Hollywood’s bankers

U.S. studios grab piece of Teutonic funds' $1.7 bil stash

BERLIN — Germany’s private film funds last year raised some E1.3 billion ($1.7 billion), most of which was slated for Hollywood productions, including upcoming projects such as Brian de Palma’s “The Black Dahlia,” Roland Emmerich’s “The Girls Next Door” and Andrew Niccol’s “Lord of War.”

While a number of Teutonic funds are booming, the local fund market has been tarnished by legal problems and squeezed by tightened regulations and general unease surrounding the capital market. But the resulting shakeout has left the fittest players of a once bustling business in clearly dominant positions as the industry readies for further possible changes to the country’s tax code.

The profit-oriented VIP has become Germany’s most successful fund operator, outperforming bigger bank guaranteed funds in raising capital and attracting talent and projects.

Company recently inked a deal with Emmerich to back a number of projects from the helmer’s new Munich-based shingle Reelmachine — including “The Girls Next Door” and “Soul of the Age.” In addition, VIP is financing “Lord of War” starring Nicolas Cage and Ethan Hawke; Steven Zaillian’s “All the King’s Men” and Bruce Beresford’s “The Contract.” Most of those projects are being bankrolled via VIP’s current $500 million VIP 4 fund.

While the shaky fund market has seen its share of companies go under, VIP has experienced extraordinary growth since the group launched its first media fund in 2001, when it raised

$13 million. Three years later, investments reached $500 million and local observers expect VIP to raise north of $750 million this year.

VIP topper Andreas Schmidt attributes the fund’s success to the company’s proven track record, including pics like “Monster,” “Kingdom in Twilight,” a two-part fantasy adventure tale that was a ratings winner for local broadcaster Sat. 1, and “Seven Dwarfs,” one of Germany’s most successful box office hits last year.

Yet the business has been plagued by legal problems, fueling greater investor mistrust. Cinerenta, which bankrolled “The Human Stain,” “Prozac Nation” and the upcoming horror pic “Cave,” shut down operations last year in the wake of a long-running legal feud with irate investors trying to recoup millions in losses. Local fund operators say the multimillion-euro lawsuits and ensuing investigation against Cinerenta’s main shareholder Mario Ohoven have clearly had a negative impact on investor trust.

“It would be stupid to say the publicity hasn’t affected us,” says Gerd Koechlin, director of production development and acquisition at Equity Pictures, which last year raised $120 million — an increase of 30% over 2003. Equity is bankrolling a slew of U.S. pics, including Brian de Palma’s “The Black Dahlia,” James Foley’s “88 Minutes” with Al Pacino, and Richard Donner’s “16 Blocks” starring Bruce Willis.

“We work through our asset management company,” Koechlin says. “It speaks more for us that we don’t have a massive bank behind us. We have a good reputation in Hollywood. We don’t just come over with a bag of money every December. You need respect in that town and we are treated as an equity partner.”

Although German Film Productions, which specializes in German films and TV productions, saw a healthy 70% boost to $90 million last year, company topper David Groenewold says the negative press has definitely cost his company “a few million euros” in business.

GFP recently hit the jackpot with “Der Wixxer,” Tobi Baumann’s $6 million slapstick spoof of 1960s German noir mysteries; pic was one of Germany’s biggest local hits last year, grossing more than $14 million.

Domestic and international TV productions have become much more significant for funds like GFP and Apollo Media. The latter launched two funds last year after the first quickly reached its $90 million target due to investor interest in its focus on U.S. TV projects, including TNT hit “The Librarian: Quest for the Spear.” ApolloProMovie 2 aims to raise $200 million through 2005.

“Television production offers less risk to investors,” says Michael Moersch, a sales exec with Apollo parent Chorus. “The overhead costs for TV productions also are considerably lower, and while earnings may be somewhat lower, television production is more stable.”

While investors are excited about the prospects for TV success, they appear to be growing weary of the more nebulous outlook for theatrical productions.

Deutsche Capital Management had to shelve its new IMF 4 fund last year after failing to reach the targeted $65 million volume. IMF works closely with Munich-based Internationalmedia and has financed productions such as “Alexander” and “The Aviator” as well as the upcoming “Basic Instinct 2.”

Major Hollywood studios also pact with big funds such as ALCAS, LHI and Hannover Leasing, which are backed by big local banks. Last year Universal signed up with Hannover Leasing for a $300 million fund to back a number of projects which may include Sam Mendes’ military drama “Jarhead,” starring Jake Gyllenhaal, and Gary Ross’ romantic comedy “Dog Years” with Ben Stiller.

Hannover teamed separately with DaimlerChrysler Services Structured Finance, raising nearly $100 million for New Line projects. New Line also partnered with Munich-based ALCAS, which raised a further $65 million for titles like Craig Gillespie’s “Mr. Woodcock” and the Jack Black starrer “Tenacious D in: The Pick of Destiny.”

Despite the positive outlook, local observers are holding their breath as the Finance Ministry again reviews the legal status of media funds. A U.K.-style sale-and-leaseback model that could go a long way in boosting the domestic film industry also is on the table, but the industry remains divided about its merits.

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