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Paramount Swings to Quarterly Profit

3 Nov, 2009 By: Erik Gruenwedel

Dividends from the year’s top box office movie, Transformers: Revenge of the Fallen, finally hit the bottom line as Paramount Pictures posted third-quarter (ended Sept. 30) operating income of $69 million, compared to an operating loss of $19 million during the previous year’s comparable period.

Paramount Pictures, a unit of Viacom Inc., includes Paramount Home Entertainment and Paramount Digital Entertainment.

The Transformers sequel and G.I. Joe: The Rise of Cobra combined to fuel a 16% rise in global box office revenue. The theatrical surge helped offset a 21% decline ($124 million) in worldwide home entertainment revenue reflecting the economy, fewer catalog releases and difficult year-over-year comparisons with strong DVD and Blu-ray Disc performance of Iron Man.

The two films have generated a combined $1.1 billion at the box office. The first two weeks of retail sales for Transformers: Revenge of the Fallen has generated 8.3 million disc sales, including 1.4 million Blu-ray units.

“It is the best-selling Blu-ray Disc release in 2009,” Viacom president and CEO Philippe Dauman said in a call with investors.

Dauman said the two titles coupled with the packaged media release of Star Trek will help drive home entertainment revenue in the fourth quarter.

The CEO lauded Paramount’s recent restructured disc manufacturing deal with Technicolor, which he said will help save “tens of millions of dollars” a year.

Dauman said combining marketing efforts for theatrical and home entertainment not only reduced costs but established greater “continuity” in the marketing of Paramount titles through multiple distribution windows.

He cited as an example recent online guerrilla marketing efforts for low-budget thriller Paranormal Activity, which Dauman said has thus far generated $85 million in domestic box office revenue.

Dauman said DVD sales declines were partly due to seasonal as well as secular forces, which he said necessitated keeping a tight lid on overhead costs.

“The home entertainment area was obviously a big bucket [and] we put a lot of focus on it,” Dauman said.

Overall revenue for the filmed entertainment division declined 6% to $1.2 billion from $1.3 billion last year.

Richard Greenfield, analyst with Pali Capital, said the stronger-than-expected studio results and projected strong home entertainment revenue in the fourth quarter will generate operating income topping $200 million.

That said, Greenfield said he expects a 14% decline in Paramount earnings in 2010 due to the “limited visibility” of the studio release slate (currently Iron Man 2 and three DreamWorks Animation titles).

“This could certainly prove conservative given the recently restructured deal with Technicolor and if Viacom culls a hit from any of the films in Paramount’s own 2010 slate,” Greenfield wrote in a note.

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