Paramount's Grey Gets Tough with DreamWorks Animation's Katzenberg, Launches Paramount Animation

One of the reasons that Paramount Pictures ventured into its first CG animated movie, Rango, with Gore Verbinski and ILM, was to back itself up in case Jeffrey Katzenberg's DreamWorks Animation chose not to renew its distribution deal, which expires at the end of 2012. Since 2000, when DreamWorks Animation was created out of DreamWorks SKG, the label's 20 releases have grossed more than $8.2 billion worldwide. This summer's Kung Fu Panda 2 has grossed $535 million worldwide. Katzenberg has been shopping for a new home; the most logical place is Warner Bros.; the other studios have their own animation units.

In any case, now Paramount is ramping up its own in-house animation division, Paramount Animation, with its first film set to open in 2014. Studio chairman Brad Grey isn't messing around here; he's targeting one animated film a year to start. If Katzenberg won't adjust his deal terms to the studio' benefit--he's actually trying to improve his deal--then Paramount will make its own animated films. Since 2006, DreamWorks Animation has given distributor Paramount an 8 percent cut of its revenues. Paramount offered Katzenberg a one-year extension on the same terms which he has not accepted.

It's a tall order, though, to deliver quality animation in the $100-million budget range. Universal did well when it poached experienced Fox animation executive Chris Meledandri to head Illumination Entertainment, which yielded hits Despicable Me and Hop (made on a budget, less than $100 million). But Disney, which now has Pixar chief John Lasseter in charge of its animation team, recently let go of Bob Zemeckis's huge expensive motion-capture start-up ImageWorks, after several costly disappointments. Paramount Animation will report to Motion Picture Group president Adam Goodman, who with studio vice chairman Rob Moore is seeking a leader for the division. That choice will be crucial.

Rango is a case in point: ILM's John Knoll spearheaded a new approach to animation from a VFX perspective, which was gorgeous and fresh but costly; the well-reviewed movie starring Johnny Depp was geared more toward adults than kids and scored a modest $240 million worldwide, given its reported $135 million budget, plus global marketing costs. But what it proved to Paramount was that you don't have to build a costly animation studio and own the technology and infrastructure to make these movies anymore. "If Rango had cost $80 million," said one Paramount exec, "it would have been wildly profitable." With Verbinski focused on his live action career, a Rango sequel seems unlikely, unless the budget comes down.

Animation is still primarily a family-oriented sphere. Some Paramount Animation pictures will go through Viacom’s Nickelodeon label, as well as taking advantage of synergistic merchandising opportunities. “Paramount also has the distinct advantage of being part of the Viacom family," said Grey, "giving us the ability to leverage its portfolio of powerful and youthful brands to create and market great films and consumer products.”

THR reports that the studio is already adapting Penny Arcade web comic New Kid:

"about a lone earthling who is a new kid in a school full of intergalactic aliens. Gary Whitta is writing the screenplay for producer Mary Parent and Cale Boyter."