Cruise's deal at Paramount was on very good terms for him, which means it was expensive for the studio—more than $10 million a year. Cruise's representatives say that Paramount made an offer to Cruise to keep his production company on Paramount's lot, but the offer was significantly less money than the Cruise's company had been receiving, so they decided to shop around for private financing. This is not unusual: the Hollywood studios have been slashing costs recently, especially payments to big stars such as Cruise. A slowing of growth in DVD sales has certainly contributed to this trend.
[T]his parting of the ways was really just a bottom-line, cost-cutting business decision on Paramount's part. . . .
It made sense for Paramount to try to get Cruise to sign a less expensive deal and, failing that, to let him leave.
It's good to see the Times echoing our analysis. It's an interesting article with some very good insights into "superstar economics" and Hollywood finance.
Is Sumner M. Redstone crazy like a fox?
Movie industry executives may be forgiven for thinking that the Viacom chairman was mad to let Tom Cruise go after a 14-year relationship simply because Mr. Cruise seemed a little off balance. After all, the movies made by Viacom’s Paramount Pictures studio and the actor’s production company earned more than $2.5 billion at the box office.
Yet, if you ask economists and other academics that study the movie industry, Mr. Redstone’s decision was, in financial terms, spot on. The best reason to get rid of Mr. Cruise or, for that matter, Mel Gibson, or Lindsay Lohan, is not their occasional aberrant behavior. They, like most marquee names in Hollywood, are simply not worth the expense.
“Who knows what went through Mr. Redstone’s mind?” said Jehoshua Eliashberg, a professor of marketing, operations and information management at the Wharton School of the University of Pennsylvania. “But one can’t discard that the reason is that it doesn’t make economic sense to pay him all this money.”
From Karnick on Culture.