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Imagine that: Paramount Pictures needs fixing

June 23, 2009 |  1:42 pm

Sanford C. Bernstein Media analyst Michael Nathanson has issued a blistering report on Viacom's Paramount Pictures in the aftermath of studio Chairman Brad Grey's latest overhaul of his production team.

The studio, Nathanson writes, "has been a perennial disappointment in terms of profitability," but he dismisses speculation that Viacom is shopping Paramount, in part because it is doing so poorly.

While the studio's recent box office performance looks strong on paper, the bulk of its success has come from so-called third-party distribution deals in which the studio distributes movies produced elsewhere. Paramount has such deals with Marvel ("Iron Man") and DreamWorks Animation SKG. Take those away and Paramount has finished no higher than fifth in U.S. box office market share, quite a few pegs down from its current No. 2 perch.

GREY Nathanson estimates that Paramount booked $168 million in operating profit from third-party deals and lost $80 million on its homegrown product. He expects the studio to take a write-down on "Imagine That," the Eddie Murphy flop that set the stage for Grey's most recent executive shake-up.

The studio's operating margin has dropped for three years straight from 3.2% in 2006 to an anemic 1.5% in 2008 and Nathanson is projecting a 2009 margin of 0.3%. Ouch.

Nathanson did not single out Grey for any of the woes at Paramount, even though Grey has been at the helm of the studio since March 2005 and has yet to find an executive team that can last more than 18 months.

Inside Viacom, Grey continues to garner strong support. While one senior executive said of Grey's executive picking skills, "It would be nice if he was able to find the right mix," there is no sign that Viacom Chairman Sumner Redstone -- famous for an itchy trigger finger -- is losing patience. Grey's contract was renewed for five years in January and Redstone has said he has "no reason to believe that Brad will ever be gone as long as I'm alive." Because Redstone has repeatedly said he has no plans to die, it seems Grey is safe.

Of course, Redstone also said in April at the Milken Institute Global Conference that "no Paramount movie has ever bombed" so all bets are off if someone tells him about "Imagine That."

-- Joe Flint

Photo: Paramount Chairman Brad Grey. Credit: Kevin Winter / Getty Images