H’wood still cashing in on German influx

Teuton titans expanding, making deals due to Neue Markt success

It’s hard not to be dazzled by the sheer Teutonic efficiency with which the Germans have stormed Hollywood. At the risk of seeming ungrateful, however, it’s also hard not to wonder how much of this glory is built to last.

“There’s the cash. It’s here at the moment,” said Helkon Media co-founder Werner Koenig, acknowledging the skepticism underlying the Germanic gold rush. He can afford to be self-deprecating, however: Helkon is one of the titans of the current movement, most recently acquiring 19% of boutique financier and production company Newmarket Capital Group.

Indeed, a core sample of the seemingly endless deals made by German companies borne on the wings of Neue Markt IPOs certainly suggests that companies like Helkon, Kinowelt, Splendid and Senator have their sights set on empire-building.

Consider:

* In February 2000 alone, four German companies set up shop in Los Angeles. Leading German distrib Kinowelt opened L.A.-based production arm Kinowelt USA; Barry Baeres’ licensing company Intertainment launched a Los Angeles arm; and pubcaster ARD opened an acquisitions-oriented office in Santa Monica under Herbert von Spreti, as did Austrian production company DoRo Prods.

* Germany’s second largest rights trader, Tele-Munchen, set up shop in Gotham, with former CBS Broadcast Intl. president Rainer Siek heading operations.

* Cologne-based Splendid acquired a 49% stake in Graham King’s Initial Entertainment Group last summer. With pics now backed by a combination of equity from Splendid, a $30 million Chase credit line and pre-sales, the deal allowed IEG to ramp up its participation in big-budget films such as Martin Scorsese’s $90 million “Gangs of New York.”

* Guy East and Nigel Sinclair’s Intermedia Films merged with International Media Fund-backed Pacifica. Their new Munich-based holding company, Intermedia AG, plans for an IPO on the German stock exchange later this year and to expand into music publishing, television and Internet ventures, as well as building upon their core business of financing, producing and distributing feature films.

* Eureka, a joint venture between Munich’s Kirch Group and Italy’s Mediaset, aims to provide long-term financing for 25 to 30 U.S. features a year with budgets around $70 million each. The outfit joined forces with Robert Redford’s Wildwood Enterprises for an overall production-development deal.

* Producer Gale Anne Hurd recently partnered with in Kinowelt USA, the newly minted German conglom Kinowelt Medien for a nonexclusive, five-year first-look pact that includes a discretionary fund, development, production and distribution for pics budgeted from $20 million to $80 million and support for Hurd’s 10-person staff. In addition to financing and handling worldwide distribution rights to Hurd’s pics, Kinowelt will also own the films’ negatives.

In addition to stateside dealmaking, Germans have dominated sales action at markets like Mifed, battling for rights and paying record sums like the $4.5 million that Constantin paid for the $15 million-budgeted USA Films comedy “One Night at McCool’s” or the $8 million Kinowelt paid for Buena Vista Film Sales’ “Family Man.”

But while the German generosity has provided comfort for perpetually anxious sellers, that security blanket comes with a fresh anxiety of its own. What happens when the bubble bursts and sales agents can no longer get 15%-20% of their films’ budgets out of Germany?

“What we’re seeing is the German version of dot-com companies,” says an international sales agent. “They’re running around trying to justify their share price. Film rights are based upon performance in theatrical release and people are going to start figuring this out. The companies that are really reliant on rights are going to have a tougher time unless they have hits.”

Koenig acknowledges recognizing this profile in some fellow players, but says he doesn’t intend to go down that path. “I don’t want to get into bidding wars. It’s stupid to pay 15%-20% for German rights. You should be able to make deals that put you ahead of the market.”

Of course, what puts Germans ahead of the market are hit pictures. While some hope to find their winners at the annual marketplaces, others finance whole slates – a move that not only puts them on the ground floor, but gives them a say in the kinds of pictures that get made.

For German investors, however, the ideal title is not one that stars local heartthrob Til Schweiger. They want to spend their money on bigger concepts, bigger budgets and bigger stars, but the careful translation of that game plan is essential.

Once upon a time, foreign territories seemed to embrace any American film with a star at its forefront. A look at the recent German box office shows a different story today – strong performances from “Erin Brockovich” – and something less from “The General’s Daughter,” “Snake Eyes” and “Out of Sight.”

German players interviewed for this piece spoke of looking for projects that were “quality” and “mainstream” but “authentic” – in other words, somthing that can differentiate itself in the marketplace but can still be embraced by the majority of audiences.

It’s difficult to say exactly what is the difference between the German and American definitions of these ideals – after all, Americans had similar responses to “Brockovich” and “Out of Sight.” That hair’s breadth, however, had the power to flip the switch on a green light for Scorsese’s “Gangs of New York” – a film that received $65 million of its $90 million budget from Splendid-backed IEG.

What the Germans want to avoid, however, is becoming a chapter in a cautionary tale like the one provided by Italy’s Penta Pictures, the ill-fated joint venture between Italy’s Cecchi Gori Group and Silvio Berlusconi.

Vittorio Cecchi Gori and Berlusconi launched Penta in 1989 with designs of becoming Europe’s No. 1 major. That push included moving into the American marketplace in 1991, with the flagship project “Man Trouble” — a script that had been turned down by every studio. But with Jack Nicholson in the starring role opposite Ellen Barkin, the Italians couldn’t resist. Not long after the film flopped, Penta exited stage left and the partners dissolved the company in 1994 with no shortage of acrimony.

“The Italians, the French, the Japanese — they all lost money in Hollywood,” says one indie exec. “They invested in companies rather than in projects. Germany is working with American producers who know their way around. They’re partners with local boys who can’t be fooled. That’s the more financially intelligent way to do it.”Others say that investing in projects over companies is something less than a sure thing. “I’m not sure that from a strategic point of view, foreign investment in product is the best way to execute a business plan,” says Amir Malin, co-CEO at Artisan Entertainment, a company that has been eyed by a number of German buyers. “The better use of that money is to invest it in those companies that are able to affect the business plan.”

As Malin points out, the Germans’ ability to make it in Hollywood has less to do with being the foreign land that finally figures out the magic formula than simply giving people what they want

“We all aspire to access product at a low fee,” says Malin. “No one has a crystal ball. As always, it’s going to be the people who make the better bets.”

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