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Capella finds the right pitch

There’s a certain poetry in the fact that the Capella companies (Capella Films and Capella Intl.) got their name from the brightest star in a constellation. The companies sit at the center of an extremely active production and distribution constellation that includes German distributor Connexion Films and American production arm, Connexion American Media Inc., Bregman/Baer Prods., Universal, April/Connexion Films (with Rudy Cohen). As a result of these associations, plus an estimated $ 200 million in financing, the Capella companies have already become a star with banks, distribution partners and studios here and abroad. As they continue to release a steady stream of profitable motion pictures and form close distribution partnerships, it’s quite likely that the company’s star is going to glow even brighter as the ’90s unwind. Formed in 1990 by Hamburg-based Deyhle-Baer Media Holdings (a partnership between German media magnates Rolf Deyhle and Willi Baer), Capella Films (production), which begat Capella Intl. (foreign distribution), was born of the notion that by occupying multiple sites in the food chain, they could better control the development and flow of product and revenue, and thereby operate more profitably. In the few years since they’ve opened, they’ve achieved a de facto first-look/quasi output deal with their production partners that has resulted in a stream of projects that are at various stages of completion. Company principals have been responsible for financing and/or production duties on films like Brian De Palma’s “Carlito’s Way,” and the Kim Basinger-starrer “The Real McCoy,” with seven more pictures to follow, including “The Shadow” (with Alec Baldwin and Penelope Ann Miller), “Two Bits” (with Al Pacino) and “Exquisite Tenderness,” (a horror-thriller genre work from director Carl Schenkel), “A Business Affair,””The Last Tattoo” and “The Russian Singer.” To date, Capella Intl. has been alternating on foreign distribution with Universal, which has been handling domestic distribution on releases so far. Connexion Films (which is also owned by Baer) is the German distributor for all international product purchased, co-financed or produced by the Capella group. In the best Hollywood tradition, the company is rife with layers of relationships, both contractual and personal, here and abroad, such that an organizational chart, if one existed, would have more lines and intersections than fractal math. In contrast to their Byzantine corporate structure, the Capella formula for success is simple. They involve their distribution partners to the level that they’re almost producers and they place relationships above haggling over relatively small amounts. The net result is profitable ties to selected partners that bypass the traditional bidding wars that usually accompany foreign distribution deals. “It’s almost like a studio approach,” explains Ortwin Freyermuth, president/chief executive officer of the Capella Companies and Connexion American Media Inc., “in the sense that you have a continuous flow of product and continuous relationships.” Rather than bidding each film out and seeing whether they can maybe get $ 25,000 more here or $ 75, 000 more there, Freyermuth says, if the picture is successful, they’ll all get the money anyway. “That” he says, “has made a difference as far as Capella is perceived. We don’t oversell. We don’t start a bidding war. We don’t try to always get the maximum amount out of every single thing. Instead, we try to get a reasonable amount out of it, so that we share the production costs. Because that’s the concept. And for me, that’s the most sensible way to work in this industry, which is risky by definition.” The bottom line for Freyermuth is his concern that “our customers (foreign distributors) do well, because only then will we do well.” When asked about the size of Capella’s finances, Freyermuth jokes that Capella is really a subsidiary of the Federal Reserve. Freyermuth believes the widely reported $ 200 million Capella financing figure is already outdated because it was interpolated out of the Bregman-Baer ventureannouncement in 1992. “At that time,” he explains, “we said we’re making a certain number of movies with an average budget of X.” While Freyermuth confirms the “absolute” accuracy of the size of that figure, he won’t suggest a more precise number other than to describe it as “very serious financial backing. We are in a position to make decisions and go ahead,” says Freyermuth, “where others maybe can’t because they don’t have the financial backing.” Getting to that point, the company uses its own financing via the company’s “house bank” in Hamburg to purchase and develop material initially. As soon as a picture is ready for production, rather than tying up development funds, they will assemble foreign sales and distribution estimates and line up preliminary deals. Then, just prior to or at finalization of the domestic distribution deal, they’ll approach a bank in Los Angeles to take over the production financing, which will then include previous development expenses and activities. Alessandra Freyermuth, VP of legal and business affairs, explains that production financing occurs on a per-project basis and estimated that about a third of their deals are handled through U.S. banks, though the company is planning to involve them more. She also notices a difference between U.S. and German banking styles. The U.S. banks, she says, are very familiar with entertainment financing. As a result, she finds they are reluctant to give overall credit lines, and prefer to do more individual picture financing. In her view, German banks understand the need for an overall credit line and are a bit more flexible. The rock-solid base of Capella’s financing also means that they can pick and choose their projects carefully without a desperate sense of urgency to move on to the next project, which Ortwin Freyermuth considers a potential liability. “We don’t want to be on that trip, so to speak, of saying every month, we’ve gotta have a couple new major projects ,” he says. “We’re looking for product that provides our distributors with ammunition to get theatrical playing time. We will only proceed on a project,” he continues, “because it’s good and because it’s ready to go. And we’ll only announce it then. If you didn’t do that,” he sums up, “it could be a weakness.” An additional benefit of Capella’s bedrock financing is the safety net it provides. Capella has the advantage of being able to operate long enough to make money. “You’ve got to have the funds to be there, if you’re in that part of the business,” he explains, adding, “because it may be number eight or number nine that pulls it all out.” Freyermuth also used this example to illustrate how Capella International’s approach to foreign distribution differs from tradition. Some companies, he observes, have gone for gross distribution deals only with distributors. That’s OK, he says, only if you have a lot of distribution breadth and equity, rather than bank funding. While those companies get to keep more of the up side, to Freyermuth, the risks aren’t worth it in the long run. And he returns to their business philosophy. “Our belief is that we like to share the profits. We don’t mind sharing the profits because they’re profits,” he emphasizes. “If it’s fifty cents for them, it’s fifty cents for us.” More than the financial wherewithal, though, Freyermuth says, the company’s most valuable asset is its people,its “team.” “You’re only as good as your people are,” he said, citing the company’s heads of sales, Bill Moraskie, senior VP, sales & marketing, production; David Korda, president, production and development; Judy Landon, director of marketing, distribution; and Connie Greenwood, senior VP, distribution services. “They’re all very experienced, seasoned people who work very hard. And that’s the core of Capella.”

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