Find­ing out­side help to fi­nance movies

Pan­demic uncertaint­y has prompted the stu­dios to part­ner with new in­vestors.

Los Angeles Times - - CALENDAR - By Anousha Sak­oui

When the ea­gerly awaited “Com­ing to Amer­ica” and “Mis­sion: Im­pos­si­ble” se­quels hit the­aters this year and next, Brian Oliver will see his com­pany’s cred­its on­screen in a way he says wasn’t likely be­fore the pan­demic.

Last month, the 49- yearold Os­car- nom­i­nated pro­ducer and fi­nancier signed a more than $ 200- mil­lion deal with Para­mount Pic­tures to fund up to a quar­ter of the bud­get on 10 movies, in­clud­ing next year’s “Top Gun: Mav­er­ick.” In ex­change, he will share in any prof­its or losses from the movies.

He views the multi- pic­ture f inance deal as a sign that stu­dios are in­creas­ingly ea­ger to bring in part­ners to help mit­i­gate the risks of f inanc­ing in movies at a time when the­aters re­main largely shut down. Oliver had pre­vi­ously only part­nered with Para­mount on in­di­vid­ual, non- fran­chise projects such as the El­ton John biopic “Rock­et­man.”

“I don’t think we would have this deal with Para­mount if the pan­demic didn’t hap­pen,” said Oliver, founder and chief ex­ec­u­tive of Los Angeles- based New Re­pub­lic Pic­tures. “The longer the the­atri­cal mar­ket is in­hib­ited by the pan­demic the more you are go­ing to see stu­dios seek­ing out other fi­nanc­ing.”

COVID- 19 has up­ended the rev­enue streams that Hollywood could once de­pend on. As the­aters have yet to fully re­open and draw film fans, stu­dios have had to f ind other ways to re­lease their movies and re­coup in­vest­ments. In­de­pen­dent f ilm­mak­ers face in­creased bud­gets to meet new safety

pro­to­cols and no in­sur­ance cover to pro­tect from the losses if shoots shut down. That has opened the f lood­gates for deals to sell movies to stream­ers and for rich in­di­vid­u­als in the U. S. and over­seas to back f ilm pro­duc­tion.

“The pan­demic and its neg­a­tive im­pact on the­atri­cal ex­hi­bi­tion has cer­tainly shifted the stu­dio f ilm f inanc­ing mar­ket­place,” said Ken Deutsch, part­ner at Latham Watkins, who ad­vised New Re­pub­lic on its new slate deal. “A brand new set of risks has been in­tro­duced into the sys­tem — pro­duc­tion de­lays, lack of in­sur­ance cov­er­age, cost in­creases, theater shut­downs, etc. And those risks im­pact all f ilms, in­clud­ing what would have pre­vi­ously been con­sid­ered ‘ sure bet’ fran­chises. These risks have cre­ated new in­vest­ment op­por­tu­ni­ties that were pre­vi­ously un­avail­able and are at­tract­ing new play­ers.”

Multi- pic­ture f inanc­ing deals like the one be­tween Para­mount and New Re­pub­lic have waned in re­cent years. As the box of­fice con­cen­trated around fewer, big­ger spinoffs and se­quels, stu­dios felt less need to bring in in­vestors in order to keep all the prof­its from their movies.

But that may be chang­ing, given uncertaint­y around the box of­fice, en­ter­tain­ment in­dus­try at­tor­neys and stu­dio ex­ec­u­tives said.

“Hav­ing a port­fo­lio ap­proach to in­vest­ing in mo­tion pic­tures, where you own a few at 100% and you take on third- party in­vest­ment with oth­ers, helps level out the ebbs and f lows of per­for­mance,” said An­drew Gumpert, chief op­er­at­ing off icer for Para­mount Pic

tures. “It would not be un­rea­son­able to see stu­dios and other pro­duc­tion com­pa­nies en­ter­ing into sim­i­lar multi- pic­ture deals, es­pe­cially when, in the cur­rent eco­nomic cli­mate, in­vest­ing in [ f ilm] as­sets could be ap­peal­ing to third- party in­vestors.”

A mixed his­tory

Multi- pic­ture deals — some­times called slate f inanc­ings — have a mixed his­tory in Hollywood. Some ended up in law­suits af­ter in­vestors were left shoul­der­ing losses. More re­cently stu­dios were able to find money and form strate­gic part­ner­ships with Chi­nese com­pa­nies that could help dis­trib­ute their movies in the world’s se­cond- big­gest box of­fice. But po­lit­i­cal up­heaval led to some of those deals fall­ing away.

Universal Pic­tures’ slate deal with Bei­jing- based Per­fect World Pic­tures runs through 2021. Warner Bros. had an agree­ment with RatPac Dune, but that ended in 2018. Sony in 2017 ter­mi­nated a $ 200- mil­lion slate deal with LS­tar Cap­i­tal, an arm of Dal­las based pri­vate eq­uity group Lone Star Funds, and has not re­placed it. Dis­ney has not had a slate deal with third- party in­vestors in

many years.

Stu­dio rep­re­sen­ta­tives de­clined to com­ment on their f inanc­ing part­ner­ships.

The seeds of Para­mount’s slate deal with New Re­pub­lic ac­tu­ally dated be­fore the pan­demic.

Oliver had al­ready proved him­self as a pro­ducer, with Os­car win­ners “Rock­et­man” and “Black Swan” to his cred­its. He started New Re­pub­lic Pic­tures in 2017 with back­ing from the funds of wealthy in­di­vid­u­als based in Monaco and Spain.

The pan­demic has made it much tougher for many in­de­pen­dent pro­duc­ers to get fi­nanc­ing for their movies.

“Pro­duc­ers have to cast a much wider net ... as tra­di­tional in­sti­tu­tional fun­ders are not will­ing to take the risk of pro­duc­ing dur­ing COVID,” said Sean Jef­fer­son, New York- based film fi­nance at­tor­ney at Frank­furt Kur­nit Klein & Selz.

Un­like large stu­dios backed by ma­jor me­dia con­glom­er­ates such as Com­cast Corp and AT& T, these small bud­get pro­duc­tions can­not af­ford the losses linked with pro­duc­tion shut­downs and are al­ready fac­ing higher costs be­cause of safety pro­to­cols.

Usu­ally in­de­pen­dent pro­duc­ers would rely on banks charg­ing a few per­cent­age points of in­ter­est to lend them funds to cover the costs of pro­duc­tion. But with­out in­sur­ance cov­er­ing the risks of a COVID- 19linked shut­down, many banks have been un­will­ing to back these movies.

Some new and ex­ist­ing in­vestors are step­ping into bridge the fi­nanc­ing gap.

One such f irm is Santa Mon­ica- based f inancier BondIt Me­dia Cap­i­tal, funded by Canada’s Ac­cord Fi­nan­cial and Dal­las- based fund Re­vere Cap­i­tal. Some of the projects it has in­vested in in­clude the TV se­ries “Dive Club” f ilmed in Aus­tralia for Net­flix.

“We view it as fairly over­whelm­ing,” said co- founder and CEO Matthew Hel­der­man, re­fer­ring to the de­mand for the com­pany’s ser­vices. “We’re cau­tiously op­ti­mistic that it will look like this for the next 12 months.”

He ex­pects the com­pany will have in­vested 30% more funds this year than fore­cast.

In ad­di­tion, the rise of pro­duc­tions in­ter­na­tion­ally in coun­tries where the in­fec­tion rate is lower has brought in new in­vestors

from those re­gions.

Pro­duc­tions can lessen risks on shoots by film­ing in states and coun­tries where the pan­demic has been con­tained such as in Aus­tralia, New Zealand and in cer­tain parts of Scan­di­navia.

In­vestors also can be tempted by higher in­ter­est paid for f inanc­ing f ilms or TV shows.

In­vestors can charge three to four times what banks would nor­mally earn for f inanc­ing pro­duc­tions, said Christophe­r Spicer, a part­ner at Akin Gump who ad­vises banks and in­vestors in en­ter­tain­ment.

“A fi­nancier can get a sig­nif­i­cant pre­mium if you are will­ing to take on the COVID risk dur­ing fund­ing be­cause it is cost pro­hib­i­tive to get in­sur­ance now to cover that,” Spicer said.

Banks keep busy

Still, some banks are find­ing ways to work with in­de­pen­dent pro­duc­ers and stu­dios.

“We’ve been busier than we’ve ever been,” said Ben­nett Pozil, ex­ec­u­tive vice pres­i­dent of Pasaden­abased East West Bank. He cited in­creased ac­tiv­ity from stream­ing and the fact that bankers are work­ing harder to f ind cre­ative ways to f inance f ilms given the chal­lenges caused by the pan­demic.

The bank’s clients have in­cluded Tyler Perry, among the few in­de­pen­dent pro­duc­ers who has been able to re­sume f ilm­ing. Perry fol­lowed sev­eral health and safety mea­sures, such as quar­an­tin­ing his en­tire crew at his stu­dio in At­lanta, to pre­vent out­breaks of the coro­n­avirus.

Sev­eral en­ter­tain­ment in­dus­try at­tor­neys said they too were sur­pris­ingly busy work­ing on deals. “If the cur­rent pace con­tin­ues through the fourth quar­ter, this will be my busiest year in 10 years,” said Lind­say Con­ner, who heads the f ilm, tele­vi­sion and dig­i­tal con­tent prac­tice at law firm Manatt, Phelps & Phillips.

Con­ner said the en­ter­tain­ment in­dus­try is draw­ing more cash in­vestors drawn to com­pa­nies whose val­u­a­tion may have dipped or whose usual sources of fi­nanc­ing have dried up.

“There are smart folks who rec­og­nize that the risks may be greater but the re­wards are greater also,” he said. “Pro­duc­tion bud­gets have in­creased, and that has pro­vided op­por­tu­ni­ties to in­vestors who might not oth­er­wise have been called upon.”

Mean­while, stu­dios have been try­ing to f ind ways to re­lease their movies with­out the­aters and re­coup in­vest­ments, fur­ther con­tribut­ing to the hive of deal ac­tiv­ity.

Af­ter Universal Pic­tures’ suc­cess re­leas­ing the an­i­mated “Trolls” on­line with a $ 20 rental fee, oth­ers have struck lu­cra­tive deals with stream­ers.

Ap­ple took over from Sony as dis­trib­u­tor of the Tom Hanks movie “Grey­hound” for about $ 70 mil­lion, and Netf lix paid about $ 30 mil­lion to the back­ers of “Mal­colm and Marie,” fea­tur­ing Zen­daya, which was made for un­der $ 1 mil­lion, ac­cord­ing to peo­ple fa­mil­iar with the terms.

“Ev­ery­one re­al­izes that there’s a need for con­tent and is try­ing to f ig­ure out how to make movies,” said Roeg Suther­land, co- head of me­dia f inance at CAA, in­volved in both movie sales. “Peo­ple are in­vest­ing a lot more. It’s the most in­cred­i­ble sell­ers’ mar­ket that I’ve seen in the 15 years I’ve been work­ing at CAA.”

Para­mount Pic­tures

NEXT YEAR’S “Mis­sion: Im­pos­si­ble” se­quel was partly f inanced by out­side in­vestors. Above, the 2018 se­quel.

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