The numbers behind the industry.
Tom Cruise Inc.
The numbers behind his celebrity.
By Edward Jay Epstein
total "gawkerization" of Hollywood, entertaining
as it may be to the public (and journalists), blots out
much of the reality underlying the movie business. Witness,
for example, the treatment of Tom Cruise after People asked
on its Web site, on May 12, if his relationship with the
actress Katie Holmes represented "1. TRUE ROMANCE"
or "2. PUBLICITY STUNT." In this weekly pseudo-poll,
which makes no pretense of finding a random sample, and
in which subscribers with AOL's instant messaging can "vote"
as many times as they like (paying a charge each vote),
62 percent of an unknown number of respondents chose "publicity
this statistically meaningless result was sent out on the
PR wire, it spawned a frenzy of stories dangling the bizarre
idea that the romance had been faked to publicize, in Cruise's
case, Paramount's War of the Worlds and, in Holmes'
case, Warner Bros.' Batman Begins. Even after Cruise
appeared on Oprah professing his love for Holmes and later
announced that he and the actress were engaged, Frank Rich
proclaimed in the New York Times on June 19 that the affair
was nothing more than "a lavishly produced freak show,
designed to play out in real time," and that "the
Cruise-Holmes romance is proving less credible to Americans
in 2005 than a Martian invasion did to those of 1938."
only evidence he cited was the People "poll" taken
more than a month before the engagement announcement. What
is entirely lost in the fog of media gossip, however, is
the entrepreneurial role that Tom Cruise has carved out
for himself in the New Hollywood with the Mission: Impossible
franchise. When Paramount decided to reinvent its TV series
Mission: Impossible as a movie, Cruise not only
starred in it, but he (along with partner Paula Wagner)
produced it. In return for deferring his salary, he negotiated
a deal for himself almost without parallel in Hollywood.
begin with, he got 22 percent of the gross revenues received
by the studio on the theatrical release and the television
licensing. 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.
This royalty became the "gross" number that the
studios reported to their partners and participants. 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. If a star were entitled
to 10 percent of the video gross, he would get 10 percent
of the royalty, which is only one-fifth of the real gross.
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
2000, the profits from DVDs had begun to alter Hollywood's
profit landscape, and since it was now too complicated to
track all the expenses, Cruise revised the deal with Paramount.
His cut of the gross was increased to 30 percent, and, for
purposes of calculating his share of the DVDs, the royalty
was doubled to 40 percent. So, he would get 12 percent of
the total video/DVD receipts with no expenses deducted by
Paramount (technically). If Mission: Impossible sold $320
million worth of DVDs and videos (which it did), Cruise's
cut would be $38.4 million. In return for this amazing
deal, Cruise agreed to pay the only other gross participant,
the director John Woo, out of his share. As with Mission:
Impossible, Cruise's company produced the film, and
Cruise, who proved to be a relentlessly focused producer,
brought Mission: Impossible II in on budget. The movie went
on to be an even bigger success than the original, earning
more than a half-billion dollars at the box office and selling
over 20 million DVDs. Cruise's share amounted to $92 million—and
he was now the key element in Paramount's most profitable
light of such a success, Mission: Impossible III
was a foregone conclusion, and Paramount agreed on the same
deal with Cruise. For Paramount, the economics were irresistible.
According to an internal analysis by Paramount, each DVD,
which retails for about $15 wholesale, costs the company
only $4.10 to manufacture, distribute, and market. Another
45 cents goes for residuals payments to the guilds, unions,
and pension plans, leaving the studio with slightly over
$10. So, even after giving Cruise his cut of $1.80 per DVD,
Paramount stood to make more than $8 per unit.
By 2004, DVDs were bringing into the studios' coffers more
than twice as much money as movies (click here for the actual
numbers), and there was every reason to assume that Mission:
Impossible III would sell more DVDs than its predecessor.
By June of 2004, Paramount had arranged a German tax shelter
that would supply $12 million and an equity inventor, Melrose
Partners, that would put up to 20 percent of the budget.
They had also leased space at Babelsberg Film Studios in
Berlin. At this point, however, director Joe Carnahan withdrew
for "creative reasons," and the movie had to be
put on hold while an acceptable replacement was found, script
changes were made, and a new budget was developed. In the
interim, at Paramount's urging, Cruise signed on for another
Paramount movie, The War of the Worlds. Meanwhile,
the budget of Mission: Impossible III had increased to $180
million, and, in what is almost a ritual in Hollywood these
days, the new Paramount studio chief, Brad Grey, asked for
a renegotiation. He decided he could safely confront and
play "hardball" with Tom Cruise, as the game was
described by another Viacom executive, because Cruise and
Paula Wagner had already signaled that they were willing
to shave costs to get the project in production.
the dust had cleared, Cruise still had his huge percentage
of the gross—it actually had improved since there
were now no other gross participants—and MI3 will
begin shooting next month on a budget that everyone believes
is manageable. Paramount, despite its bluster, needs Tom
Cruise, who stands—along with George Lucas, Steven
Spielberg, and Jerry Bruckheimer—as one of the handful
of producers who can reliably deliver a billion-dollar franchise—and,
without one, Paramount's fortunes are dismal. So, while
Cruise, for better or worse, emerges as one of the most
powerful—and richest—forces in Hollywood, the
media remain totally fixated on the fact that he's a Scientologist
and the anachronistic notion that he is fabricating his
love life, like Gene Kelly in Singin' in the Rain,
just to get publicity for himself and to fool the press.