Video: Cruise control

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CNBC
updated 7/17/2006 4:07:59 PM ET 2006-07-17T20:07:59

The new economy of Hollywood is forcing studios to make big decisions about their deals with big producers. Studios feeling the crunch are renegotiating their first-look deals with producers and demanding higher returns on investment. It now seems that even mega superstar Tom Cruise's sweet deal with Paramount could end, or at the very least, get seriously scaled back.

Tom Cruise is known for delivering box office gold, especially when his “War of the Worlds” grossed $592 million worldwide. But the almost $100 million a movie payouts may be over soon. Hollywood is waiting to see what Paramount decides to do about its 'first-look' or 'overhead' deal with Cruise's production company Cruise/Wagner which expires August 31.

“Paramount has a deal that Cruise and Wagner have to go to them first with any new movie and then Paramount has the right of first refusal,” said Devin Gordon, Newsweek magazine. “The problem is, you don't want to pay that kind of money if the people you're first in line for aren't delivering you hits.”

But Cruise — tainted by tabloid buzz — isn't delivering as consistently and that may cost him big. This year “Mission: Impossible III” proved to be the most expensive and lowest-yielding of the franchise grossing only $133 million domestic on a $150 million budget.

To add to his woes, Cruise's pet project at Paramount —“Ask the Dust” starring Colin Farrel and Salma Hayek flopped barely breaking $1 million worldwide. Yet Cruise still brings home one of Hollywood's biggest paychecks.

“Tom Cruise made a deal with the studios, with Paramount on “Mission Impossible I,” that he was going to get 20 percent of the gross,” said Edward Jay Epstein, author of “The Big Picture.”

“He then renegotiated on “Mission: Impossible II” up to 30 percent and then on “Mission: Impossible III” as there were no other gross players, — he was the only gross player,” Epstein pointed out. So I think he's making more money that anyone in Hollywood with the exception of Spielberg and now none of the studios can afford this kind of expense,” Epstein added.

“These movies are costing a lot more money, so the definition of a hit is shifting. It’s not that Tom Cruise isn't delivering at the box office, its that he's not delivering enough to recoup the expenses they're paying for him and for the movie,” said Gordon of Newsweek.

Sony, suffered three flops last year — Memoirs of a Geisha, Jarhead and Bewitched and has 35 overhead deals — the most of any studio. Now its looking to cut back many and cut some entirely. And Sony's first-look deals — giving away 35 percent of Da Vinci Code's gross — will hurt Sony's profitability.

“There's a chance that Sony isn't going to make money because it’s paying 35 percent to various people including Ron Howard, Dan Brown and Tom Hanks,” said Epstein. “If you pay as much out as your gross participants, you don't make money no matter how much the film makes.”

Sources say Paramount can no longer afford to carry Cruise's current hefty paycheck. But since he can still carry a movie — he'll find a studio to call home. Maybe even Paramount , but likely without such a hefty cut of gross.

© 2012 CNBC, Inc. All Rights Reserved

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