Biz dough nuts

Risk-averse studios bite into Euro cash

The early Hollywood moguls who cleared away beanfields and orange groves to erect studios prided themselves on being risk-takers. They savored their gambles.

The multinational corporations that have inherited these enterprises harbor no such attitudes. Risk-averse to the core, they regard movie-making as a fiscal hot potato that they willingly hand over to nervous financial partners.

In recruiting these new partners to help finance their films, the multinationals are inadvertently effecting some important changes in the financial landscape of show business.

  • A new style of company is evolving that has first pick of studio projects, and the ability to summon up money and distribution.

  • Foreign-sales companies — which traditionally put up part of a pic’s budget in exchange for overseas rights — are feeling squeezed by producers and studios.

  • Some foreign-sales companies have started producing movies on their own, with one vowing that more interesting films potentially will get made outside the studio system.

  • Insurance-backed financing, one of the recent cornerstones of the indie pic biz, is increasingly under attack, with some banks whispering about possible lawsuits.

The emerging financial landscape may still be in flux, but certain precepts that were once rock-solid seem to have been permanently changed.

An obvious sign the studios are minimizing the downside can be seen by their cozy alignment with companies offering split-rights financing, such as Village Roadshow, Mutual Film Company, Bel Air Entertainment, Spyglass and Mandalay.

These hybrid companies possess crucial strengths necessary to make A-level movies for studios: Access to financing and distribution, combined with the ability to cherry-pick from the studios’ project slates.

Even more quietly, split-rights outfits like Alcon and Franchise Pictures are hovering around to share the risk and hopefully ride the wave granting access to studios that formerly appeared cloistered.

Fool’s gold

A not-so-obvious sign of financial change may be that, although there’s more money for the taking, some of it may be fool’s gold.

The insurance-backed part of the indie financing business has been red-hot for the last four years, fueling the pipeline with product that some feel is sub-par:

“All these crap movies got made that never should have seen the light of day,” said one top banker whose outfit looks judiciously for the “brand name” value in a package before committing.

The source also said that in an atmosphere rife with lawsuits, the entire insurance-backed part of the filmmaking industry may even collapse.

“That’s just horseshit,” retorts one top producer, pointing out that every large bank is in the insurance-backed business. “I have two banks begging me to insure two large pictures right now. So that’s just factually incorrect.”

No matter how bold insurers may feel in the future, a battle is raging between traditional sales outfits and the studio-backed outfits.

Observers contend that many foreign-sales outfits that formerly found themselves able to carve out a lucrative niche overseas now find that producers are networking them out of their own business.

“The sales companies are finished,” said the head of a prominent mini-major. “Paramount or Disney doesn’t need to call Summit or Intermedia or J&M to sell their films; they already have a partner that has an output arrangement with foreign distributors.”

One top foreign sales exec counters, “Our fates are not determined by what the studios give us,” explaining he aims to make more movies on his own and sell them to the majors for distribution.

“This is a better environment for us now because studios are afraid of the cost. As a result, more interesting films will get made outside the studio system, and those films will be sold in a way where studios have some but not all distribution rights.”

In addition, he concludes, satellite companies are nothing new — it’s the risk that has grown disproportionately, forcing the studios to give away more than before.

Find me a banker

In a market where studio deals are falling by the wayside faster than yesterday’s child star, every producer is looking for a financial friend with a heavy accent, but only the lucky few are bankable enough to leverage their name into a financial security blanket.

And the Eurocash may not be as abundant — nor as gullible — as it seems.

“The fact is, you have every yutz in the world running around saying, ‘I met a guy in Stuttgart once,’ ” said one top producer. “But international financiers have a long history of giving money to producers and getting killed. I just don’t think (the financial bonanza) is true.”

Big-name studio producers with only their talent to drive them forward are going through a rougher time.

Recent examples abound, such as Kopelson Entertainment at Fox, which is about to put together its first movie there after 2-1/2 years on the lot, and the WB-based Jerry Weintraub and Jon Peters shingles, which have not exactly fired on all cylinders lately.

“They’re just not making those kinds of producer deals anymore,” said one studio observer. An agency topper adds, “If you’re a big enough producer, you bring money to the table; that’s just the way things are now.”

Even outfits that have gotten money, such as Warners’ Bel-Air Entertainment which is a 50-50 investment between that studio and Le Studio Canal Plus, has yet to yield a real hit-movie return on that investment.

A more obvious split-rights success this year is Roger Birnbaum and Gary Barber’s Spyglass Entertainment, whose surprise hit “The Sixth Sense” is still tallying beyond the $250 million domestic mark, with four more pics in post-production.

So how are those left behind on the cash platform trying to catch the money train?

One foreign sales agent said that sales outfits are pitching themselves directly to producers when a more permanent deal isn’t granted by the studios themselves, which is most of the time.

Other experts opine that with white-hot distrib markets like IPO-crazed Germany, Spain, Italy and still-improving Korea and Japan, there is still coin to be made for the sales guys, just as long as they bring A-list product.

And there’s another rub, observers say.

Those stars have often been cherry-picked already, either by the studios or by the hybrid companies living inside them and created for that specific purpose. That leaves precious little left for the scavengers, who are forced to go door-to-door selling to producers.

One top sales exec, conversely, sees the cash migration from traditional financing and into studio-based split-rights outfits as a blessing in disguise for everyone.

“They’re taking pieces out of an expanding pie, not a shrinking one,” the exec said. However, he cautions, even mid-sized sales outfits had better cozy up to their favorite studio in a hurry, lest they get cut out of the good project slates.

A recent example of a sales player making hay of a solid studio relationship (without a distribution network) is Seven Arts, which co-financed Paramount’s upcoming $70 million William Friedkin-helmed thriller “Rules of Engagement” starring Tommy Lee Jones and Samuel L. Jackson. With that kind of star power, Seven Arts went in for half the production cost, and had success preselling it at this year’s Mifed.

Still hustling

Another indication of how sales agents still hustle (and use a bank to help them out) is the horror pic “House on Haunted Hill,” which J&M secured through a $10 million co-financing deal through MM Media Capital Partners, with Warners coughing up $8 million, and Dark Castle producers Joel Silver and Robert Zemeckis bringing distribution through WB.

But more money alone isn’t getting pics made, observers said.

“It isn’t easier for producers and agents to get movies made, because the product isn’t getting better, and there isn’t more of it,” one producer said. “It’s still about the stars.”

A small group of big producers can afford to play it the old-fashioned way, making the studio foot the bill for everything. And as long as their pictures open, critics argue, why embark on sharing the risk when there’s no need to?

“Guys like Jerry Bruckheimer and Scott Rudin have gross participation and none of the risk; it’s the best of both worlds,” an observer notes. “They’re still sucking on the studio tit as much as ever. So why would they want to change?”