Star-Struck Bankers Return to Hollywood to Finance Movies http://t.co/3Ewxj8HGuF via @anoushasakoui pic.twitter.com/ppXIAiEpMj
— Jon Erlichman (@JonErlichman) June 21, 2014

When Jay Cohen sought funding for a new independent film company, Wing and a Prayer Pictures, he had bankers falling over themselves to finance it.
“We had seven banks call and offer us lines of credit,” says Cohen, head of film financing and distribution at Gersh Agency in Beverly Hills, California, and an executive producer of the 1994 comedy “Swimming With Sharks.” “They had never met anyone involved in the company,” he says.
From big banks like JPMorgan Chase & Co. (JPM) to billionaires like John Paulson, investors are putting their money into movies again after pulling back during the financial crisis, Bloomberg Businessweek reports in its June 23 edition. Filmmakers are able to borrow at the lowest rates since 2008, bankers say.
“There is a lot more activity than I have seen in a long time,” says David Shaheen, head of JPMorgan’s entertainment industries group in Los Angeles. “There is increased comfort in the future of the business relative to a few years ago.”
The success of Netflix Inc. and other streaming services has generated demand for content and brought in new revenue, which in turn has helped offset falling DVD sales that hit studio profits. Expanding international audiences, especially in China, are also reassuring investors, says Lindsay Conner, co-chair of the entertainment and media practice at law firm Manatt, Phelps & Phillips.

More Lenders

The number of banks serving Hollywood shrank during the financial crisis, to eight from 30, Shaheen says. Now about 20 banks are financing movie and TV projects. JPMorgan, which has been working with the studios since the 1920s, Comerica Inc. and Union Bank NA have been joined by East West Bancorp Inc. and OneWest Bank FSB, which is co-owned by George Soros, Paulson and Steven Mnuchin, the bank’s chairman. Loan prices are down to where they were before the financial crisis, said Jeff Colvin, senior vice president and group manager at Comerica in Los Angeles.
The cost of a bank loan to fund production today carries an interest rate of about 3 percentage points above lending benchmarks, plus additional fees that vary widely among the banks and investment funds. Interest rates hovered around 4 percentage points over benchmark rates during the crisis, bankers say.
Film financing is attractive to banks because it requires some specialization, such as knowledge of production and distribution, that commands higher fees, says Joseph Woolf, head of media and entertainment at OneWest in Los Angeles. Now the rush to invest in movie projects is driving down returns for financial backers.

Cannes Deal

During the Cannes Film Festival in May, JPMorgan, OneWest and SunTrust Banks Inc. said they would lend $450 million to EuropaCorp, the European studio founded by Luc Besson, director of “The Fifth Element,” in the largest-ever financing for a non-U.S. film company. Gersh’s Cohen says Wing and a Prayer Pictures attracted equity investors from Texas to Brunei.
Despite the glamour, not everyone is opening up their wallets. In April, Sony Corp. struck a deal with Citigroup Inc. and a unit of private-equity firm Lone Star Funds for a $200 million debt and equity facility, people familiar with the deal say. Citigroup provided half of that, with a $100 million loan to help finance a slate of as many as 15 pictures, including “The Amazing Spider-Man 2” sequel released in May, say the people, who asked not to be identified because the terms of the deal are private. Sony has sought subsequent financing, they say, though no deals are imminent. The studio was seeking $750 million, the New York Times reported in December.

Bad Returns

Financings for a slate of movies “are starting to crop up more in everyday dialogue, and a number of potential deals are being discussed,” says JPMorgan’s Shaheen. The challenge is finding equity investors willing to risk their money on several projects, he says.
Private-equity and hedge funds mostly stay away from the business because of bad returns, says Amir Malin, managing principal of Qualia Capital LLC, a New York media investment company. Aramid Entertainment Fund Ltd., a film finance fund, filed for Chapter 11 bankruptcy protection in June, a move brought on by the cost of several lawsuits it had filed against producers who defaulted on movie loans.
“When incentives of studios and co-financiers are not aligned, we have little choice but to sit back and watch the train wreck about to happen,” says Malin.

‘Safe Money’

Competition is fierce for lending to independent filmmakers, which typically raise money on a film-by-film basis. Distribution contracts, tax credits and rebates payable by governments are good sources of collateral.
“It is seen as safe money,” says Lee McGuirk, a partner at the law firm DLA Piper.
Meanwhile, there’s no shortage of wealthy individuals who lend at low rates in exchange for receiving producing credits on a film.
“There are more billionaires within 10 miles of where we are sitting right now than there were on the planet 10 years ago,” John Sloss, founder of Cinetic Media Inc., an advisory firm, said at the Cannes Film Festival in May. “They like hanging around the movie business.”


To contact the reporter on this story: Anousha Sakoui in London at asakoui@bloomberg.net
To contact the editors responsible for this story: James Ellis at jellis27@bloomberg.net Dimitra Kessenides, Stephen West

Studio Financing News

Financiers target $1.2 bil for studio pics

 

Anton Capital, StormHarbour seek to co-finance; eyeing Sony, U

By Rachel Abrams

As Relativity Media's billion-dollar co-financing deals at Sony and Universal draw to a close, finance groups Anton Capital Entertainment and StormHarbour are in the early stages of assembling a fund to back studio films. Their target: $1.2 billion to shop to the majors, with the most serious eye toward Sony and U.
Sources with direct knowledge of the potential fund caution that discussions are very preliminary: Anton and StormHarbour are in the fund-raising process, and neither Sony or Universal is in negotiations. Sony, Anton and Universal declined to comment; StormHarbour did not return emails.
Anton and StormHarbour made headlines at the end of last year by backing a $200 million fund with pan-European film group Studiocanal, coin that funded several pics including "Tinker Tailor Soldier Spy" and will contribute to the Coen brothers' "Inside Llewyn Davis."
For the past few years, most majors have opened their portfolios to potential partners, as pressure from corporate parents has pushed the studios to lessen their risk on big-budget fare. With the Relativity-arranged Beverly I and Beverly II vehicles either done or almost finished financing films at Sony and Universal, both studios have actively discussed bringing in new money.
And while fund talk may be early, many observers say that Anton and StormHarbour are closer than other groups that have come and gone through studio doors in recent months. Many investors have taken meetings, but few have materialized the cash to back up a big-budget partnership.
Chinese funds, for example, have made more headlines than movies in the past year. While Hollywood is aggressively looking to break into the mainland marketplace, few high-profile announcements have yielded tangible partnerships or films, especially at the major or mini-major level.
And while investors from all over the globe court Hollywood on a regular basis, co-financing deals at the studios look a lot different than they did a few years ago.
Lawsuits, the credit crunch and slipping home video numbers have made expensive slate arrangements less palatable. Instead of half-billion-dollar pacts to blindly fund dozens of pictures, many investors have put together smaller pacts with studios for select films.
In August, equity fund Hemisphere partnered with Sony for three of the studio's tentpoles (one of which was co-financed by Paramount as well), while David Elllison's Skydance Productions pacted with Paramount in 2009 for select big-ticket tenptoles.
That would make a $1.2 billion co-financing fund even more interesting.
Beverly II, which Relativity arranged at U in 2008 with backing from hedge fund Elliott Management, will fund films greenlit through the end of 2012, although the overall deal expires in 2014.
Under terms of the arrangement, Elliott funds about half the budgets of 75% of U's films each year. And while U had some home runs in 2011, like "Fast Five" and "Bridesmaids," Elliott smarted from a number of disappointments, including "Cowboys & Aliens." Beverly II also didn't participate in "Fast Five," which grossed more than $600 million worldwide.
Relativity arranged Beverly I at Sony in 2007. Funded more than 17 films, including hits like "Salt," "The Social Network" and "Grown Ups," through that arrangement, although the package also included misfires like "Did You Hear About the Morgans?"

Contact Rachel Abrams at Rachel.Abrams@variety.com

Variety on Film & Studio Financing

Posted: Fri., Feb. 24, 2012, 8:25am PT

Studios finding fewer slate deals

Moneymen bargin for more dough, more control

By Rachel Abrams

Slate financing has a PR problem. Lawsuits, the credit crunch and a number of films that didn't return the kind of money investors expected have all made studio slate deals less palatable. And with the recent or near-end of several high-profile arrangements, the question now is whether new money will be in place by the time the old coin runs out -- and whether the majors really need the capital at all.
Any new deal, however, will likely look a lot different than the majority of slate arrangements locked down between 2005 and 2008.
"The biggest challenge in getting a traditional slate financing deal done today is that significant losses were experienced (over the past decade), which has caused equity and subordinated capital providers to pull back," says Christa Thomas, managing director and senior film adviser in SunTrust's Private Wealth Management Sports & Entertainment Specialty Group. "The changing technology landscape, especially for home entertainment, has further eroded confidence around risk assessment and mitigation."
And that's caused financiers to demand more from Hollywood and to broker deals that add on many more layers and deal points.
In the past, many moneymen blindly financed slates of films they didn't pick themselves. Their cash often covered 50% of the budgets on dozens of pics that ranged in degree of risk. Now, many co-financing arrangements involve fewer films and allow studio partners like David Ellison's Skydance Prods. and Jeff Sagansky's Hemisphere, for example, to have more leverage in choosing which films to partner on -- especially among tentpoles.
"The old slate deals were just a blunderbuss," says Stroock & Stroock & Lavan partner Schuyler Moore. "The real story is, it's just not happening (anymore) … now what you're doing is identifying your films going in."
That's because investors want more safeguards. They often want the chance to recoup a portion of their investment before the studio takes its fees, or they want to get their money back before the talent gets it backend.
But the question of which concessions the majors will or won't make won't be answered until more slate arrangements are assembled -- something that seems much less likely than in years past.
Co-financing arrangements can take months to close, and the majors are always in discussions with investors to explore opportunities. While these deals aren't essential to keep the lights on, most studios prefer to mitigate risk on all but their highest-profile franchises.
But when one door closes, another opens. As studios produce fewer of their own films, that provides room for distribution agreements with companies that have financed commercial projects -- like the deals Universal inked with Cross Creek and MRC last year. Cross Creek's Ron Howard-helmed "Rush" will mark the former pact's first release, while MRC currently has Seth MacFarlane's "Ted" in post-production.
While banks may be willing to lend, many observers wonder when equity will come back into the film-financing market. As a result, funds have turned their eyes overseas, particularly to China, India and elsewhere in Asia. Hemisphere's coin, for example, came in large part from Japan's Toho-Towa Co. and Kadokawa Shoten, and Korea's Lotte Cinema.
Paramount, Warner Bros. and Fox all have co-financing deals in place, while Disney is the studio outlier. Credit Suisse First Boston arranged $500 million in funding for the Mouse House's Kingdom deal in 2005 (the studio's first co-financing arrangement in a decade), but that pact ended in 2009.
Sony was able to fund 18 films, including hits like "Salt," "The Social Network" and "Grown Ups," through its Beverly I slate-selection arrangement. While the package also included misfires like "Did You Hear About the Morgans?," the pics overall grossed more than $2.6 billion worldwide.
Prior to 2008, estimates for a pic's overall performance counted in large part on homevideo sales, which often matched or even doubled worldwide box office grosses. That set expectations high for slate performances, and those expectations have been difficult to meet in recent years because of the decline in DVD dollars.
Aramid Entertainment Fund, an investor in the Beverly I slate, sued Relativity and hedge fund Fortress in February over its stake in the deal. The suit didn't name Sony or accuse the studio of any wrongdoing, but Aramid's very public unhappiness with its deal adds to the negativity surrounding these types of arrangements.
But money is always knocking at the studio gates, some of it more real, some of it less. As Variety first reported in August, Sony secured financing for three of its tentpoles from Hemisphere ("The Smurfs," "Men in Black III" and "The Adventures of Tintin," the latter of which was also co-financed by Paramount), and the studio is always talking to investors about other potential opportunies.
Any discussions Universal is having with potential financiers comes in advance of the end of its own co-financing deal.
Beverly II, arranged by Ryan Kavanaugh's Relativity Media and backed by Elliott Management in 2008, will fund films greenlit through the end of 2012, although the overall deal expires in 2014.
Under terms of the arrangement, Elliott funds about half the budgets of 75% of U's films each year. And while U had some home runs in 2011, with hits like "Fast Five" and "Bridesmaids," and this year with "Safe House," the studio is still smarting from a string of modest to disappointing performers (including "Cowboys & Aliens," in which Relativity participated) over the past few years.
Relativity can select films for Elliott, but it's not clear whether U's whole slate is open to them. Either way, Beverly II did not participate in "Fast Five," which wound up grossing more than $600 million worldwide to become the "Fast and the Furious" franchise's top grosser -- one very big missed opportunity.
Across town, Paramount's major co-financing arrangement comes from Ellison's Skydance. The two partnered in 2009 for a four-year deal that would allow Skydance to co-finance four to six of the studio's pics per year, including "Mission: Impossible -- Ghost Protocol," "Star Trek 2," "World War Z" and "G.I. Joe: Retaliation" through Skydance's $350 million fund (with a $200 million credit line arranged by JPMorgan Chase). Melrose II, a $300 million slate deal arranged by Dresdner Bank in 2006, wrapped up in 2008, although it still enables Melrose II investors to put money into sequels whose originals they also financed -- provided that the studio releases those pics by 2016. Any new investors would not have access to films included in the Skydance or Melrose II deal.
In November, investors in Melrose II filed a suit against the studio over profits to more than 29 films (including "Mission: Impossible III," "Charlotte's Web," "Dreamgirls," "Blades of Glory," "Jackass 2" and all three "Transformers" films).
Fox's pact with Dune, renewed in 2010, marks one of the longest-standing co-financing relationships at any of the studios. Dune began funding Fox movies, including boffo pics like "Avatar" and "Live Free or Die Hard," in 2005, and the pact's longevity and multiple renewals suggest Dune's contentment with its deal. Additionally, Fox has capital coming in from partners including New Regency and Ingenious, the latter of which has been on the Fox lot since 1998.
Meanwhile, Warner Bros. is set for the near future. Its two major investors, Village Roadshow and Legendary Entertainment, both secured new credit lines within the past two years. Village Roadshow closed a $1 billion facility in 2010, while Legendary wrapped up a $600 million-plus facility last April.
Ultimately, whether they have co-financing coin or not, the studios are always in discussions with potential investors, and always considering new financing arrangements.
"All of the studios today are divisions of much larger conglomerates," says Lindsay Conner, partner at Manatt, Phelps & Phillips. "Gone are the days when one mogul owned a big share of a studio, and that was the main business of the company. Today, they're all part of larger businesses, and it's a common and appropriate corporate practice to spread the risk of all expensive new initiatives." What: Slate financiers demand more control over projects. The takeaway: As studios mitigate risk, they must cede some control to the moneymen.

Contact Rachel Abrams at Rachel.Abrams@variety.com

 

Moneymen pick up studio's slack

Financiers make mark in creative developement

By Marc Graser

Before Ryan Kavanaugh set up shop in Hollywood a decade ago, film financing was a mostly anonymous affair. There was nothing notable about funds named Gun Hill, Beverly or Melrose, other than the Hollywood streets the latter two are named after; and lenders like JPMorgan Chase, Merrill Lynch and Bank of America were faceless financial institutions. With Kavanaugh, there was now a colorful personality attached to the pursestrings of many pics playing at the megaplex. These days, Kavanaugh is hardly the only deep-pocketed moneyman on the scene.
A new crop of investors boasting their own rich bank accounts has recently gone from Hollywood outsiders to the top of executives' call sheets.
Their increased involvement in the film biz comes as the media congloms demand more profits from their studio divisions, scaring off execs from greenlighting films unless they can spawn sequels or an eventual reboot, generate piles of merchandise and sell millions of theme-park tickets.
"At the end of the day, Hollywood is all about making money," says one major studio boss. "That sounds cynical, but it's true. My hands are tied having to come up with big franchises. I can't make certain movies anymore, no matter how profitable they might become. I make movies that turn into toys."
While the majors devote their attention to tentpoles, they still need additional movies to fill their distribution pipelines. And that's where Hollywood's new bankrollers come in.
A year ago, David and Megan Ellison, the offspring of Oracle's billionaire chief Larry Ellison, were unknowns before pairing up with Paramount to make tentpoles like "Mission: Impossible -- Ghost Protocol" and high-profile indies like "True Grit." So were the five Thompson brothers, a Louisiana oil-and-gas family whose Cross Creek banner struck it rich with "Black Swan."
Tim Headington ("Hugo," "Rango") is a Texas oil and real estate baron who now co-owns FilmDistrict with Graham King (with whom he funded GK Films). "Warrior" producers Jordan Schur and David Mimran made their millions running record labels and a Monaco-based food processing firm. And Richard Branson was a high flyer, not a filmmaker, until launching the Virgin Produced banner.
Before them, Reliance Group's Amit Khanna was a player in Bollywood prior to backing DreamWorks with $325 million. Jeff Skoll (Participant), Fred Smith (Alcon), Sidney Kimmel (SKE), Bill Pohlad (River Road) and Philip Anschutz (Walden) earned their wealth from eBay, Federal Express, apparel brands like Nine West and Anne Klein, the Minnesota Twins baseball team and L.A. real estate, respectively.
And Thomas Tull, part owner of the Pittsburgh Steelers, was a rich fanboy with a soft spot for comicbooks, toys and videogames before forming Legendary Entertainment and co-financing Warner Bros.' bigger tentpoles.
In the past, outside financiers were lumped under one disparaging label: "dumb money." When one well was tapped dry by studios, another would come along.
The cycle is under way once again. Only this time, Hollywood's new moneymen are savvier and getting more involved in the creative process. Financiers aren't just writing checks in exchange for premiere tickets, they're actively helping develop and produce the films in which they invest.
Pohlad has said he's "attracted to the (film) business because of filmmaking" and not how much coin he can collect from a pic's success. He also "wants creative involvement." And David Ellison says he never wants Skydance to be viewed as "just a checkbook."
These newcomers also are signing on to support films they actually want to see.
Given Tull's fanboy interests, it's no surprise that Legendary has established itself as a key banner behind the Batman and Superman actioners; the giant robots-vs.-monster epic "Pacific Rim"; fantasy tales "Seventh Son," "Paradise Lost" and "Jack the Giant Killer"; a reboot of "Godzilla" and adaptations of videogames "World of Warcraft" and "Mass Effect."
Anschutz's Walden ("The Chronicles of Narnia") has focused on family fare with messages that align with the mogul's religious and conservative values, while Skoll's Participant makes movies with sociopolitical themes like education and healthcare that jive with his philanthropic causes.
The choices of the Ellison siblings also reflect their tastes: David's Skydance gravitates toward actioners like the fourth "Mission: Impossible," the "G.I. Joe" sequel, a reboot of the Jack Ryan series, zombie pic "World War Z," the Tom Cruise vehicle "One Shot," and a disaster epic from scribes Zack Stentz and Ashley Miller ("X-Men: First Class" and "Thor"), who are also tackling a reboot of "Top Gun," which Skydance is producing with Jerry Bruckheimer. Megan Ellison's Annapurna Pictures has become the darling of indie filmmakers like the Coen brothers ("True Grit"), Doug Wick ("Wettest County," bought by the Weinstein Co. at Cannes), and Spike Jonze, Kathryn Bigelow, Andrew Dominik ("Cogan's Trade"), Gore Verbinski ("Bitterroot") and Paul Thomas Anderson, although her buy-up of the "Terminator" rights signals more of a move to tentpole territory.
It's a busy group.
•Tull's Legendary launched with a $500 million fund in 2004, and raised a credit line of about $700 million last year, making it a major pic producer through 2016, even after its seven-year pact to co-finance and produce films with Warner Bros. ends in 2013.
It established itself by laying claim to genre fare, with co-productions including WB's Superman and Batman films, the "Hangover" comedies, "300," "Watchmen," "Clash of the Titans" and "Inception." Tull also has launched Legendary East, a Chinese studio set up to self-finance pics in that country through a $220.5 million fund (and another $225 million credit facility), with Ed Zwick's "The Great Wall" as its first project.
• David Ellison's Skydance oversees a $350 million fund to co-finance films with Paramount, with the shingle getting first look at the studio's projects through a four-year deal, an unusual pact for any first-time financier.
• Megan Ellison has yet to disclose just how much money she's working with, but her company ponied up $20 million to land rights to the "Terminator" franchise.
• Timmy, Tommy, Todd, Tyler and Bobby Thompson bought their way into Hollywood with $40 million through their Cross Creek Pictures banner, run by Brian Oliver (former topper at Arthaus Pictures and a Propaganda Films exec), and found a gusher at the B.O. with "Black Swan," a $13 million pic that danced its way to $329 million worldwide. The company has since enticed backers to raise another $260 million.
• Randall Emmett and George Furla's Emmett/Furla Films teamed with Stepan Martirosyan and Remington William Chase's Envision Entertainment in September to establish a $250 million equity and debt fund, with initial dollars coming in part from the Russian oil biz and real estate ventures.
• Media Rights Capital's Modi Wiczyk and Asif Satchu closed a five-year, $350 million revolving credit facility with five banks, also in September, to replace a similar three-year fund secured in 2008.
• India's Reliance Big Entertainment backed half of DreamWorks in 2009, for $325 million, essentially giving the company a second life. It's also ponied up development coin for projects developed by shingles run by Tom Hanks, Brad Pitt, Nicolas Cage, George Clooney, Jim Carrey, Jay Roach, Chris Columbus and Brett Ratner.
• Last summer, former CBS and Sony exec Jeff Sagansky launched Hemisphere Tentpole Co-Financing Fund with Jean-Luc De Fanti and Eli Baker (also behind Winchester Capital Partners) to back 12 to 16 studio pics that it believes will play well in growing foreign moviegoing markets. The first $200 million went into Sony's "The Smurfs" and "Men in Black III," Paramount's "The Adventures of Tintin: The Secret of the Unicorn" and "World War Z."
• And flying high with funds from his Virgin-branded airlines, Branson launched Virgin Produced in July 2010, through a pair-up with Kavanaugh's Relativity. Run by former J2TV/J2 Pictures producers Jason Felts and Justin Berfield, the shingle landed a hit with "Limitless," a $27 million pic that starred Bradley Cooper and has scored $162 million worldwide. It also backed "Immortals," a co-production with Relativity, that is now its biggest hit. Relativity quickly paired up with Virgin after the shingle offered to provide some valuable marketing muscle by tubthumping films across Branson's airlines, including Virgin America and Virgin Atlantic, and cell phones, through Virgin Mobile.
These new producers are keeping midrange-budgeted pics afloat -- something New Regency (the "Alvin and the Chipmunks" franchise, "In Time," "What's Your Number?") has long done at Fox. (The banner closed a $500 million credit line in September to fund more pics.)
Similarly, Emmett/Furla Films is expected to produce nine pics this year through its new fund that will benefit studios and mini-majors. The company recently financed Stephen Frears' comedy "Lay the Favorite," with Bruce Willis, Rebecca Hall and Catherine Zeta-Jones and Lionsgate-Summit's upcoming "The Tomb," with Sylvester Stallone and Arnold Schwarzenegger. .
And, after speciality labels Warner Independent, Fox Atomic and Par Vantage shuttered, companies like Norm Waitt's Gold Circle Films ("Life as We Know It"), Bill Pohlad's River Road ("Tree of Life," "Brokeback Mountain"), James Stern's Endgame Entertainment ("An Education") and Steven Rales' Indian Paintbrush ("Like Crazy") are breathing new life into the indie biz with titles that are praised by critics but are never going to lead to action figures or videogames.
As Pitt recently told Variety, "There are a few very strong independent financiers that are more interested in content than profit. These guys like Bill Pohlad, who did "Tree of Life," and Tim Headington and Megan Ellison are so important to what we do in the structure we are in right now. (Without them), harder-sell risk-taking films might not make it to the screen."
Even Lionsgate is looking for partners, teaming up with "Warrior" producers Schur and Mimran, whose credits include the Edward Norton-Robert De Niro psychological thriller "Stone" and the Malcolm Venville-directed "Henry's Crime," with Keanu Reeves, to co-finance a yet-to-be disclosed slate of films.
Universal, especially, is relying on outside partners for pics. MRC (Seth MacFarlane's "Ted," "The Adjustment Bureau," "Bruno") has a five-year distribution deal with U. And the studio recently inked a three-year deal to release at least six films from Cross Creek, the first being Formula One racing biopic "Rush," steered by Ron Howard. CBS Films released Cross Creek's Daniel Radcliffe starrer "The Woman in Black."
Cross Creek is focused on films with budgets that fall in the $15 million-$65 million range, with an average cost of $25 million to $35 million. Its Clooney pic "The Ides of March" had a $23 million budget. The film has since lobbied $34 million from the domestic B.O. In development at the shingle are Todd Field's "The Creed of Violence"; "Black Mass," a Boston Irish mob tale about James "Whitey" Bulger; and a biopic of actor Steve McQueen that Jeremy Renner is circling.
If there's anything that ties these moneymen (and women) together, it's that they've managed to largely stay out of the spotlight. In fact, most avoid the Hollywood party scene, attending premieres for their own pics only. They give few interviews. With the exception of Legendary, the shingles are small operations, requiring little overhead (Megan Ellison's Annapurna is essentially the 25-year-old and her lawyer).
Some are looking to boost their presence, however.
Tull is making moves to turn Legendary into a full-fledged studio, self-financing more films in the U.S., rather than as co-productions with Warners, and abroad through his Hong Kong-based Legendary East, the entity that will produce English-language tentpoles designed for Chinese auds. WB will distribute those films.
Legendary already has successfully become a brand among the Comic-Con crowd, with the company's panel at this year's confab for pics that had yet to start production attracting more than 2,000.
And while there has been some internal friction between Legendary and WB over credit, and a falling out between Relativity and U (especially over their dueling Snow White films), most studio chiefs aren't objecting to the inroads made by this crop of Hollywood newcomers. In fact, some are outright envious.
"These other guys, they've got the freedom to make whatever they want," the major studio head told Variety. "They can take the risks we (studios) can't anymore."

Contact Marc Graser at marc.graser@variety.com

Posted: Fri., Feb. 24, 2012, 8:25am PT

Thinking outside the studio lot

Independent producers help majors fill pipelines

By Variety Staff

"Other people's money" has become the mantra of the Hollywood majors as they make fewer films themselves, and look to outside producers to keep their distribution pipelines full. According to the Motion Picture Assn. of America, releases from Disney, Fox, Paramount, Sony, Universal and Warner Bros. dipped 4% between 2001-2010, while product from studio specialty arms fell 51%, largely because of the shuttering of speciality labels like Warner Independent, Paramount Vantage, Fox Atomic, and Disney's sale of Miramax.
Non-MPAA members, which includes everyone but the six majors, showed a 55% increase in pic production during those nine years.
In 2010, MPAA members produced 98 films, compared with 652 films from non-MPAA members, according to data from the org. That's a 19% drop in pics for the majors from the prior year's total of 121 (non-MPAA members produced 613 in 2009).
Last year, the majors produced 104 pics, according to Rentrak -- close to the 10-year average of 110. And the studios already have 94 films slated for release in 2012.
These figures can be a little misleading.
Studios may be distributing the films, but they aren't fully financing most of them. As budgets get bigger, studios want to mitigate their risk on pricey pics. The credit crunch, diminishing homevideo dollars and the tightening of purse strings by corporate parents have also contributed to the studios' production slate cutbacks.
With the rare exception of a "Harry Potter," or Disney's family tentpoles, studios increasingly are turning to an expanding list of moneymen with sizable personal wealth, control of hedge funds, credit lines and other sources of equity with whom they're making big-budget pics.
While mitigating risk on production budgets, the studios, acting as distribution entities, can take advantage of the growing box office overseas -- especially in China, Russia and Brazil -- and new digital distribution platforms.
As Disney reduces its inhouse productions to a half-dozen live-action family films, it's filling out the rest of its distribution pipeline with films from Marvel Studios, Pixar and DreamWorks.
"We feel we're better off by reducing the size of the slate and making films that are bigger and increasingly more risky," Disney chief Robert Iger told investors last year. Those films include "Oz: The Great and Powerful" and "John Carter," each of which cost more than $200 million.
The Mouse House isn't alone in that shift.
Paramount wound up with "Iron Man," "Thor" and "Captain America" through a distribution deal with Marvel Studios when the comicbook giant was self-financing its slate of superhero fare. Par also releases DreamWorks Animation's toons, and landed "Transformers" and "G.I. Joe" through a pair-up with Hasbro, and the "Indiana Jones" films from a long relationship with Lucasfilm. "Star Trek," "G.I. Joe" and the remake of "Footloose" were backed by Spyglass (now in charge of MGM). And the studio now has David Ellison's Skydance reinvigorating the "Mission: Impossible" franchise and backing the "Star Trek" series, which was rebooted in 2009.
The deals let Paramount collect a lucrative distribution fee while touting tie-ins with high-profile tentpoles.
Another factor aiding the rise of outside-studio producers is the recent slow defrosting of the credit market, which has helped investors to raise enough capital to buy Miramax, MGM to refinance its debt with $500 million and return as a player, New Regency to close a $500 million credit line and Dune Capital Management to extend its deal with Fox to back 35% of the studio's slate.
At the same time, the hunt for profits during the economic downturn has put pressure on the majors to make safer bets: four-quadrant franchises that play globally and perform across divisions. The downside: Those films are expensive, with $100 million-plus pricetags that are quickly ballooning past the $200 million mark.
"People still want to see movies," says one studio chief. "Unless you're Disney, moviegoers don't really care who makes them."
MGM, which was once the embodiment of the studio system, is emerging from bankruptcy as a producer of pics for other studios, focusing heavily on remakes like "RoboCop," "Death Wish," "WarGames," "Mr. Mom" and "Carrie."
And aside from the creative aspects, studios are outsourcing their funding. Sony and Universal relied on Relativity Media before seeking other sources as Relativity moved to become more of a mini-major. India's Reliance Big Entertainment kept DreamWorks alive. Universal has brought Cross Creek onto the lot. Warner Bros. has a longtime deal with Legendary Pictures for its Batman, Superman and "The Hangover" films, while it also has deals with Alcon Entertainment and Village Roadshow for other tentpole fare.
These financiers-turned-filmmakers are helping take the weight off studios having to fully fund their slates as cost-cutting congloms demand more profits from their film divisions.
Participant Media, which co-finances pics with Imagenation Abu Dhabi, had two of the top films at the B.O. this past fall, with Warner Bros.' "Contagion" and "The Help," a DreamWorks production that Disney distributed. Participant on average backs two films per year, Legendary co-finances three high-profile tentpoles annually with Warner, while Spyglass averages three, including "The Dilemma" (U), "No Strings Attached" and "Footloose" (both Par) in 2011.
The biggest player is still Relativity, which has co-financed 20-30 films a year since 2005, spread out mostly between Sony and Universal, ponying up to 50% of each film's budget. In 2011, however, it pulled back to around 11, including Sony's "Battle: Los Angeles"; U's "Bridesmaids" and "Hop"; and U, DreamWorks and Imagine's "Cowboys & Aliens," as it shifts gears to become a mini-major in its own right. Its solo releases in 2011 included "Season of the Witch," "Limitless" and "Immortals."
What's more, with each hit under a financier's belt, there's even more incentive to fund additional films. Just look at Cross Creek activities after its investment in "Black Swan," which made a strong showing at the worldwide B.O. The shingle moved to back Imagine Entertainment and Universal's "Rush," and signed on to back a slate of films for U.
But having co-financing partners also means sharing the upside, often on films that the majors would have been more hesitant to offer up 10 years ago. That's especially true when it comes to sequel-worthy franchises, which new funds like Hemisphere Capital are now being offered, like "The Smurfs" and "Men in Black III." While its "Harry Potter" franchise was off-limits to partners, Warner Bros. enabled Legendary to back its high-profile DC Entertainment properties starring Superman and Batman. Whether that continues remains to be seen now that WB is taking more control of DC's characters.
"The studios are still navigating through a period where there's pressure on margins. … They're certainly not overinvesting and making more films," says John Nendick, global media and entertainment leader at Ernst & Young.
Until growing forms of digital distribution compensate for a decline in DVD sales -- which doesn't seem likely to happen anytime soon -- that won't change. Alternate suppliers The number of releases by non-studios and studio subsidiaries grew over the past decade from 270 in 2002 to a high-water mark of 466 in 2008. The recession and a crowded marketplace yielded fewer releases in recent years, though the trend suggests tallies are again on the rise. YearNon-studio releases201041920093972008466200742020063902005308200430920032752002270 Data for 2011 not available. Source: MPAA What: The major studios have trimmed the number of films they produce. The takeaway: Outside investors now fund, co-finance or supply many big studio pics.

Contact Variety Staff at news@variety.com

Pre-packaged films find greenlight

Producers get go-ahead for medium-budget pics

By Justin Kroll, Marc Graser

Steve Carell’s involvement with 'Crazy Stupid Love' helped sell it to studios, which are increasingly emphasizing tentpoles, like 'Transformers — Dark of the Moon.'

Hollywood's obsession with franchises and recognizable brands has caused a quiet power shift in the film biz, with the decline in development budgets at the major studios whetting appetites for prepackaged, ready-to-shoot projects. The result: Producers and filmmakers now have more control at the mid- and small-budget levels.With faster greenlights as the prize, filmmakers have new incentives to fully develop their ideas before taking them to the studios. Agents and managers, meanwhile, are attaching talent to projects earlier in the process -- a shift that, as any one of those players will attest, beats fighting with studios for approval.
"It's really more about making (movies) and less about developing them in today's marketplace," says one lit agent.
As one manager puts it: "Companies like Relativity only want packages they can pull the trigger on. They don't have the time or attention span to develop something from scratch. They assume that's your job, and it's why you're bringing a script to them in the first place."
None of that is expected to change, as the corporatization of Hollywood has made studios less likely to take risks on unproven projects, and instead turned their attention to big-budget tentpoles that can perform as franchises at the box office and in retail aisles.
Since the 2007 writers' strike and the 2008 recession, the studios have felt more pressure to appease parent companies that have become more cost-conscious and profit-hungry. They increasingly need to produce content that moviegoers will instantly recognize and embrace. Last summer alone saw the studios focused on familiar properties like the Transformers, the Smurfs, Thor, Green Lantern, Captain America and Planet of the Apes.
But even as they devote their development dollars largely to tentpoles, studios still have distribution pipelines to fill. They need to feed the megaplexes year-round, even if they're not directly creating that product.
That's opened the doors for producers to put together the rest of the studios' slates with original fare.
"Ten years ago, studios would take a package, but they weren't necessarily looking for them," one top agent at a tenpercentery tells Variety. "Now it's more of a priority. Studios see them as an opportunity to put money into something that they know is going to happen instead of paying a couple million on developing something that will never happen."
That doesn't necessarily mean it's easier to get a greenlight.
Tenpercenteries need to assemble packages that grab the attention of studios bosses and are easily marketable to moviegoers.
The packaging process, in fact, is now being discussed before scripts are shopped to the studios, and agents and managers are being trained to do the extra legwork to make projects salable.
Warner Bros.' "Crazy Stupid Love" was a spec that several studios were high on when it was put on the auction block a couple years ago. What helped attract attention to the romantic comedy wasn't just its scribe, Dan Fogelman -- hot off Disney's "Cars" and "Tangled" -- but the attachment of Steve Carell as its star.
Having set up a number of high-profile videogame and comicbook adaptations at the studios, Adrian Askarieh has moved to take the independent route to package his own projects, such as "Alien Sleeper Cell," an alien invasion pic that Morgan Davis Foehl will write and Bill Block ("District 9") will produce through QED Intl. Askarieh is taking a similar approach with "Just Cause," an adaptation of Eidos' hit vidgame -- with Michael Ross ("Turistas") scripting and Eric Eisner's L+E Pictures co-producing -- in order to retain more creative control and speed up the development process.
Most recently, even the music industry has gotten involved: ICM has begun packaging a narrative-style pic revolving around music by the Grateful Dead, after being granted unlimited access to the band's music catalog.
Another package that drew attention was Universal's deal to buy an R-rated college-based comedy that will star Seth Rogen and Zac Efron, based on a script by Andrew Cohen and Brendan O'Brien. Rogen will produce with Evan Goldberg through their Point Grey Pictures shingle.
The commitment of additional talent early in the process has helped boost the pricetag of such deals, reps say, doubling or even tripling what they might have landed for a traditional spec sale in the past.
In the Rogen-Efron deal, the scribes pulled in seven figures and the thesps pocketed higher-than-usual quotes along with backend fees after a bidding war took place to secure the project. Rogen will earn $8 million on top of a seven-figure producing fee.
Locking down talent, however, can prove just as difficult as selling a project to a studio.
Just getting talent to read the material can hold back a package, reps say. But it doesn't stop there.
"It's one thing to get the right talent to like the material and come onboard. It's a completely other thing to get that director or actor to read it," says one lit agent. "Sometimes it takes three days, other times it takes them three months, so a lot of the issues we run into come down to timing."
The involvement of multiple agencies can also cause delays, considering that each has its own idea regarding who is right to topline a particular piece of material.
For the raunchy college comedy set up at Universal, UTA and Principal repped Rogen. The tenpercentery also repped Goldberg. Efron's deal was handled by CAA and Alchemy, while the scribes are also repped by CAA.
Financing is a key factor that often comes into play when packaging such projects before they get their footing at a studio.
A handful of auteurs got their projects up and running thanks to the Annapurna Pictures banner, headed by Megan Ellison.
Over the past year, Ellison has come onboard to finance pictures such as Paul Thomas Anderson's "The Master," "The Wettest County" and Kathryn Bigelow and Mark Boal's untitled project about the hunt for Osama bin Laden. And last May, Creative Artists Agency attached "Fast Five" helmer Justin Lin and producer Robert Cort to the two-picture "Terminator" package that sold to Annapurna for around $20 million in an auction at the Cannes Film Festival.
In almost every case, Annapurna has come onboard as part of the packaging process before any of these projects were brought to a studio. (Ellison's brother David, by contrast, has made a name for himself by boarding studio tentpoles, such as "Mission: Impossible -- Ghost Protocol" and the "Star Trek" sequel, at the financing stage.)
Outside financing has fostered other nontraditional development.
India's Reliance Group invested $325 million in DreamWorks, and gave CAA clients Brad Pitt, Jim Carrey, Brett Ratner, Jay Roach and Julia Roberts $2 million each to develop films. It provided $5 million to Imagine Entertainment to launch an inhouse writers lab to produce scripts. These development funds, however, have yet to yield any projects.
Though it may feel like fewer specs are being sold to studios these days, some reps believe the majors are still willing to take on such work if the material feels right, as it was with Fox's "Chronicle," a low-budget horror pic that's already passed $50 million at the domestic box office.
And at least one lit agent is adamant that spec sales aren't dead, and that the reason so many go unnoticed is because a simple pitch with no one attached doesn't arrive with the same fanfare that a pedigreed package typically does.
"Packages just jump out more in the media because of the talent attached," the rep says. "Let's say I sell a pitch for $375,000 but then someone else sells a pitch with Tom Cruise attached. That just makes a bigger splash." What: Studios see pre-packaged projects as more efficient, less costly.
The takeaway: Packaging gives filmmakers more control over mid-range budget pics.

Sony Film Fund deal lawsuit

An interesting read into the intricacies of film financing.


Jeff Sneider @TheInSneider

"Sony no longer has to share the upside on potentially lucrative sequels to films such as GROWN UPS, PAUL BLART: MALL COP & SALT w/ Beverly"

The Full Complaint via Deadline

Company Town

The business behind the show

Relativity, Fortress sued by investor in Sony slate deal

February 8, 2012 |  5:26 pm

A film company that invested in a Sony Pictures co-financing fund arranged by Relativity Media is suing both Relativity and Wall Street giant Fortress Investment Group for fraud and breach of contract. The suit, filed Wednesday in Los Angeles Superior Court by Aramid Entertainment Fund, claims the Sony fund, which provided more than $500 million in capital to co-finance movies since 2008, was shut down late last year in a manner that benefited both Fortress and Relativity but deprived Aramid of at least $44 million.
Aramid claims to have invested $22 million in the film-finance fund set up by Relativity, for which financing was arranged by Citi. The so-called "Beverly slate deal" allowed Relativity to choose from among most of Sony's productions to co-finance up to 45 movies over a five-year period. Films it has co-financed included the Adam Sandler comedy "Grown Ups" and the Kevin James comedy "Paul Blart: Mall Cop."
According to the suit, Fortress, an investment firm with more than $43 billion under management, was given access to Aramid's private financial information, including details of the Beverly slate arrangement, in order to consider buying some of the film company's assets. The two firms did not end up making a deal, but Aramid alleges that Fortress improperly used that information to later buy into the Beverly deal.
Late last year, the lawsuit states, Fortress arranged to buy out Citi's interest in the Beverly slate, which was worth $226.7 million, for just $113.5 million, as the bank wanted to exit the movie deal. At the same time, Fortress is alleged to have convinced Sony Pictures to end the deal, which was supposed to allow Beverly to keep funding movies through 2013, in December 2011.
To end the deal early, Sony allegedly paid Beverly no more than $214 million, which the lawsuit claimed saved the studio up to $222 million in payments that would eventually be owed on the co-financed movies.
The arrangement allowed Fortress to make a gross profit of approximately $96.1 million, the suit claims.
In order to convince Relativity, which earned a producer fee of $1 million plus 2% of gross receipts for each co-financed movie, Fortress paid it $14.5 million late last year, the lawsuit claims. While that's allegedly $15 million to $30 million less than Relativity would have ultimately made under the deal, the independent studio, led by outspoken Chief Executive Ryan Kavanaugh, was under financial strain last year. Following several box-office disappointments, its relationship with former backer Elliott Management ended and it took out a loan from Colbeck Capital to continue operations.The lawsuit claims that Relativity had reached "functional insolvency [which] made Kavanaugh and Relativity particularly receptive to overtures from Fortress."
The lawsuit claims that Aramid was cut out and received no return on its original $22-million investment, which would have been worth at least $44 million if the Beverly fund had continued making movies. The suit claims that Relativity represented to Aramid throughout the fall that Beverly would co-finance several upcoming Sony films, including "21 Jump Street" and a new Adam Sandler comedy, "I Hate You Dad." Instead, Relativity was allegedly working with Fortress and Sony to end the Beverly deal early.
A spokesman for Fortress did not respond to a request for comment. Spokesmen for Relativity and Sony declined to comment.
Aramid was previously involved in litigation related to film investments made by financier David Bergstein and construction magnate Ron Tutor.

Deadline's Internation Movie Financing round up

2011 International: Turmoil Affected Showbiz

By NANCY TARTAGLIONE, International Editor | Saturday, 31 December 2011 10:24 UK





Although the financial crisis worsened in Europe this year, a bright spot emerging is the region’s film financing. I’m told that European investors who have become increasingly skittish about putting money into the markets are more seriously eyeing film investment as a safer bet. At the same time, producers and studios want to let outsiders in to mitigate risk.

In recent high-profile deals, France’s StudioCanal which is riding high with Tinker Tailor Soldier Spy among other projects has signed a $200 million slate financing pact with London-based private fund Anton Capital Entertanment. But on a down note for France, the end of the year has been marked by upset in the post-production sector with the financial turmoil at Tarak Ben Ammar’s Quinta Industries and the future of dozens of films in jeopardy. The next year will see much hand-wringing over a sector that has moved to digital at a breakneck – some would say reckless – pace. Buyers were in fine fettle at the Cannes Film Festival with many deals concluded and a sense that smart money and realistic prices have returned. I’d be remiss if I didn’t mention Cannes’ persona non grata Lars von Trier and his controversial “Nazi” remarks. On the opposite end of the spectrum, Cannes this year saw the debut of such award darlings as The Artist and Palme d’Or winner Terrence Malick’s The Tree Of Life. Cannes programmer Thierry Frémaux in 2012 faces the daunting challenge of coming up with a better selection than his 2011 vintage which found favor with the typically harsh Riviera audience.

In Germany in December, the oft-morphing Senator entered a long-term strategic partnership with Ryan Kavanaugh’s Relativity which also took a significant stake in the producer-distributor. In other German news, there were troubles at Degeto, the film acquisition arm of broadcaster ARD whose chief, Hans-Wolfgang Jurgan, was let go in November following revelations that the company had overspent its budget. German independent producers were particularly anguished given Degeto’s position as a prime co-production partner. The situation remains somewhat tenuous and will likely be a hot topic at the Berlin Film Fest in February.

India‘s Reliance, which rode into Hollywood a few years ago to back DreamWorks as well as a host of star shingles, confirmed in May that it would fund David Linde’s production and finance company Lava Bear. Back at home, mogul Anil Ambani’s Reliance MediaWorks, which includes movie theaters and TV production among its businesses, announced plans to raise $111 million in a rights equity issue. The group also launched phase 1 of its RMW studios, a Hollywood-compliant facility in Mumbai that became partly operational in January. Ambani’s brother Mukesh is also reportedly looking to get into the entertainment biz. It’s understood the Reliance Industries chairman, who is India’s wealthiest man, is in talks to acquire a minority stake in TV and Internet group Network18. In other news, Tata Elxsi, the technology arm of Indian conglomerate Tata, recently formed a joint-venture with LA-based A Squared Entertainment to create, develop and distribute original animated entertainment and digital gaming. Meanwhile, India has welcomed such high-profile shoots as the latest Mission: Impossible – Ghost Protocol and The Dark Knight Rises while local indies like Delhi Belly have been shaking up the box office. The prolific industry is expected to continue to grow with smaller films having a shot at finding audiences, although export remains a challenge for the future.

Japan suffered a catastrophic earthquake in March that set off a horrific tsunami leaving more than 15,000 dead in its wake. A handful of films, including Clint Eastwood’s Hereafter – which depicted similar events - were pulled from cinemas amid concerns of their inappropriateness. The events also triggered a fear of tape and digital memory shortages in Hollywood especially as Sony was led to stop production at several of its factories. As a result of the devastation and a hacking scandal that saw over 100 million PlayStation accounts compromised, Sony said it expected to post a $1.2 billion net loss for the fiscal year ending March 2012. Around the same time as the disaster, Kazuo Hirai saw his duties expanded to oversee all of Sony’s consumer electronics businesses along with other functions in what is believed to be an important step on his way to succeeding CEO Howard Stringer. Japan’s box office suffered heavily, although a well-attended Tokyo International Film Festival this fall provided some solace as the industry continues to recover.

China has been a hot bed of activity with A-list stars and U.S. production companies getting in on the action. Christian Bale this year famously starred in Chinese master Zhang Yimou’s The Flowers Of War while Keanu Reeves is directing his feature debut, Man Of Tai Chi, with coin from Village Roadshow Asia and China Film Group. Also in 2011, Thomas Tull formed Legendary East in Hong Kong to produce one to two event-style films for worldwide audiences per year and in August it was announced that Paul Y Engineering Group would invest in the venture taking a $220.5 million 50% stake. On December 30th, however, it emerged that PYE was unable to raise the necessary funds in a share sale and put its investment on hold. PYE said options to modify the deal structure could be discussed in 2012 while Legendary East said a placing exercise was being targeted for a relaunch next year. Also in August, Relativity along with Huaxia Film Distribution and Beijing’s SkyLand Film-Television Culture Development Ltd created a strategic partnership to form China/US distribution entity Sky Land Entertainment. The first film under the deal, Jon Lucas and Scott Moore’s 21 And Over, caught flack in October for filming in a province of China where a blind activist has been held under brutal house arrest. In December Celestial Pictures Limited, Saban Capital Group and Lionsgate created Celestial Tiger Entertainment, an independent Asian media company focused on branded pay TV channels, content creation and distribution across Asia. DreamWorks Animation was also reportedly eyeing a China outpost with plans to build a studio in Shanghai.
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