With a flurry of announcements in the past 18 months of pic companies formed by multimillionaires hailing from other industries, it might seem like an unlimited number of rich entrepreneurs are charging Hollywood. But even as this list of serious players grows to a dozen or so, it’s still a limited pool, with the majority of investors waiting for results from initial forays before getting in deeper.
“Most equity investment still goes into individual projects — and there are actually gigantic numbers of investors,” says producer’s rep Rosanne Korenberg of Traction Media. “The problem is that this equity money far exceeds the distributions outlets that exist for the films that are made. The reason you see more investment in full slates right now is because you can minimize that risk.”
The most common model so far is for one of these high net worth individuals to team up with a veteran producer to fund a slate of films.
“If you find right partners, you’ll be around a lot longer,” says Dave Davis, senior veep, entertainment and media group, at investment bank Houlihan Lokey.
But there is a great deal of diversity developing among these companies. Some shingles are setting up equity funds to accommodate a number of investors, and some fully fund films , while others look for partnerships or pre-sale deals.
Here is how a few of the new companies are structured:
Real estate mogul Bob Yari teamed up five months ago with former Miramax exec Mark Gill and producer Mark Gordon to form Stratus Entertainment, a production company that will fund three to five mainstream projects a year in the $10 million to $60 million range.
“Generally we’ll finance 80% and look for 20% from a studio. And from our end, what we’re doing is financing through our own equity, foreign sales and soft money from tax dollars,” Gill says, adding that the equity comes directly from Yari. So far they have lined up three films: “The Laws of Attraction,” starring Julianne Moore and Pierce Brosnan; “Remains of the Piano,” a spoof by Eric Idle; and “Happy Endings,” directed by Don Roos.
Gill adds that most of the other potential backers he met with after leaving Miramax eight months ago didn’t seem to get the business and ranted from the beginning about the inefficiency of the movie model — that it requires too much capital up front and that waiting seven years for a return is crazy.
“They’d say this model has to be restructured. And I’d say you have to be dreaming to think it’s going to change. Of the half dozen (investors) I met, four have already said they’re not getting in the business,” he says.
It’s not surprising that Endgame Entertainment is structured more like a hedge fund than a straight investment by one high net worth individual, given that the primary investor is former hedge fund manager Jim Stern. His company actually boasts two money guys with entertainment experience: Stern has produced Broadway plays and directed an Imax documentary. And Doug Hansen has many years of experience making pic loans at banks, most recently as director of corporate finance, entertainment group, at Union Bank.
Julia Eisenman, a former development exec at Jersey Films, is their Hollywood vet.
The company plans to develop a slate of several films a year at moderate budgets, and will invest in films at various stages and also look at plays, direct-to-video and other entertainment opportunities. So far they have announced the acquisition of Andy Behrman’s memoir “Electroboy.”
“We’ll do some project as co-funding and others as straight investments. We’ll also do later stage financing,” says Hansen. “We’ve raised money from over 30 sophisticated financial investors and I think we will create a diverse portfolio of investment.”
Much like Philip Anschutz’ Crusader and Jeffrey Skoll’s Ovation, ‘Bel Films is focused on family entertainment.
Bond trader Joseph Burga, who is partnered with producer Peter McAlevey, got into the business last year because he almost lost his daughter on Sept. 11 and he wanted to find a way to contribute a positive message to family life. He put up his own money, and convinced a few friends to invest, and went looking for a producer. They’re now in pre-production on “The Girl Who Struck Out Babe Ruth.”
“Joe is not just another millionaire who wants to make movies. He actually has a mission statement,” says McAlevey, who started out as veep of production at Disney. “As for me, I was ready for a real company. And am I crazy, or is there a hole in the marketplace where family films should be?”
“We get a lot of people asking us now about the costs and how have we got this far. It might have been something I would have asked three years ago. If Sept. 11 hadn’t happened, I probably wouldn’t be having this conversation,” says Burga, who still trades bonds as ‘Bel Films develops. “There’s a real opportunity here and now I’m trying to make other people aware of that.”