Top talent gets slice of pie

With iffy results on their investments in studio slates, the financiers that have flooded Hollywood’s coffers are trying a new tactic: Give the money directly to the talent.

Tom Cruise, Will Smith and M. Night Shyamalan — as well as other top-tier actors, directors and producers — are starting to reap a windfall as private equity funds, Wall Street banks and overseas interests funnel money into the industry. The new coin is helping to bolster stars’ and directors’ autonomy on their projects, and dangles the promise of copyright ownership and a greater share of the backend.

A global explosion of available investment coin initially spurred everyone, from banks to hedge fund money managers, to invest in film projects, but studio slate deals proved to be dicey propositions. Some of those early pacts are even being renegotiated as private equity firms get frustrated with the lack of sufficient return on their investments, especially as studios still collect their distribution fees.

Now, financiers — often lured by talent agencies — also are looking to directly invest in filmmakers’ and actors’ projects, often with a guarantee of studio distribution.

Although passive players in the process, studios are content with these types of deals because they’re able to fill out their slates with star-anchored films they didn’t have to develop. Financiers are willing to give up ownership stakes to ride on the coattails of stars and directors. Agents love the deals because they can collect commissions from the talent and, in certain cases, the financiers.

But it all may be too good to be true.

History shows that such creative autonomy, which sounds great on paper, only goes so far, as long as studios still control distribution.

While many hope the flow of money to talent will usher in a new era of maverick filmmaking, it could just as easily lead to bloated largesse. And some stars anxious for more control will actually bear more risk — as Kevin Costner is doing in putting up all of the $20 million cost of “Swing Vote.”

The larger question is whether this money flowing to talent will lead to better movies. Studios already dole out final cut to directors — and the result often has been longer, less disciplined films.

Projects are plentiful:

  • In the highest-profile example of outside funding teaming with talent, Cruise and partner Paula Wagner are closing in on $500 million in production financing from Merrill Lynch. Cruise and Wagner own a substantial stake in the once-dormant United Artists, with their worth tied to the value of the library they create. Their first two efforts, the Robert Redford-directed “Lions for Lambs” and the Bryan Singer-helmed “Valkyrie,” each have Cruise in starring roles.

  • Five Mexican directors, including Guillermo del Toro, Alfonso Cuaron and Alejandro Gonzalez Inarritu, are headed for a deal to co-own a slate of five movies with Universal and Focus Features Intl.

  • A plan is afoot to create a director’s company, with Steven Soderbergh, David Fincher, Spike Jonze and perhaps Sam Mendes and Mike Nichols in a venture that will give them full creative control and copyright ownership. The company would be run by Laura Bickford, who produced “Traffic” and Soderbergh’s upcoming “Che,” and it is expected they would pursue private equity financing.

  • Shyamalan and Overbrook Entertainment partners Will Smith and James Lassiter each have deals with India-based production company UTV to finance a series of projects, as the overseas company seeks to become a major player in Hollywood.

Smith’s deal has UTV financing a slate of modestly budgeted pics to be distributed by Sony Pictures. Smith is not obligated to star in any of the films, and he and other producers will get to take their regular fees plus 50% of the revenue stream after costs are recouped. They will own half of the film’s copyright.

Shyamalan’s pact has UTV partnering directly with him on his next film, “The Happening,” with Mark Wahlberg starring. In the deal, brokered by CAA, the helmer trades his first-dollar-gross participation for 25% ownership of the film’s copyright and a shot at the larger upside if the film is a hit. With Fox and UTV each putting up half of the film’s projected $57 million budget, Shyamalan gets his usual eight-figure upfront salary and, once Fox and UTV recoup the budget and P&A costs, the director will share in 50% of the film’s revenue stream.

The deal had benefits for all parties. For an investment of $30 million, Fox got itself a potential summer tentpole it will open globally June 13, 2008. Since Shyamalan gave up first-dollar gross, Fox and UTV are first in line to recoup their investment. Fox also will realize a 12.5% distribution fee from UTV, not Shyamalan.

“Talent isn’t in any riskier position here than it would be when a studio underwrites the cost,” says UTV topper Ronnie Screwvala. “This is just a bit more aggressive than traditional deal models, and a handful of top talent can take a little less upfront and look at significantly more backend.”

CAA sees the Shyamalan deal as a template for future talent pacts.

“CAA was saying that in this new world, I could have more control and own the things I create from the room where I write,” Shyamalan says. “I thought about authors like Agatha Christie, who passed the copyrights of her books down to her grandchildren, and I found it inspiring that I might be able to spend the rest of my career owning my creations and passing them down through my estate to my children’s children.”

Recently, a spate of directors and performers have been lining up all the elements of a project and then sellingthe package to a studio — guaranteeing themselves a certain level of autonomy and bypassing another layer of development. After a bidding war, Peter Jackson made a deal with DreamWorks for his next project, “The Lovely Bones,” and Michael Mann is crunching the numbers with two or three studios on a period pic set in 1930s Hollywood and starring Leonardo DiCaprio. And Ed Zwick got Paramount Vantage to finance “Defiance,” his World War II drama script that has Daniel Craig set to star this fall.

Sacha Baron Cohen followed “Borat” with a lucrative deal for “Bruno,” for which Universal will pay $42.5 million for a 15-year license in English-speaking territories. If the film costs about the same as “Borat” — less than $20 million — he would get $15 million upfront, draw first-dollar gross and walk away owning much of the copyright.

But very few performers can command such deals — and even then there are some major caveats. Costner partly funded the upcoming “Mr. Brooks” and is looking to finance and eventually own “Swing Vote,” about a man whose vote will decide a presidential election. He’s bearing a big share of the risk on both pics, and will lose out on his typical cut if either fails.

“God has not created a better way of compensating actors and directors than the first-dollar gross deal,” says one high-level studio exec. “You get paid first, no matter if there are budget overruns, lawsuits or any other problems.”

Ownership of a movie sounds great — why wouldn’t talent go for a deal that held the promise of more money and more control? — but the power is limited when a studio controls distribution rights, as is often the case. Piecemeal ownership of negatives has a limited upside because the biggest multiples are for titles that are part of libraries that consist of at least 20 different movies.

“The devil is in the details,” says producer Tom Pollock, who with Montecito Pictures partner Ivan Reitman has a financing pact to own their films. “Owning copyright doesn’t mean all that much if you don’t own distribution rights, too.”

And owning a single film has limited potential in aftermarkets; owning a library is key.

Only a very few stars and directors have been able to amass enough titles to make it work. Mel Gibson and Bruce Davey built their Icon Prods. into a ministudio with distribution and foreign sales operations and a 200-film libra
ry that includes Gibson-directed films like “The Passion of the Christ” and “Apocalypto” along with titles from the Majestic and Kings Road film libraries.

The impetus for Icon was Gibson’s desire for creative control.

When Gibson tried to veer from leading-man mode, studios didn’t make it easy for him. On “Braveheart,” for example, Gibson didn’t want to act in the film, and he wanted to shoot it in native dialect, as he would do later with “Passion of the Christ” and “Apocalypto.” But he couldn’t get financing unless he agreed to play William Wallace. He grew incensed at one point when Warner Bros. insisted he commit to “Lethal Weapon 4″ before the studio bought foreign territories.

With the success of “Passion of the Christ,” he now prefers to fully fund his pictures, make them his way and shop for the best distribution deal. On “Apocalypto,” Gibson put up P&A costs, and Disney took a reduced distribution fee between 10% and 12.5%.

Costner has said that he decided to reach into his own checkbook because he was tired of jumping through hoops to get movies made. He nearly went that direction with “Open Range,” but Disney paid the tab. Costner is content to front the money and make it back with domestic and overseas distribution deals.

To be sure, financiers are so anxious to align with big names that talent is often poised to make huge paydays even if their movies flop. Baron Cohen still gets his upfront payday; Cruise gets gross acting deals and is free to make movies for any studio. If “The Happening,” set for release next summer, performs at the level of “Signs” or “Unbreakable,” Shyamalan stands to get a greater payday because he will get a bigger share of DVD revenues.

But the situation can get muddled, especially when multiple partners are involved.

In the 1960s and ’70s, Freddie Fields made ownership deals for the likes of Steve McQueen, Paul Newman and Robert Redford, but he says the result was confusion. Companies went bankrupt, or rights were traded from one company or distributor to another. So even though actors co-owned pics, the rights deals were so muddled that potentially valuable titles lay dormant.

“It hurts somebody who has a gross position or an ownership stake, and it’s not fair,” Fields says. “Success down the road, though, depends on who you made your deal with.”

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