Viacom's 'Paranormal Activity' plays Jigsaw's game -- and wins

No, it wasn't, because the movie grossed only $14.8 million. How horrible was this amount? Back in 2004, the first Saw debuted with $18.3 million. Yes, the latest Saw couldn't even equal the opening of the original, even with inflation on its side. Plus, compare the per-theater average of Activity with Saw VI to really understand how bad the beating was.

This is actually huge news, especially for shareholders. It also is a lesson for the media industry in general. At what point do you stop making sequels? Lions Gate should reconsider the Saw series on the heels of this surprising defeat. Or, at the very least, the budgets for every Saw project from this point on should be slashed to the amount spent on the pilot film, which reportedly was a thrifty $1.2 million.

Of course, we all know what goes on during a situation like this. The politics become too compelling. Those within Lions Gate's studio system who have a vested interest in keeping the Saw franchise alive -- and the budgets high no matter what the quality of the returns are forecast to be in the future -- have become powerful as Jigsaw's brand equity has increased over the years.

Hollywood is notorious for spending money haphazardly, even when it might be time to move on to something else. A franchise is a safe bet. It also has cachet value. Executives would rather keep Saw going, even with the observed stagnation in domestic openings. It's as puzzling as one of the serial killer's mechanical death devices.

There is some irony here, as well as embarrassment. Lions Gate is supposed to be the small, agile studio, capable of outwitting the majors by focusing on novel concepts, cheaper budgets, and innovative marketing. Yet, Viacom killed the company with a product whose budget may have been as little as $15,000. I'm still having a hard time swallowing such a figure, but Activity nevertheless cost hardly anything compared to Saw VI. We have to look at the sum allocated to promotion to derive a true sense of the expenditure necessary to propel this piece of celluloid to pop-culture heights. The Los Angeles Times gives a figure of under $10 million for the expense of selling Activity.

Not bad. Activity has made over $60 million so far, and it has shown media entities such as Disney (NYSE: DIS), Time Warner (NYSE: TWX), and General Electric's (NYSE: GE) Universal how small budgets, coupled with great but inexpensive marketing campaigns, can go hand in hand to produce stellar financial results.

With the DVD industry in upheaval from serious declines in units sold, the movie business will have to face facts: spending on content development must come down if long-term shareholder value is to be maximized. No, not every movie need cost only $15,000 to be profitable. But the point has been made: smarter economic paradigms and rational compensation structures for talent should be the subject of every executive memo written by studio execs this week. How else can Wall Street justify the risk of investing in the film business if such considerations are not met with urgency?

Disclosure: I own Disney, GE; positions can change without notice.