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Paramount's movie magic: It makes money disappear, investors claim

November 30, 2011 |  1:53 pm


So you want to be in movies?  Then don't read this story: "Paramount Pictures sued by financing partner for fraud."

Yes, as hard as it is to believe, investors in a fund called Melrose 2 are unhappy with their share of the profits from such films as "Mission: Impossible 3," "Jackass 2" and the "Transformers" trilogy.

Or rather, they're unhappy because, well, as the story says:

Investors in the fund, an unidentified group of private equity firms, stated they have not made any profit on the $375 million they invested in 29 Paramount films over the past five years that grossed nearly $7 billion worldwide in ticket sales.

Oh no. That can't be. But wait. There's more:

"This lopsided distribution of earnings comes about as a direct result of Defendants' practice of understating gross receipts, delaying payments to Melrose 2, overstating production and distribution costs and hindering Melrose 2's ability to … verify the revenues and costs associated with the films it funded," the complaint says.

Why, this would be the first time in the history of Hollywood that something like that has happened.

Paramount, with an apparently straight face, says baloney:

A spokeswoman for Paramount said that the studio had paid back Melrose 2 nearly 90% of its investment and that the differences in the two sides' positions are modest.

"Paramount has complied with its obligations to Melrose 2 and has been forthcoming in the audit process," she said. "We are disappointed that these sophisticated investors would choose to file a lawsuit filled with hyperbole that ignores the true facts."

Seems simple to sort out.  One side says it hasn't "made any profit."  The other says it's paid back "nearly 90%" of  the plantiff's investment.

Makes you wish you were a lawyer, doesn't it?

All is not lost, though: I have an alternative investment opportunity for those savvy Melrose 2 folks.  If you really want to throw money away, try California's high-speed rail project.

On Tuesday, the Legislative Analyst's Office released a report that says "the funding plan for the California bullet train does not comply with key provisions of a ballot measure that voters approved to authorize the project and $9 billion in state bonds to help finance it."

In other words, building 130 miles of track that would run from south of Merced to north of Bakersfield to start just doesn't cut it.

But it's not that bit of analysis that caught my eye.  No, it's this little nugget:

Stations, maintenance facilities and the electrical system needed to power high-speed trains are not included in the first phase, which is estimated to cost at least $6 billion.

Which, I don't know, sounds a bit pricey to me: $6 billion to lay 130 miles of track. 

I'm sure there's more to the first phase.  I'm sure we'll get much more for our $6 billion.

Just like those Melrose 2 folks were sure they'd profit handsomely from Paramount's blockbusters.

Maybe, in the end, the best thing would be to make a movie about building a high-speech rail line.

Now there's an investment opportunity.


Paramount unveils $700-million upgrade to studio lot

Graphic: First leg of California's high-speed rail line

Still on board the bullet train

--Paul Whitefield

Credit: DreamWorks LLC / Paramount 

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