Movie Studios Racking up Bigger Profits on Fewer Films

Paramount Studios ranks last among major studios in box office takings with less than $900 million in domestic ticket sales in the week leading up to Christmas 2013.

It is feeling the shift in consumer demand due to changing viewing habits. Its parent company, Viacom, reported an operating profit from film of $234 million, down from $325 million just 12 months earlier. Revenue, including domestic ticket sales, foreign box office, video and other sources, dropped to $4.3 billion, a decrease of 27 percent from 2011, when the studio was leading the industry at the box office. 

Now it is making fewer films and generating less revenue. This trend is seen as a path to a sustainable business model, however, since the studio’s profit margin has been 5.5 percent or more for the past three years. In 2008, the Paramount’s profit margin was less than 0.5 percent. At that time it was releasing box office blockbusters like “Indiana Jones and the Kingdom of the Crystal Skull” and “Iron Man.”

The studio’s current strategy is to focus on making a handful of safe, stable films, and it appears to be paying off. Paramount released 13 films in 2013, down from 16 just a few years ago. This makes more sense for investors, who would rather see their money going to higher-return businesses like the cable networks.

Movies more profitable? In 2013, all eight of Paramount’s last eight releases have proved profitable. The studio is hoping to make it 11 of 11 with its Holiday releases for 2013. One of its films, “The Wolf of Wall Street,” cost over $100 million to make, but was financed by an independent company, Red Granite Pictures. The studio is managing domestic distribution, but not international (except for Japan). Paramount is expecting that “Wolf” will do very well.

 

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