Paramount Needs A Strategy, Not a Strategic Investor

Under pressure from investors to “do something” about its plunging share price, Viacom has agreed to sell a minority stake in Paramount Pictures in hopes of boosting Wall Street’s valuation of the studio, which has lagged its peers for much of the past decade. But CEO Philippe Dauman has made it clear he intends for Viacom to remain in firm control of Paramount and is interested only in “strategic” partners.

“We have received indications of interest from potential partners seeking a strategic investment in Paramount Pictures and I have decided to pursue discussions with a select group of potential investors,”  Dauman said in a statement. “In this time of change and enormous opportunity in tom_cruise_MIour industry, a partnership will bring significant benefit to Paramount and Viacom, both strategically and financially, provide new opportunities for Paramount’s employees and talent, and enhance long-term value for all Viacom shareholders.

“Paramount Pictures has been a leading motion picture studio for more than a century and is among a select few that has significant reach and scale, a deep library, a robust pipeline with proven global franchises, and a high potential television production operation,”  Dauman added. “In addition, the value of motion picture content continues to increase with the explosion of screens and the rapid expansion of the global theatrical market. This is the perfect time to explore new strategies to capitalize on Paramount’s content expertise and global platform, maximize opportunities for its continued growth, and unlock the value of the business for the benefit of shareholders.” Read More »

The Fault In Our Stars: Lessons From The 2015 Box Office

Economists have long recognized that the sports and entertainment industries exhibit elements of what University of Chicago economics Sherwin Rosen called the economics of superstars in his classic 1981 study, in which small differences in talent or popularity can lead to outsize differences in returns. Anyone who reaches the NBA, for instance, is by definition an elite athlete. But Star-Wars-Force-Awakens1if the superior skills of a LeBron James or Kobe Bryant added a mere 2 points per game on average to his team’s total, in a league where the average point differential per game is 0.06, over the course of a season they could easily add a half a dozen or more wins to the team’s record, making the difference between first place and missing the playoffs. Given the financial payoff for the team’s owners of reaching the playoffs, James and Bryant are worth almost any price, as in fact their salaries reflect.

Similarly, there are many talented performers in the entertainment industries. But people tend to prefer to listen to the same music and see the same movies as their friends. So if their friends start to listen to Adele or Taylor Swift more than other artists, even by a small amount, that difference in popularity is quickly amplified through network effects to where Adele and Swift tower over others in the charts and can command almost any price for their concerts. Read More »