The catalyst for the decision is likely a combination of two factors. First, is the critical and box office success of "Rango," Paramount's first foray into CGI-animated features. The film, directed by Gore Verbinski (who helmed the first three "Pirates of the Caribbean" movies) and featuring the voice of Johnny Depp, made $240 million worldwide. With the help of Industrial Light & Magic, the film was groundbreaking in its VFX which were absolutely stunning to watch. However, since it cost $135 million to produce, it was only a modest success and Grey must be convinced that they can do an even better job next time.
The second, and much more obvious component in Paramount's decision involves the rather tenuous relationship they have right now with DreamWorks Animation and its CEO Jeffrey Katzenberg. Paramount and DreamWorks have had a distribution deal since 2006 wherein Paramount receives an 8 percent cut of the revenues. The deal is set to expire in 2012 and Paramount has offered to extend the deal for one additional year. DreamWorks has not yet given an answer.
Katzenberg appears to be playing a little fast and loose with his relationship with Paramount. This is a ballsy move considering Paramount's future "Transformers" and "Star Trek" opportunities. "Transformers: Dark of the Moon" has already earned $450 million worldwide and the close relationship of ILM and Paramount may prove fruitful for the franchise's inevitable future installments. The Hollywood Reporter, via The Wall Street Journal, quotes Katzenberg as saying "[Paramount] going into the lower-end of the animation business isn't going to impact DreamWorks at all. Next year is a moment of opportunity for us. We get to evaluate." $100 million per film is the "lower-end"? At this point, Katzenberg may be so far removed from the gears that power the machine that he honestly has no appreciation for the value of a dollar.
Paramount will face stiff competition from studios like Fox and Warner Bros., both of which have stepped up their animation output with strong franchises in "Happy Feet" and "Ice Age." Universal recently opened its own animation division, Illumination, and Sony has done the same to strong rseults. Grey is optimistic, though. “Paramount also has the distinct advantage of being part of the Viacom family,” says Grey, “giving us the ability to leverage its portfolio of powerful and youthful brands to create and market great films and consumer products.” The Viacom family specifically includes the Nickelodeon network.
Ever the consummate businessman, Grey is already eying consumer opportunities. "We will build our animation division hand in glove with Nickelodeon," Grey says. "They make great family movies, so it makes a lot of sense to work with them and with Viacom's consumer products division to build this into a global film business." For their part, though, Paramount isn't wasting any time. Presently, plans are to adapt the Penny Arcade web comic "New Kid" which is about "a lone earthling who is a new kid in a school full of intergalactic aliens." Gary Whitta ("The Book of Eli") is apparently working on a script with Mary Parent and Cale Boyter set to produce.