matt Lauer over postpartum depression—further dented box-office appeal already in decline.

Paramount barely broke even on Mission Impossible III, according to Hollywood sources, while Cruise— who still gets the best deal in town— walked away with an estimated $75 million for his part as an actor and producer of the film.

Would MGM love to have a Tom Cruise hit on its hands? Sure. But Sloan would just as soon do it on someone else's dime, taking out the risk and allowing MGM to collect the 15% or so distribution fee that a studio traditionally gets. That's the game plan that Sloan, a long-time TV studio executive, brought to the private-equity funds who control the majority of MGM.

Investors' Heft

Under the Sloan scenario, MGM would provide the distribution infrastructure for its flicks, with someone else paying the far riskier freight of producing the film. That's why Sloan and MGM President Rick Sands signed on Harvey and Bob Weinstein earlier this year to distribute their flicks.

MGM tells BusinessWeek.com that it's committed to financing the new Cruise-Wagner films at UA "if private money is not available" and that there are "strong incentives" for Cruise to star in some of those films because "he owns the company." No doubt.

But Sloan has private-equity investors such as Providence and Texas Pacific who aren't likely to allow the MGM chairman to fund too many of those chancy little films. (Through their publicist, Cruise and Wagner did not comment.)

So Tom Cruise is likely to be the star in the new MGM story, which is essentially a remake of how Hollywood used to live—having other people take the risk while the studios take the money. Credit Harry Sloan for ordering up the new the script, and for signing Tom Cruise to sell it.


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