An SRO crowd of high-level execs and lawyers came to Variety’s Dealmakers Breakfast in Hollywood Thursday to network and listen to panelists assess the state of dealmaking in a down economy.
Variety editor Tim Gray, who moderated, began by focusing on the DreamWorks-Reliance pact as a case study of the difficulty of structuring deals in today’s environment of scarce credit and risk-averse financial institutions.
DreamWorks prexy-chief operating officer Jeff Small recounted the deal’s lengthy trials and tribulations as the financial sand shifted beneath the feet of the players trying to put it together.
When first proposed, plans called for Reliance to invest as much as $550 million in equity for DreamWorks, with a like amount to be raised via JPMorgan. But that scheme hit a wall as the international credit crisis caused financial institutions to shut their coffers. “At one point we couldn’t get any loan at all,” said Small. “We went to 40 banks, and we didn’t even know if some of them were going to stay in business.”
only a small handful of banks “could write a check of any order of magnitude over $30 million-$40 million.” Plus, in 2008, the stock market in India, where Reliance is based, declined by 45%.
When the deal closed in August, the JPMorgan-led debt syndication was on the order of $325 million; Reliance committed a like amount in equity. Steven Spielberg invested a considerable amount of his own money.
In the end the deal closed because of perseverance, Small said. “Everyone stuck to it, knowing we didn’t have a choice. We had to get the deal done even if things went a little crazy at times.”
Attorney Skip Brittenham of Ziffren, Brittenham, who advised DreamWorks, said that in 30 years in the business he had never experienced as arduous a fund-raising effort, adding that as conditions evolved, the plan was revised on a weekly basis, each time generating a new two-foot-tall stack of papers on his desk.
The panelists agreed that the difficulties experienced by the DreamWorks-Reliance deal are part of an overall contraction in the film biz resulting from significantly reduced revenue over the past couple of years — some due to the recession, some to technology shifts and some to changing consumer habits.
Columbia Pictures business affairs prexy Andrew Gumpert cited electronic sell-through, simultaneous day-and-date releases, VOD and Redbox as some of the seismic changes wreaking havoc on Hollywood’s time-tested “windowed” release skeds, with product going to theatrical, homevid, cable and broadcast, in that order.
“The silver lining in all this,” he added, “is that everyone still wants to see the content we create, but the dollars coming in are less at the moment,” which means adjusting costs to the lowered revenue base.
This shrinking money base means “telling stars to make concessions,” added Brittenham. “DVD revenue is down from 15% to 35%, depending on the studio, so we have to sit down and educate them. We all have the responsibility to make sure our clients understand this so you can make a deal; otherwise, deals won’t happen.”
Before the panel, IWC presented Jennifer Howell with a watch worth $18,600 that she will auction off to benefit the charity she founded, Art of Elysium.