Paramount Gets Its Happy Plot Twist

After Paramount's lackluster first year under his reign, Chairman Brad Grey looks to be turning the studio around

Ah, how Hollywood loves its redemption stories. They got one this spring in Blades of Glory, a screwball Will Ferrell comedy that has proved to be an early-year hit. In the flick, Ferrell plays a one-time figure skating champion who falls from grace but earns redemption with the help of a friend. Strip away the film's sequined costumes, dopey one-liners, and Ferrell's gelatinous midriff, and you get the a plot that recalls Brad Grey's three-year run as chairman of Paramount Pictures, the studio that distributed Blades of Glory.

Grey, some of you may recall, was the talent manager and ultra-successful producer of Happy Gilmore and the TV show The Sopranos who made the big jump in early 2005 to head the woebegone Paramount film studio. In his first year he stumbled badly, and rumors swirled that he was under investigation for some unspecified association with indicted private investigator Anthony Pellicano. His hand-picked No. 2, former Fox TV executive Gail Berman, quit under pressure from insulted talent agents. And Grey, like much of Hollywood, turned out to only be a witness in the Pellicano matter.

But in the last year, Grey, 49, has managed to steer Paramount Pictures into one of the most unlikely turnarounds in the industry's recent history. He did it by effectively giving up control of a piece of his studio, working overtime to rebuild a dilapidated distribution and marketing system, and oh yes, helping to kick Tom Cruise off the Paramount lot. On top of that, he's putting together what could well be a butt-kicking slate for 2008.

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The results have been impressive so far: The studio's market share has jumped from 10.3% a year ago to 17% this year, according to ShowBizData, putting it just a smidgen ahead of Warner Brothers (TWX) for the industry lead. It had three films open at No. 1 in the last month, and the studio's earnings are projected to jump 14% this year, according to Merrill Lynch (MER) analyst Jessica Reif Cohen, after falling two of the last three years.

Like Will Ferrell's character Chazz Michael Michaels, Grey succeeded with a little help from his friends. In his case, it was from DreamWorks, the studio launched by movie moguls Steven Spielberg, Jeffrey Katzenberg, and David Geffen. Scarcely a year into his less-than-spectacular tenure, Grey convinced Sumner Redstone, chairman of Paramount's parent company Viacom (VIA), to plunk down a steep $1.6 billion to buy the DreamWorks unit that made the live-action pictures American Beauty and The Island.

And it's that studio that has turned out this year's string of winners, including Disturbia, Blades of Glory, and the Eddie Murphy comedy Norbit. (Paramount outbid General Electric's (GE) NBC Universal for DreamWorks, and also got a seven-year contract to distribute films like this year's Shrek the Third produced by DreamWorks Animation (DWA), which was spun off from the DreamWorks' live-action studio.

"Big Personalities" Getting Along

The DreamWorks deal was a gutsy one for Grey, who is a novice in the world of big-buck corporate deals. "I thought Summer would throw me out of the boardroom, and I think he did the first time." Grey's pitch: He needed the 11-year-old DreamWorks because of the woeful Paramount slate he inherited. (Viacom also cut the price tag by selling the rights to DreamWorks older films to financier George Soros.)

Of course, like just about everything in Hollywood, it wasn't all smooth sailing. Spielberg, the rumors went, was unhappy that the DreamWorks name was losing prominence in the deal, and the head of his studio, former Universal Pictures chief Stacey Snider, felt that Grey appeared to take too much credit for certain announcements. (Spielberg could not be reached for comment for this story.)

Still, by all accounts, the two sides are working more smoothly now, and Grey is effusive in his praise for Spielberg, Snider, and Adam Goodman, DreamWorks' highly regarded head of production. "This is a group with big personalities but we all want the same thing: to make good films," says Snider. "And we're doing it."

Grey wisely gave wide latitude to his new hit-makers. Snider has the right to greenlight films with budgets of up to $85 million, $100 million for Spielberg-directed films. Snider also has the freedom to use her well-honed connections to hot-shot talent in the DreamWorks family. She helped extend a DreamWorks deal with Ben Stiller, who made Meet the Parents for her at Universal, and signed American Beauty director Sam Mendes on for a new flick starring Leonardo DiCaprio and Kate Winslet. And for the most part, Grey has let DreamWorks operate as a separate studio within his studio.

"Arms Around the Business"

The two sides have ironed out some problems, on the phone and in personal meetings, to air their grievances, say insiders. That has left Grey to focus on overhauling the studio's wobbly distribution and marketing operations.

Grey has also hunted up big-name talent, notably Lost creator J.J. Abrams, who directed last year's big-budget Mission Impossible III (which was only marginally successful financially), and next year will direct the studio's 11th Star Trek film. Grey was also instrumental in nurturing the Indiana Jones 4 project that Spielberg will direct next year.

So how to run a studio that holds twin powerhouses? Carefully. Perhaps more than anything else, the Brad Grey who weathered that tough first year understands that running a major studio is neither easy, nor for the fainthearted. "There were moments that it was really challenging," he says now. "But I feel like I have my arms around the business now. We've put together an extraordinary team, and we're working together to produce some excellent movies." Sounds like redemption to me. And he didn't have to put on one of those god-awful skating suits.

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