Had too much of Detroit’s highway to Miley Cyrus? Hell is paved with Vevo hasn’t 22 predictable puns 24

Flying the not-so- Briefs: Big Dreams kid-friendly skies at Boeing 25 of Asia 23

September 23 — September 29, 2013

Despicably Profitable

21  With a 1,000 percent box office return, Chris Meledandri’s movie is a new Hollywood model  “We’re not spending our money on every blade of grass and the leaves on the trees” Comcast’s Universal Pictures is Holly- $21.8 billion peak in 2004, studios will career was less strategically directed. I wood’s top-grossing moviemaker so far need to work harder at tightly managing was just trying to get movies made,” he this year. Asked at Allen & Co.’s annual budgets— Meledandri’s forte. “What he recalls. “I didn’t like having that big fi- media conference in Sun Valley, Idaho, is demonstrating today is that you can nancial failure. I didn’t want to expose in July what’s behind the studio’s turn- make very good movies at a reasonable myself to those catastrophic results.” around from fourth place in 2012, Ron cost,” says Peter Chernin, the former He decided to shift gears, jumping Meyer, the veteran executive who’s now CEO of Fox Entertainment. into computer-generated animation, NBCUniversal’s vice chairman, simply The urgency to contain costs gets then a new technology being pioneered said, “We hired Chris Meledandri.” top billing in Hollywood these days. by DreamWorks and Pixar, now part Meledandri is the producer of Despi- DreamWorks Animation SKG CEO of Disney. And he embraced family- c able Me 2, the highest-grossing ani- Jeffrey Katzenberg says he’ll lower the friendly pictures with broad appeal. mated film this year. The picture, which budgets of his animated features to At Fox, Meledandri created the Ice features comedian Steve Carell as the an average of $120 million each, from Age franchise, whose four films have voice of a supervillain named Gru, has $150 million. Disney said on Sept. 12 grossed $2.8 billion worldwide. At Uni- sold more than $840 million in tickets that it’s capping spending on non- versal, his Illumination Entertainment worldwide. In a summer marked by sequel films, after losing as much as production company has rolled out big-budget flops such asWalt Disney’s $190 million on The Lone Ranger. the two Despicable Mes, the 2011 Easter $225 million The Lone Ranger and Meledandri, who began as a gofer to Bunny-themed Hop, and last year’s Dr. Sony’s $150 million White House Down, Footloose executive producer Daniel Seuss’ The Lorax. All had domestic box Despicable Me 2 cost only $76 million. Melnick, had mixed success on his own, office grosses of more than $100 million. That puts it on track to be the most developing films such asCool Runnings, Meledandri’s films, which typically profitable film in Universal’s 101-year about the Jamaican Olympic bobsled have a PG rating for mildly risqué history, says NBCUniversal Chief Execu- team, and Sister Act 2, the 1993 sequel humor and cartoonish violence, attract tive Officer Steve Burke. to the Whoopi Goldberg hit. In 2000, an audience that’s as much over age 18 With Hollywood continuing to Mele dandri got a sobering lesson in risk as under it. “The humor is sophisticated crank out pricey, special-effects-laden management when he supervised the and topical,” says Paul Dergara bedian, films designed to wow audiences from release of Titan A.E., an animated sci-fi who heads box office research at the Brooklyn to Beijing, and revenue from feature that he says lost $100 million for website Hollywood.com. “They’re

UNIVERSAL PICTURES UNIVERSAL PICTURES home video off 17 percent from its Twentieth Century Fox. “My early making them not only kid-friendly, The video by Miley Cyrus, who brought Companies/Industries twerking to the masses, is setting online records

Meledandri’s Box Office Record Making movies in France isn’t about $0m $300m $600m chasing cheap labor. Animators there make slightly lower salaries than in 2000 Titan A.E. the U.S., Meledandri says, but ben efits Production costs are much higher. Those anima- budget 2002 Ice Age tors, many of whom used to make pic- Worldwide tures solely for the French market, are 2005 Robots gross pros at working on limited budgets, says Franck Priot, chief operating officer 2006 Ice Age: The Meltdown of the French Film Commission. “We can do the same thing with less people, 2008 Horton Hears a Who! because we have to,” he says. Univer- sal also collects government produc- 2010 Despicable Me tion subsidies, which France increased from about $5.3 million per picture to 2011 Hop $13.3 million in July. Janet Healy, Meledandri’s co- 2012 The Lorax producer, says the company also saves by using a lot of commercially available 2013 Despicable Me 2 software and focusing on the lead char- acter in every frame. “We’re not spend- Profit ing our money on every blade of grass DATA: BOXOFFICEMOJO.COM and the leaves on the trees,” she says. but friendly for thinking adults.” Mele dandri also credits a strategy CEO While Meledandri says he has no Burke calls “symphony,” in which all secret formula, studio veterans cite his parts of NBCUniversal cross-promote discipline in selecting projects that can big projects. Despicable Me 2 benefited be done at a relatively modest cost—by from a blimp at the Kentucky Derby Hollywood standards—and then pro- (which was televised on NBC), a ride at of love and occasionally licking a 22 viding plenty of oversight to hit that Universal’s theme park in Orlando, and sledgehammer—quickly became the number while getting pictures fin- teasers on the company’s USA Network most popular music video ever on ished on time. “At a lower budget, you and Golf Channel. Vevo. Attracting 19.3 million views in don’t get to be a perfectionist,” ex- Meledandri is working on a Despi- the first 24 hours, it’s since gone on to plains Bill Mechanic, a former CEO of cable Me spinoff, due in late 2014. He’s pile up more than 118 million views. Fox Filmed Entertainment, “so it’s all also planning an update of a family And while Cyrus was gleefully swinging about selecting ideas that work within favorite—Dr. Seuss’ How the Grinch Stole into the hearts of fans, Vevo, a private your budget.” Doing that successfully Christmas! “I think he’s got a vision,” company based in New York, was rev- has allowed Meledandri to create in Healy says of her partner. “I just don’t eling in something else: the continued Ice Age and Despicable Me “two of the know what it is.” —Christopher Palmeri demolition of its competitors. most successful animation franchises The bottom line Chris Meledandri keeps a lid Vevo dominates the world of online in history,” Mechanic says. on costs, which is helping make his Despicable music videos to a degree that’s surpris- That’s tough in an industry where Me 2 Universal’s most profitable movie ever. ing considering the pedigrees and head the cost of the typical film has risen starts of its rivals. In August the company 35 percent since 2003, according to racked up 49.4 million unique visitors Wade Holden, a movie analyst at SNL and 609 million video views, according Kagan. Other animation houses may to researcher ComScore, crushing its begin development of three or four Media nearest challengers, MTV Music Group pictures for every one they ulti mately (35.3 million unique visitors; 261 million make. Meledandri says his ratio is closer Vevo Takes a Wrecking video views), Yahoo! Music (3.8 million to 1 to 1. At other studios, teams of ani- Ball to MTV unique visitors; 7.5 million video views), mators periodically show their progress and AOL (3.1 million unique visitors; to higher-ups, while at Illumination, Me- 8.1 million video views).  Helped by record labels and Google, ledandri is involved in ap provals on a How did a relative newcomer get the website rules in music videos daily basis. “There is never a situation so far ahead? Vevo, founded in 2009, where a production proceeds down a  Ads are “moving [to mobile] so fast was launched with the backing of path only to discover those with ulti- that most people aren’t aware” Universal Music Group and Sony mate creative authority aren’t in agree- Music Entertainment. That means it ment,” he says. On Sept. 9, Miley Cyrus rode a wrecking gets first dibs on the music videos of Meledandri’s U.S. office has only ball into the record books. The new two of the three largest record labels. about 35 employees. To bring his proj- Terry Richardson-directed music video (Vevo also had online music video ects to life, however, Universal acquired for her hit song Wrecking Ball—in which rights for the fourth-largest record the animation business of Mac Guff, a she swings around naked on said ball company, EMI Music, until the giant studio in Paris with a staff of almost 500. while crooning about the vicissitudes was broken up last year.) Companies/Industries

It’s an increasingly lucrative position to occupy, thanks to the ongoing boom in digital video advertising. According to data from the Interactive Advertis- ing Bureau, spending on digital video has soared, from $324 million in 2007 to $2.3 billion in 2012. That’s just the begin- ning, with researcher EMarketer fore- casting that video ad revenue in the U.S. will grow 41.4 percent this year and another 40 percent in 2014, making it the fastest-growing digital ad format. Having established its popular- ity among music fans on YouTube, Vevo is aiming to conquer the next big thing in music videos: mobile distribution. “It’s moving [to mobile] so fast that most people aren’t aware,” Vevo Chief Executive Officer Rio Caraeff told Bloomberg TV in June. “Last year in the U.S., 51 percent of our streaming happened off of the PC—on mobile, tablet, and television. That’s really what’s driving our growth.” —Felix Gillette The bottom line Vevo, which got 19.3 million views of Miley Cyrus’s new music video in 24 hours, is poised to profit from mobile ads. Those relationships give the company outsize clout, because any 23 website that wants to legally distrib- ute music videos from Universal and Sony’s hefty roster of artists ( Justin Airlines Bieber, Bob Dylan, Lady Gaga, Pearl Jam, Kanye West, U2, Eminem, Justin Paying Extra for Timberlake, Metallica, Beyoncé …) Whine-Free Flying must first strike a deal with Vevo. on Google’s YouTube, which to date Since the company’s debut, Vevo ex- has accrued more than 130 billion views.  Some carriers let passengers re- ecutives have signed myriad agree- Earlier this summer, Vevo and Google serve seats in adults-only areas ments, distributing its music videos extended their mutually beneficial re- far and wide across the Internet in ex- lationship. In July, Google invested  People “might not necessarily love change for a slice of the ad revenue $45 million for a 7 percent stake in the someone else’s” kids the videos generate. company—keeping Vevo comfortably So far, Vevo’s primary distribution ensconced in the all-important YouTube CNN anchor Richard Quest caused a point is its thriving network of channels ecosystem for years to come. stir last year when he advocated in Britain’s Independent newspaper that infants be banned from business class I Want My Vevo on airplanes. “A baby in business class Unique Vevo is invariably going to wail at some The company’s video content music 49.4m resonates particularly with young video point,” wrote the cheeky Brit, who people. In the table below, an index viewers, took his ban-the-babies campaign to value above 100 suggests more August 2013 Twitter in August. popularity within an age group. Several Asian carriers have heard his cry. AirAsia X, an affiliate of that con- Index tinent’s largest discount carrier, and to population YouTube Vevo Malaysian Airline System already seg- MTV Yahoo! Under 12 65 21 35.3m 3.8m regate passengers traveling with kids. 13 to 24 114 172 Singapore Airlines’ budget carrier, 25 to 34 107 129 AOL Scoot, in late August went a step 35 to 44 103 104 Vevo 3.1m further: It unveiled a child-free zone 45 to 54 100 83 skews for coach passengers prepared to pay Fuse 55 to 64 96 60 much extra. Both Scoot and AirAsia X have a younger Complex DATA: COMSCORE DATA: 65+ 96 49 no-kids policy in business class. Companies/Industries

Seat-kicking and unruly children flights, a free service available in all show off their latest vehicles. While the ranked ahead of drunken passengers, classes. The orange-aproned nannies tiny burg pales next to test-drive favor- rude cabin crew, and lecherous neigh- serve children’s meals early in the ites such as Northern California’s wine bors as onboard annoyances in a July flight, fill milk bottles, and offer activ- country, Hell has three things in its survey by Gocompare, a ities ranging from magic tricks favor: winding roads that can showcase British website that tracks fi- “Even families with and origami to playing with a car’s handling, way lower travel costs, nancial and other ser vices. kids are positive, sock puppets. Older children and a quirky name tailor-made for the Respondents said they’d because now they get tours of the galley. Etihad purple prose often used in car reviews. be prepared to pay £50 are in the other CEO James Hogan introduced a Thanks to the auto recovery, Hell is ($78.65) more on a round- zone and they feel similar program in 2003 when he about to get a lot more crowded. A total less guilty.” trip flight if they could sit in —Azran Osman- ran Bahrain’s Gulf Air. “We have of 376 models will be introduced in the a child-free zone. Rani, CEO of received fantastic feedback from U.S. between now and the “People love their own AirAsia X guests,” says Aubrey Tiedt, end of 2015, according to kids, but they might not Etihad Airways’ vice presi- researcher Polk, as auto necessarily love someone dent of guest services. sales run at the fastest else’s,” says Scoot Chief That may be because pace since 2007. In 2010, Exec utive Officer Campbell Wilson. an unhappy child is often a loud the year after industry Hell “ Allowing someone the option of trav- child. According to the Ameri- Detroit sales fell to a 27-year eling with the assurance of not having can Tinnitus Association, a child’s low, there were 91 intro- young children around is simply one of scream can be 105 decibels—louder ductions. “The economy is the many choices you have.” than a chain saw or a subway train. better, so the auto companies are doing Scoot charges an extra S$14.95 ($11.85) Regardless, Andy Curr, a Web de signer more [test-drive] programs … to reach for 41 economy-class seats directly and mommy blogger from Sydney, a wider array of media,” says Michelle behind business class with 3 inches of says branding children as the biggest Krebs, a senior analyst with auto re- extra legroom, where children under source of in-flight annoyance isn’t fair. searcher Edmunds.com. 12 aren’t allowed. There was “some very “You can’t choose who you fly with,” Daimler’s Mercedes-Benz held three robust debate” in the office about the she says. “Adults are usually the worst- events with routes through Hell this merits of the service, says Wilson, who behaved, and drunk sometimes.” year, including one for the new E-Class doesn’t have children. —David Fickling and Heesu Lee sedan, while General Motors had jour- 24 Carriers that have introduced child- The bottom line Some Asian airlines seg- nalists drive Chevrolet Cruze sedans to free zones say they haven’t received regate children on their planes. Discounter the popular nearby Hell Creek Ranch significant negative feedback. “Getting Scoot charges $12 extra for kid-free flying. camping area, where they switched choice means you are satisfying both from the compact cars into the full-size sets of people,” says Azran Osman- Chevrolet Impala. A few weeks later, Rani, CEO of AirAsia X. “Even fami- journalists passed through Hell again lies with kids are positive, because now driving GM’s Buick LaCrosse. they are in the other zone and they Autos The puns are inevitable. WardsAuto feel less guilty.” Scoot and AirAsia X World, an industry publication, re- use blocks of toilets to separate their This Town Is Heaven viewed the Cruze in July by asking how adults-only zones from the rest of the For Test-Driving Cars far the diesel version can travel on a cabin. Malaysian Airline introduced single tank of fuel: “Almost to Hell and a mostly child-free upper deck on its back,” was the answer. Joann Muller A380 jumbos when it entered service began a Forbes.com article last year by in July 2012. The carrier said it will seat stating, “I just spent two days driving families in the 70 upper-deck economy through Hell, and I promise you, it was seats only if there’s no room left in the worth the trouble.” 350 economy seats on the lower level. Such fun is to the chagrin of Chris- Some parents see the wisdom of topher Jensen, a freelance journalist isolating airborne tykes. Says Marcus who co-founded the North American Osborne, a father of three and a Car and Truck of the Year awards more partner at branding consultant Fusion- than 20 years ago. “It’s not exactly a  Marketers depend on Hell, Mich., Brand in Kuala Lumpur: “If I had the tribute to the human spirit or intel- to help auto reviews come to life option to sit in an area where there lect, but it does appear to be irresist- were no kids, I would probably jump  “If somebody named a town Poopy, ible,” he says. “I suspect if somebody at the chance.” it would be very popular as well” named a town Poopy, it would be very Other carriers are also trying to be popular as well.” accommodating. Etihad Airways No, it’s not really paved with good Jensen helped put Hell on the map has hired consultants from Norland intentions. But the road to Hell is a great when he decided the roads near the College, a U.K. child-care training place to test-drive cars. That’s why auto- town might make a good spot to test his center, to teach child psychology and makers increasingly are squiring jour- competition finalists. “It’s close enough sociology to about 500 cabin crew nalists to Hell, Mich., an unincorpo- to Detroit that the automakers have designated as “flying nannies” on the rated community about 60 miles west no big problem getting their vehicles

Abu Dhabi-based carrier’s long-haul of Detroit with a population of 72, to out” there, he says. “Within about two IMAGES KRAVITZ/FILMMAGIC/GETTY JEFF BRANSON: WEST/ALAMY; JIM SING: Companies/Industries minutes you can be on a really great selection of roads.” In some spots the narrow country roads rise and fall like a Briefs By Kyle Stock roller coaster, while other areas are flat and straight enough for a quick burst before turning into tree-covered curves. The good roads have attracted en- Boeing Dreams Bigger gineers for years, says John Colone, a retiree who owned a Chrysler dealer- ship in nearby Pinckney for more than o 20 years. Part of the area’s test-drive ○ ○ A bigger version of Boeing’s new 787 jet appeal: “Our beautiful back roads— took off for the first time on Sept. 17, the start of they’re lightly patrolled,” Colone says. Also: “It’s that novelty of going to Hell.” about nine months of flight tests. The stretched

Automakers’ sneak-peak programs Dreamliner model can carry 40 more passen- FriendFinder Networks, often include several dozen journal- owner of Penthouse ists who take turns driving the vehi- gers and commands almost $40 million more magazine, several adult websites, and a social cles and are briefed by company ex- than the Dreamliner, roughly $2 million for each network, filed for ecutives on the models’ features. bankruptcy protection. Media test drives are “a vital part of additional foot. Boeing is supposed to deliver The company hasn’t posted a profit since at any vehicle launch at any manufac- the first of the new jets to Air New Zealand in least 2006. turer,” says Miles Johnson, a Hyundai L Motor public-relations executive. mid-2014. ○ ○ More American companies are That’s because about one in four new sending workers to private exchanges for health care, electing vehicle buyers claim that a car to pay subsidies to employees review was the most important The expected one-month source of information in their sales for Grand Theft Auto V, a video game that rather than shouldering the bur- purchase decision, according hit stores on Sept. 17. It den of insuring them directly. to Maritz Research’s 2013 New cost about $250 million to make and market. Vehicle Customer Study. After Most recently, Walgreen said 25 Con sumer Reports in July named the Impala as best sedan, for it will move its 160,000 work- example, traffic to the model’s ers onto a private exchange, website soared 374 percent. The test-drive programs are evolving following similar decisions at Sears and Darden Restaurants. as the nature of media changes. Now, ○U○ The DVD business isn’t a total horror show. Outer- automakers are hustling to include in- fluential bloggers along with writers wall, the company behind Redbox kiosks, says it rented more from publications aimed at car buffs movies in July than in any month to date. Outerwall lowered and national news outlets. With so many introductions, cheaper events its earnings forecast for the year, however: The same dis- like those in Hell—which are a frac- counts that keep DVDs competitive with streaming services tion of the cost of ferrying participants q out west—help spread the marketing are hurting its profit margin. ○ ○ European auto sales have dollars. GM’s Chevrolet brand, which is sputtered to their slowest pace since at least 1990. Car reg- introducing 13 new or redesigned vehi- istrations in August dropped 4.9 percent from the same cles this year, took advantage of Hell’s CEO closer and less- expensive location for month last year, as Europe continues to Wisdom the diesel version of the Cruze while spending more to transport scores of struggle with high unemployment. The only journalists to California for test drives bright spots are in the U.K. and on the books of the glitzy new Corvette sports car. “We don’t have budgets to do of luxury carmakers like BMW and Mercedes. 13 Corvette-like launches,” says Michael ○H○ The U.S. government has extended “Basically, people don’t like to buy things Albano, director of Chevrolet commu- minimum-wage and overtime benefits to the anymore—clothes or nications. But getting journalists to flats or anything. Hell comes cheap. —Tim Higgins almost 2 million people employed as in-home They’re much more interested, I think, The bottom line Hell, Mich., 60 miles from health aides. The U.S. Chamber of Commerce in sharing.” Detroit, has become a popular spot for —Virgin Group founder carmakers to stage test drives for journalists. opposed the policy, arguing it will make home Richard Branson, discussing a plan to give health care unaffordable for some. away cell phones Edited by James E. Ellis Businessweek.com/companies-and-industries