Relativity Media has launched a package worth more than $600 million, backed by hedge funds, to finance films at both Sony and Universal.
The deal, dubbed Gun Hill Road, will allocate about $400 million to Sony to co-finance 11 pics and $200 million to U to finance 50% of seven titles.
Both studios will retain worldwide distrib rights as well as creative control of their projects. In addition to freeing up money in the studio budget — which will likely be reinvested in film at U, but could find other, nonfilm uses at Sony — deals are a way for both studios to hedge their financial risks.
Gun Hill is the first of the proliferating private equity production funds to offer investors the ability to buy into two studios at once. Operationally, however, funds will be kept discreet between the two studios. In fact, during negotiations, which wrapped shortly after New Year’s, neither studio knew that Relativity was in talks with the other.
Deal was assisted by Deutsche Bank, which underwrote senior debt.
“Even though we have one entity called Gun Hill Road, there’s segregation; each studio has its money set aside,” said Relativity’s Ryan Kavanaugh.
Hedge fund-fueled financing deals — this week Dune Capital sealed a $350 million pact with 20th Century Fox, following a spate of similar arrangements at Warner Bros., Walt Disney and Paramount — typically like to spread their bets across several pics.
With Gun Hill, Kavanaugh said, “From investor perspective, it’s the first time you can put a dollar in and return is based on the performance of two studios.”
Sony declined to identify which 11 pics will be co-financed under the arrangement, although its biggest title of 2007, “Spider-Man 3,” is not among them. Nor did the studio offer details of how much the fund would co-finance. The 11 pics were mutually chosen by Sony and Relativity. Or, rather, Sony offered various pics from its 2006 and 2007 slates, and Relativity selected titles it wished to co-finance.
Deal is the first of its kind for Sony, which in recent years has opted for financial caution by way of equity partners such as Revolution Studios, Escape Artists and Spyglass Entertainment — companies that have creative as well as financial input in pics.
Universal said the investors will take over 50% of the budget on seven pics: “Doom,” “Nanny McPhee,” “The Inside Man,” “The Fast and the Furious: Tokyo Drift,” “The Kingdom,” “Smokin’ Aces” and the upcoming David O. Russell project.
“From our perspective, it’s really irrelevant that we’re in Hollywood,” said Kavanaugh. “We look at Hollywood like any other business. What our models show is that financing movie slates is like any other business as long as it’s done right.”
Studios are flocking to Wall Street financiers as a way to keep their lots humming in the face of corporate owners loath to increase investment in film production.
By retaining worldwide distribution rights, the hedge-fund deals help the studios retain more upside than co-financing arrangements, in which studios give up foreign territories in exchange for cash.
“We look at this as a way to extend our production resources,” said Col chief financial officer Bob Osher. “We were willing to give up some of our upside so that we could get more financial certainty in our slate.”
But he added the freed-up money in the budget may not find its way back into film. “In Sony Pictures Entertainment’s case, we’re involved in TV production, multiplayer games — Sony Pictures Entertainment does a lot of different things.”
U prexy and chief operating officer Rick Finkelstein said of the deal’s appeal: “It allows us to share the risk on these films by bringing in a financial partner. It doesn’t mean we’ve lost faith in these films. As you know, some of these films have been released in certain markets and have been very successful.”
He adds, though, that the cash freed up in the deal will be reapplied to other film projects. “It will be invested back into film,” Finkelstein said. “It augments our production budget.”