Viacom Looks to Squeeze Big Profits out of a New SpongeBob Movie

SpongeBob SquarePants
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He might be a humble yellow cleaning accessory, but one Hollywood studio expects to extract big silver-screen profits from SpongeBob SquarePants.

The upcoming feature-film sequel "SpongeBob SquarePants 2" will be the first effort from Viacom's (VIA) (VIAB) Paramount Animation unit. The division's debut movie will feature an unusual slant -- it will be a relatively rare blend of animation and live action.

Drawing Its Own Future

Viacom has been at this for a while. It launched Paramount Animation in mid-2011, on the back of its go-it-alone success "Rango" (which was branded under the umbrella Paramount name). The out-there Western was not only a box office hit, raking in $246 million in global ticket sales against an estimated production budget of $135 million. It also collected an Oscar for Best Animated Feature.

%VIRTUAL-article-sponsoredlinks%The following year, the studio's distribution deal with DreamWorks Animation (DWA) expired, leaving it without a steady flow of cartoon titles. Bringing animation in-house was a natural move to stay in the game. But apparently not an easy one.

Less than six months after being born, Paramount Animation lost its top executive when the division's president, David Stainton, resigned for "personal reasons." Still, the company was clearly determined to push ahead, and development of the "SpongeBob" sequel rolled along.

Cleaning Up at the Box Office

Mr. SquarePants is an obvious choice for a debut. Paramount Animation doesn't have to worry about pricey licensing fees, because parent Viacom already holds the rights. SpongeBob has been a longtime staple of the company's Nickelodeon TV network, where it's one of the highest-rated kid shows on basic cable.

And Paramount knows the franchise can succeed on the big screen. "The SpongeBob SquarePants Movie" (like "Rango," made under the Paramount name) sold more than $140 million worth of tickets worldwide during its 2004 theatrical release -- nearly five times its estimated production budget.

It's also a good time to be in the animated feature business just now. There's a dearth of releases for the under-teen set these days, so the market's rather open, and it's large.

Of the top six features by domestic gross last year, half -- "Despicable Me 2" from Comcast (CMCSA), and "Frozen" and "Monsters University," created by different units of the Disney (DIS) empire -- were animated. Combined, the trio took in just over $920 million.

And those are just the domestic figures. Kid flicks translate well and easily in foreign markets, and each movie did strong business abroad. "Despicable Me 2" topped its U.S. take by almost $150 million, grossing $551 million overseas. Nearly 54 percent of the ticket sales from "Frozen" came from international box offices, while that ratio was even higher (64 percent) in favor of foreign for "Monsters University."

What Works for "Mary Poppins"...

The first SpongeBob film had a few live-action sequences, most notably one set on a beach featuring "Baywatch" actor David Hasselhoff in a funny, self-mocking cameo. Paramount is going to expand on this mix considerably in the sequel, which looks set to blend even more live action into the mix. The film will have two directors: one (Mike Mitchell) to handle the live action, and the other (Paul Tibbitt) to oversee animation.

"SpongeBob Squarepants 2" will hardly be the first or only movie combining the two media. In 1964, "Mary Poppins" graced the screen and became a near-instant classic. Disney's 1988 offering "Who Framed Roger Rabbit?" was the second-highest grossing film of 1988. "The Adventures of Rocky and Bullwinkle" tried in 2000, and lost money. But the two CGI-powered "Smurfs" movies released by Sony (SNE) earlier this decade both performed well at the box office.

"SpongeBob SquarePants 2" is, however, likely to be the only such release when it hits the multiplex in February 2015, as hybrids are few and far between. Over the past year, "Smurfs 2" has been the one true mixed-media film in general release.

This uniqueness should help the new SpongeBob feature distinguish itself from rival animated offerings. It'll also attract publicity through the inevitable appearances of celebrity actors in the live-action sequences -- a stronger publicity point than when famous thespians merely provide voices for a character.

"Monster Trucks" Cruising to a Theater Near You

It's still a bit early to tell, but indications are that Paramount Animation might be trying to differentiate itself from its rivals by being "the hybrid studio." The other major project the unit has copped to developing is "Monster Trucks," another mixed-media movie. That film is slated for release in May 2015.

Sticking to one, fairly specialized movie format is a smart move, assuming that's the strategy the division is following. It's an effective way to separate from the rest of the animation pack in Hollywood.

"SpongeBob SquarePants 2" should do robust business, and place Paramount Animation high on the list of top specialty units in Hollywood. Its challenge, starting with "Monster Trucks," will be to stay there.

Motley Fool contributor Eric Volkman owns shares of Disney. The Motley Fool recommends DreamWorks Animation and Disney, and owns shares of Disney. Try any of our newsletter services free for 30 days.