STX Entertainment
Terence Patrick for Variety

From its new offices atop the tallest building in Burbank, STX Entertainment literally towers over the competition.

Backlots at Warner Bros., Disney and Universal can be glimpsed from the windows of the start-up company’s gleaming headquarters. The view is emblematic of STX’s immense ambitions — to carve out a place for itself as the next major Hollywood studio.

STX was launched last year by film producer Robert Simonds and TPG managing partner Bill McGlashan with a mission to fill a hole in an entertainment business that has become fixated on budget-busting superhero epics. Instead of cooking up its own answer to the Marvel universe, the studio plans to produce films in the $20 million to $80 million budget range with big-name actors. It aims to release as many as 15 films annually by 2017, and already has lined up projects with Matthew McConaughey, Julia Roberts, director Gary Ross and “The Purge” producer Jason Blum.

With strong financial backing from venture-capital firm and co-founder TPG, Chinese private-equity firm Hony Capital and investors Gigi Pritzker and Beau Wrigley, along with film financing from China’s Huayi Brothers, STX intends to spend as much as $1.1 billion annually on producing, marketing and self-distributing its films by 2017.

The company, which is also armed with guaranteed release commitments from the country’s four largest theater chains, and multiyear output deals with Showtime Networks and Universal Pictures Home Entertainment, appears well positioned to compete alongside the more-established majors, while maintaining a lower overhead and a more streamlined creative decision-making process.

Still, the challenges of starting a studio from scratch are great. Hollywood is littered with companies that launched with plans to upend the movie business only to falter or collapse. For instance, DreamWorks operates today as a glorified production company, despite being founded as a multi-tiered entertainment studio in 1994 by Steven Spielberg, David Geffen and Jeffrey Katzenberg. Relativity, headed by Ryan Kavanaugh, is continually hustling to raise money, and has few hits to its name. Many others, among them Orion Pictures and Savoy Pictures, are now only memories.

The problem, analysts say, is that the movie business requires a lot of cash, and for startups like STX — which lack a vast library of past films to exploit, or well-established television operations to lean on for revenue during the lean times — the economics often don’t work.

“There is always an exception, but the odds don’t favor them,” says media analyst Hal Vogel. “You had guys like Spielberg, Katzenberg and Geffen, who were extremely well connected and wealthy, doing DreamWorks, and they couldn’t make it work. It’s presumptuous (to think) that another company can.”

Simonds, best known for Steve Martin comedies such as “Cheaper by the Dozen” and “The Pink Panther” films, and Adam Sandler movies including “The Waterboy,” thinks comparisons to DreamWorks and its leadership are faulty.

“Those are three of the best people in the business and three of the smartest,” says the STX chairman. “But when they launched their company, it was a very different competitive landscape.”

While Simonds may lack Spielberg’s name recognition, he’s an adroit fundraiser whose pitch to fill a void and make money doing it convinced savvy investors to sign on. The money is fully committed, he says, and STX will spend $750 million over the next 10 months without needing to pick up a phone for approval.

The company says it has raised more than enough money to cover any film failures and to keep production running for years to come. It’s also not ruling out buying a library to pump out cash from licensing pacts or DVD sales, if one becomes available.

“We’re in buying mode, and we are looking at a lot of things,” Simonds says. “It would be disingenuous if you had this much money that needs to be deployed to not be looking at everything.”

McGlashan bought into STX after discussing opportunities with Simonds following a board meeting at the Yale School of Management in 2011. McGlashan argues that the business has grown more digital and more global in ways that open up opportunities for STX and anyone else producing content today.

“China didn’t exist as a media market 20 years ago,” notes McGlashan, adding, “This is the first year where digital has outsold analog content, and with more connected devices, we’re seeing a media landscape that’s changed dramatically.”

The movie business remains a small part of what Simonds and STX president Sophie Watts ultimately hope will be an entertainment empire. They’ve been globe-trotting to line up investors for a model that includes streaming, videogaming, international distribution and an expansion of their television operations.

“The movie business is about 20% of what we’re actually doing,” says Watts. “Bob and I are spending a lot of time on planes abroad, and in Silicon Valley and China, trying to replicate what we did on the movie side in TV and digital.”

In the meantime, STX’s movie operation, led by former Universal Pictures chief Adam Fogelson, is going full throttle.

“We want to be seen as a major studio, but we have the benefit of building ourselves today,” says Fogelson, the company’s motion picture group chairman.

The movies the company is making are geared to adults — films that once were the mainstays at major studios but have been upstaged by those that can  spawn sequels, sell toys and inspire theme park rides.

“There was this kind of vacuum in the movies being made,” says Simonds. “You have a tremendous number of really talented storytellers who don’t have a place to go to make the kinds of movies they want to.”

In their pitch to investors, STX leaders argued that such films were abandoned not because they didn’t make money, but because they just weren’t big enough to offset the billions of dollars in overhead that studios carry. In fact, STX says its research shows that 80% of films with midrange budgets turned a profit or broke even.

So far, STX has been well received by the creative community. Directors and producers who have worked with the company have come away impressed by its professionalism and mission. Billy Ray, who is directing “Secret in Their Eyes,” a remake of the Argentine thriller, with Chiwetel Ejiofor, Nicole Kidman and Roberts, says he is eager to collaborate with the studio again.

“On a personal level, as someone who tries to make movies for adults, it’s unbelievably encouraging,” says Ray, whose writing credits include “Captain Phillips” and “The Hunger Games.” “And as a filmgoer, I’m grateful for STX because there are weekends where there is nothing in theaters for me.”

The sheer number of projects Fogelson and his team began to see from A-listers like Ray prompted him to ask Simonds if there was a way they could double the number of films they fielded. That meant bringing in Huayi Brothers as a financing partner on STX movies, a move Simonds says pushed the business plan forward by roughly four years.

But STX isn’t just aiming to focus on a different class of films than other studios are making, it’s also targeting them to audiences by using a different business policy — one without the kind of barrier between the company’s marketing and production divisions that exists at most major studios.

This emphasis on honing a film’s pitch to would-be ticket buyers shouldn’t come as a surprise: Fogelson rose up through the marketing ranks, as did STX motion picture group president Oren Aviv, both at Disney and Fox. Movie posters and trailers are embedded into their DNA.

“Rather than just handing off a movie to a marketing team and saying, ‘We’re done, now sell it,’ we want our ability to sell a film to be integral in every step of our decision-making,” says Watts.

Blum got a taste of this approach when he brought STX his twisty thriller “The Gift,” about the mysterious packages a stalker (Joel Edgerton) delivers to a happily married man (Jason Bateman). Even before a deal was signed, Fogelson was laying out a marketing campaign that would focus on the movie’s theme of being haunted by past mistakes.

To raise awareness for the film and the debut of its trailer last month, the company trolled the social-media profiles of bloggers and journalists, and sent them gifts referencing trips they’d taken, phobias they suffered or other personal details. “I really like the way they’re trying to get under moviegoers’ skin,” says Blum, adding that he’s been impressed that the nascent operation functions like a major studio.

Scott Stuber, producer of STX’s upcoming Civil War action drama “The Free State of Jones,” says the studio is still ramping up, but he has responded to the company’s vibe. “They have the enthusiasm of a startup,” he said. “There’s such hope in those halls.”

Unlike other studio startups, STX isn’t selling fancy algorithms or new distribution strategies as ways of gaining an edge on rivals. That’s a reversal of form for Fogelson, who as Universal’s former movie chief publicly advocated shrinking the amount of time between a film’s theatrical debut and its home entertainment release.  However, Universal’s experiment with the strategy went awry when exhibitors balked at a reduced window for the film “Tower Heist.”

In his new capacity, Fogelson says he has no interest in revisiting the debate. “We are going to adhere to whatever industry standards exist, and we don’t look at it as our goal to be pushing an agenda,” he maintains.

While the company’s financial backing may be secure for the foreseeable future, analysts insist that what STX Entertainment needs most is hits — and quickly. For instance, “Twilight” established Summit as a major distributor, while “Transparent” and “House of Cards” proved Amazon and Netflix were serious players in the streaming-television space.

“You need to strike gold in this crazy business,” says Jason Squire, a professor at USC’s School of Cinematic Arts. “In order to establish a foothold, you need for something to break out.”

STX’s initial slate boasts top-shelf talent such as McConaughey in Ross’ “The Free State of Jones,” and Lauren Cohan of “The Walking Dead” in “The Boy,” yet Aviv acknowledges there’s no guarantee that the new studio’s first salvo of films will resonate with audiences. “We are asking ourselves tough questions every time out, knowing that we’re placing a bet on our filmmakers and on our own abilities,” he says.

And what if the first few bets fail?

“That’s when you start pointing fingers,” Aviv jokes.

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