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Spyglass eyes big year

Foreign savvy, cost control help shingle avoid pitfalls

There’s a good reason so many film co-financing shingles have gone bust in recent years. Studios only tend to come calling when things go wrong — when a budget goes overboard or a project gets too risky.

How has Spyglass Entertainment avoided the fate of now-defunct co-financing shingles like Mutual Film and Bel-Air, while securing a stake in some of the year’s most high-profile films?

Even compared to other co-financiers such as Alcon, Mandalay and New Regency — all of which have dramatically scaled back expectations — Spyglass is unique in that it’s still operating according to its original business plan.

The shingle, which migrated from DreamWorks to Sony last year (its third studio deal in six years), is co-producing two of Sony’s most anticipated 2005 releases, “Memoirs of a Geisha” and “The Legend of Zorro.” (DreamWorks is also a partner on those films.)

The company’s credits this year include “The Pacifier,” which Spyglass packaged and produced, and “The Hitchhiker’s Guide to the Galaxy,” which it co-produced and financed, and distribbed overseas.

Neither of those Disney pics is likely to be among the year’s top-grossing titles — though “Pacifier” has passed the $100 million mark domestically — but they’re a far cry from films like “Connie and Carla” and “Dragonfly,” two duds that Spyglass partnered on with Universal.

Formed in 1998 by co-chairmen and co-CEOs Gary Barber and Roger Birnbaum, Spyglass was one of a handful of independently financed studio suppliers that flourished as studios began slashing traditional producing deals.

Spyglass got out of the gate quickly in 1999 with “The Sixth Sense,” which grossed more than $660 million worldwide.

That success allowed Spyglass to weather the past five years when the foreign market collapsed, capsizing a number of co-financing companies. During that volatile time, Spyglass planned a merger with Intermedia, but the deal ultimately collapsed.

Spyglass was further boosted in 2003, when it co-produced two of Universal’s biggest hits, “Bruce Almighty” and “Seabiscuit.”

The track-record — not flawless, but better than most — has given it the muscle to wrangle one of the most lucrative deals in Hollywood. Spyglass fronts about 55% of the budget on Sony pics in exchange for international distribution rights.

“Obviously, they bring a lot of money to the table, but they also bring incredible creative expertise,” says Columbia topper Amy Pascal. “They’ve been great partners on ‘Zorro’ and ‘Geisha.’ ”

Considering Spyglass’ hefty investments in those $100 million-plus films, though, the shingle has reason to be anxious. “Geisha” is led by a cast of actors who are hardly household names. And although the first “Zorro” grossed $250 million worldwide, that was seven years ago.

Birnbaum describes Spyglass’ fiscal discipline by way of what he calls “the box theory.” Simply put, a box — or square, actually — has four sides, representing a script, budget, production staff and cast.

For a director working on a Spyglass film, the attitude is: “You stay inside that box and we’re going to let you be as creative as you want to be. You go outside the box and we’re going to come down heavy,” Birnbaum says. “It works.”

Spyglass’ relationships abroad have been crucial for the company, which is backed by a five-year, $250 million revolving credit facility with JP Morgan Securities, pacted last year.

While most co-financiers opt to sell distribution rights one territory at a time, Spyglass has output deals — such as with Village Roadshow, which handles its pics in Australia, New Zealand and Greece — which ultimately provide a more consistent cash flow.

Unlike picture-by-picture deals, outputs are not at the mercy of the ebb and flow of the market. Other distribs Spyglass has deals with include Canal Plus for pay TV in French-speaking territories; RTI for free TV in Italy; Pony Canyon in Japan; and Telecinco in Spain.

Birnbaum is the pugnacious teddy bear and former Fox production prexy, who’s well-versed in the nuances of studio politics. Barber, formerly chief operations officer of Morgan Creek and known for his expertise in international markets, is at the same time more reticent and more likely to be caught socializing at the latest premiere.

Last year, Birnbaum and Barber made prexy Jonathan Glickman a third partner. Glickman, a loquacious production maven, has brought the company, among other things, some additional press. His father, MPAA prexy Dan Glickman, tends to drop references to Spyglass titles as he speaks out against piracy around the world.

The Spyglass team has a reputation for being aggressive deal-drivers and for acting more independently than other shingles that operate primarily as an arm of a parent studio.

Spyglass was based at Disney until 2003, when it prematurely exited its deal. Sources say tension arose when Spyglass competed with Disney for projects. Another factor was that Spyglass’ deal was exclusive — something the restless shingle has avoided in subsequent first-look deals.

Although Spyglass does not cherry-pick studio pics, Birnbaum says, “There are several scripts a week we turn down. We’ve been offered movies with a high-profile director and high-profile actors, and while that’s good on the cocktail circuit, it’s not good business. We have to have a lot of discipline.”

Spyglass is continuing its business plan but increasing the diversity of its slate for a total four or five pics a year. Production just began on the $9 million horror pic “Stay Alive” about a deadly vidgame.

“We don’t want to make one kind of movie, which would be easily identified by the sellers out there as, ‘Oh, well, that’s a Spyglass kind of movie, they won’t want to develop other kinds of movies,’ ” Birnbaum says.

Three years ago, Spyglass entered TV as a producer-developer, but hasn’t yet gotten a secure foothold in the industry. Shingle’s freshman effort — ABC’s “Miracles” — was dropped mid-season after its launch last year.

“We learned a lot and continue to apply those lessons,” Birnbaum says. “We’re taking small steps.”

For the moment, however, Spyglass is most intent on its staying power in film.

“We’re building a copy-rightable library,” Barber says. “We think it will have major value down the road. That’s our No. 1 priority: to build content.”

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