Tom Cruise, Sandra Bullock say Paramount is cheating them out of millions

AFTER years of losses and underwhelming performance, the movie studio Paramount Pictures has delivered its best box-office results in a decade. The first 5 movies it released in theatres this year all opened in the top spot, culminating with Top Gun: Maverick, the highest-grossing film of the year so far.

But not everyone is celebrating. Many of the stars and producers of these movies, including Tom Cruise, Sandra Bullock and the creators of Jackass, believe they are going to miss out on millions of US dollars because of a deal between Paramount and the cable channel Epix.

Movie stars, producers and filmmakers often get a cut of the profits from their movies, including a share of digital sales and licencing to third parties. Those paydays can amount to tens of millions of US dollars on a big movie like Top Gun: Maverick, starring Cruise, or millions on a smaller-scale hit like The Lost City, starring Bullock.

Profit participants in Paramount movies believe their earnings are below what they should be because the studio is receiving less from Epix than other studios are getting in similar deals, according to several people familiar with the conversations. Representatives for the talent have met with Paramount to ask for extra money, said the people, who asked not to be identified because the talks are ongoing.

While no one has threatened a lawsuit yet, lawyers are assessing their options. One possibility is that Hollywood labour unions will take action. Guilds also collect residuals on these movies, and Paramount's deal with Epix means they too may have also missed out on millions of US dollars relative to what they get from other studios. The guilds declined to comment. Representatives for Cruise, Bullock and Jackass star Johnny Knoxville didn't respond to requests for comment.

In a statement to Bloomberg News, Paramount said it hasn't had an ownership interest in Epix for 5 years, and that "our agreements are entered into at market rates."

Lawyers and agents have always bemoaned "Hollywood accounting," in which studios overstate costs and disguise profits so as not to share proceeds with financial partners. Both sides would rather avoid a lawsuit, but there have been some big cases over the last decade. AMC Networks was forced to pay US$200 million to 1 of the creators of The Walking Dead, while Fox settled a multimillion US dollar dispute with the participants in the show Bones.

Workers worry that the rise of streaming services has made it even easier for studios to hide their profits from talent by self-dealing. Most studios used to licence their films to premium cable networks like HBO, but now they licence them to streaming services, often ones they own. Warner Bros puts its movies on HBO Max, Walt Disney sends its movies to Disney+ and Universal has a deal with its corporate sibling, Peacock. Universal also struck a deal with Amazon.com.

Streaming services typically don't licence their original movies to others at all. Rather than give talent a share of the ownership in a project, Netflix, Amazon and Apple buy out their rights up front. The Writers Guild has already secured US$42 million in arbitration from Netflix for what the union called "self-dealing" and US$4 million from Amazon in unpaid residuals.

Paramount and Epix aren't owned by the same company, but they used to be. Paramount, Lions Gate Entertainment and Metro-Goldwyn-Mayer created Epix in 2008 as an outlet for their movies. While these companies hoped that Epix would turn into a viable player, it never reached the stature of HBO, Showtime or Starz. To generate extra money, Epix sub-licenced movies to Amazon. Talent didn't squawk at the time because Epix was paying similar rates to other streaming services and cable networks, the people said.

In 2017, MGM took full control of Epix, buying out its partners. As part of that deal, Paramount agreed to renew its movie output deal with Epix for another 5 years. That became a problem in 2020 when Paramount prepared to relaunch its CBS All Access streaming service as Paramount+. Paramount is best known as a movie studio, and yet none of its new movies would be available on its flagship streaming service for years to come. It needed to bring those movies to Paramount+.

So early last year, Paramount and Epix negotiated a new deal under which Paramount got the rights to show most of its movies on Paramount+ after a shortened window of just 45 days in theatres, and Epix extended its deal for Paramount movies by a year.

Shortly after that, Universal and Sony Group signed new licencing agreements as well. Netflix paid Sony about double what Epix paid Paramount, said the people. Peacock and Amazon also paid Universal more than Paramount got from Epix, even though Peacock and Universal are part of the same company.

Nobody thought too much about this at the time. But then talent started to notice the difference between the Universal and Sony paychecks and the Paramount paychecks. Paramount's Epix deal expires at the end of 2023. BLOOMBERG

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