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Tough times for Hollywood dealmakers

Ingenuity, tenacity help to survive perfect storm

It’s been a rough year for Hollywood deals and dealmakers.

Start with plenty of labor unrest, add in the global credit crunch along with the consequences of too many movies in the market, and combine that with foreign distributors getting cold feet for anything but blockbuster Hollywood product.

“Any one of these factors would depress the business, so having all of them at once was something of a perfect storm,” notes Charles Heaphy, senior VP at City National Bank’s entertainment division. “This is like being in a rowboat while there’s a hurricane going on.”

It wasn’t as if dealmaking — the lifeblood of Hollywood — came to a halt over the past year. It just became far more complicated.

“It’s much harder now,” notes ICM’s Ron Bernstein, long one of the leading lit agents. “It just goes in fits and starts. The tough part is getting people energized, because people (pay) less and less attention. And it’s been an odd year with the WGA strike and the SAG situation.

“Nothing today comes easy because it’s a slow process of getting the pieces into place, and everyone’s cautious; they’re all looking over their shoulders.”

Exhibit A, all agree, is the extended period it’s taken for DreamWorks to close its financing deal with India-based Reliance ADA.  “It says a lot about the financing environment that Steven Spielberg’s company has needed this much time,” one attorney notes.

Exhibit B is the inability of the congloms and SAG to reach an agreement, with no deal expected any time soon. Studios and nets are forging ahead — but they’d certainly prefer doing so without the lingering uncertainty of another strike.  

Still, deals have continued to emerge over the past year, often from unexpected quarters:

  • The emirate of Abu Dhabi announced a $1 billion financing deal in early September plus a $250 million deal for Jeff Skoll’s Participant Prods.

  • The revival of MGM as a studio generating its own films under Mary Parent, including a huge spec deal for “Zookeeper,” a franchise-igniterin “The Matarese Circle” and remakes of “Robocop,” “Red Dawn” and “Poltergeist.”

  • Musicians such as Madonna, Shakira and Jay-Z signed “360 deals” — encompassing all future music and music-related businesses.

  • Rick Nicita became the latest topline agent to ink a producing deal, leaving CAA to work for Morgan Creek

  • Universal opted for longterm agreements with HBO, Imagine, Playtone, Relativity and Working Title.

  • With “The Dark Knight” as the year’s biggest movie, Warner Bros. shows it is serious about tentpoles, closing down its specialty business and cutting New Line.

  • Key Warner Bros. supplier Alcon Entertainment lined up $500 million of financing at a time of tightening credit.

  • CBS Films ramps up operations with a major deal for the eight-book Mitch Rapp franchise.

  • Media Rights Capital agrees to  program the CW network’s entire Sunday night in primetime.

  • Fox’s deal for “The Fringe” from J.J. Abrams, Alex Kurtzman and Roberto Orci: Series launched with a two-hour pilot budgeted at more than $10 million.

  • Reliance Big Entertainment announced deals with Nicolas Cage, Jim Carrey, George Clooney, Chris Columbus, Tom Hanks & Gary Goetzman, Brad Pitt and Jay Roach — part of its $1 billion investment in Hollywood.

All this occurred at a time when conditions weren’t anywhere near normal, due to the WGA strike profoundly unsettling the business. TV networks saw their 2007-08 season split apart; film studios scrambled to finish  features prior to June 30 as a hedge against a SAG strike.

In a business that craves stability, the writers provided uncertainty. Negotiations collapsed twice, first on the eve of the strike and then five weeks into the work stoppage on Dec. 7 with both sides far apart on new media terms and jurisdiction.

The strike — aimed at hurting the TV business — played out publicly on a national stage with the WGA asserting that its stance had the backing of general public.

By contrast, the DGA and the producing companies met under the radar for about a month and reached a deal in mid-January. Eight months later, chief DGA negotiator Gil Cates believes a key to making the deal was that the DGA had spent $2 million for studies on the new media marketplace.

“The most important aspect of any deal is information and knowledge,” Cates notes. “It was difficult. We understood that they were saying one thing to Wall Street and another to us but we weren’t just reading press clippings. We had our own hardnosed business projections, so we knew what we were talking about.”

Cates also still believes  it’s counterproductive to go public during negotiations. “I find it downright dumb to negotiate in the press. You’re in a private room to make a deal — and then when you get out of that room you’re going to tell everything that went on? I find it inconceivable.”

The WGA ended the strike less than a month later with new-media deal terms that largely mirrored the DGA’s. AFTRA split from joint negotiations with SAG in March and reached a primetime deal in late spring, but SAG’s holding out — even though its contract expired June 30. 

The need to resolve the strike prompted Disney CEO Robert Iger and News Corp. president Peter Chernin to play key roles in closing out the DGA and WGA deals. A pair of high-powered attorneys came on to hammer out the language in these deals — Ken Ziffren on the DGA and AFTRA deals and Alan Wertheimer on the WGA deal.   

Troy Gould partner Jonathan Handel, a former attorney at the WGA, believes the DGA’s deal remains quite significant as the first pact that deals extensively with how to compensate creatives amid the coming explosion of digital platforms. “The DGA did get a true foothold, so it was a good deal but not a great deal,” Handel notes.

Meanwhile, SAG has bashed the DGA deal at every opportunity — even though the companies have insisted  they won’t revise the terms, and even though SAG’s facing the prospect of losing jurisdiction over shows shot on digital to AFTRA, it’s adhered to a strategy of holding out.  

Against this backdrop, Universal’s quietly voting for the future. Imagine, for example, extended its deal last year to run until 2013. 

“We feel that those kind of deals — locking up key talent and producers — say that Universal is holding its own in terms of business,” says U’s vice chairman Rick Finkelstein. “When you’ve had the kind of relationship we’ve had with Imagine, it makes sense to extend, because it means that our interests are aligned at a time when the bets are getting bigger and bigger.”

Finkelstein says the Playtone deal — which has yielded global hit “Mamma Mia!” — is an example of the kind of reward  the studio’s seeking. “That deal hadn’t borne a lot of fruit until ‘Charlie Wilson’s War’ and ‘Mamma Mia,’ so it’s a real endorsement of taking a long-term view.”

Dealmakers say the studios’ desire for sure bets — preferably tentpoles that can work on a worldwide basis — is increasing all the time.

“If you have a topline A list and a good script, studios will make that deal, and that’s just as good as it ever was,” notes Brian Sher, who segued from a decade as an ICM agent to heading a management/production firm dubbed Category 5. “Selling specs for 200 against 400 — that’s where there’s been erosion.”

With the business focused on hitting homers with event movies or making small movies, that’s meant a continued downsizing in midrange movies and deals, according to Sher.

“The gap’s widening, but if you have a box office star, you can make a deal,” he adds. “If it’s good enough for the star, it’s good enough for the studio. And that won’t ever change.”

There’s no doubt that dealmaking’s gotten more complicated. Bernstein recalls that the deal for the Mitch Rapp series, to be produced by Lorenzo DiBonaventura and Nick Wechsler,  took six weeks.

“The time seemed to expand when we were working out the deal since it covered areas such as reuse on eight books,” he recalls. “Franchises do not move at the same pace as everything else. In this case, CBS Films was new and needed to get going. That made it easier than dealing with one of big studios where they have hundreds of projects in development.”

Martha Henderson, who heads City National’s entertainment division, believes that dealmaking’s going to stay slow as long as the SAG contract remains unresolved. But she notes that the latest influx of funds from Abu Dhabi underlines the fundamental strength of the entertainment business.

“There’s much more resiliency in the industry than people expect,” Henderson adds. “When you least expect it, someone comes in and fills the void.”

And the exec, who’s logged three decades in the biz, notes that Hollywood continues to attract that kind of investment because of its ability to find new ways to take advantage of recognizable properties and transform them into features films such as “Alvin and the Chipmunks,” “Mamma Mia!” and “The Dark Knight.”

“Any time you can take a known quantity that will cut through the clutter, it makes sense,” Henderson adds. “It’s a very smart way to make revenues off a bright idea.”

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