Studios are no longer the private domains of moguls who often inserted a "morals clause" into star contracts and could scuttle a career based on bad behavior.

Now, studios are part of huge public media conglomerates under enormous pressure from profit-obsessed shareholders.

Stars are also under intense scrutiny by celebrity-driven tabloids and Web sites. Recently, a studio executive openly chastised Lindsay Lohan for late-night carousing that delayed production of her latest film.

Still, Cruise will likely continue to star in films for Paramount, even as his company vacates the Paramount lot and raises private financing. Cruise/Wagner has several films in development at Paramount as well as other studios.

Cruise himself was never under contract to Paramount as an actor and has appeared in films for other studios over the years, including "The Last Samurai" for Warner Bros. in 2003.

Wednesday, Cruise's representatives said the star had told Paramount weeks ago that he would not renew his Paramount deal.

"Paramount made a firm offer for a new term of years," said his attorney Bertram Fields.

That offer was for far less than what Cruise/Wagner had been receiving to pay for overhead and development costs, Fields confirmed.

But he said Cruise had told Paramount he was more interested in starring in films going forward rather than producing them and needed less money to renew.

Fields said he and other advisors recommended Cruise and his partner, Paula Wagner, reject the offer because of a change in attitude among Paramount executives toward the pair.

"I felt there was an atmosphere of hostility and this was a place he would never get a fair shake," Fields said. "I think he was about to communicate that position and Paramount found out about it, panicked and decided to get out before he did."

Paramount spokesman Carl Folta declined to comment Wednesday beyond Redstone's remarks.

Wagner said Tuesday that her company has secured independent financing from two hedge funds.

Studios, seeing profits shrink as box-office flattens and DVD sales decline, are trying to dump the long-held economic system in Hollywood that led to stars earning paychecks north of $20 million.

"Studios see things are slowing down and they can no longer afford to make big movies" and agree to lucrative deals for actors where, in some cases, "the star makes more than the studio at the end of the day," said media analyst Harold Vogel.

"Mission: Impossible III" made $393 million in worldwide ticket sales and is sure to be a big seller on DVD. And Wagner points out that the collaboration between Paramount and Cruise/Wagner Productions has produced $2.5 billion worth of business.

But "Mission: Impossible III" made less money than the first two films of the series, despite general agreement that it was the best of the trio by far.

"I do think the film underperformed in the domestic market considering this was the best of all `Mission Impossibles,'" Guber said. "But to say that's a reason to pull the plug on the whole relationship does strain some credibility."

Cruise and Wagner will likely have no trouble raising money to finance their own films.

Hedge funds are sitting on about $1.7 trillion in cash according to one estimate, and fund managers are searching for places to invest.

Funds have invested about $5 billion in films over the past several years and that figure is expected to rise to $50 billion in the next five years or so, said Andrew Schneider of HedgeCo Networks, which tracks hedge funds.

Simon Franks, chairman of Redbus Group, a private equity group, said he would be happy to invest in a Cruise/Wagner production.

"Most actors are overvalued, but Cruise is one of the few who is undervalued," Franks said. "He's never had a failure, so you'll get a high return on average investment."