Typing Faster

October 19, 2009

Alternative Development Funds

Filed under: Features, ProdCos, the biz — petertypingfaster @ 10:30 am

With the economy in shambles, it should come as no surprise that development money has become harder to find. And it’s not just us little folks who are on the outside, a lot of big name producers are in the same boat.

The difference between us and them? They can go to private investment banks and set up multi-million dollar development funds for themselves.

In the past few years we’ve seen a spate of these deals:

  • Arnold Kopelson set up a multi-million dollar fund with Equus Total Return
  • Walter Parkes and Laurie MacDonald set up a $10M development fund with Imagenation Abu Dhabi
  • Jerry Bruckheimer set up a $20M, 3-year development fund with Barclay’s Bank
  • Reliance Big Entertainment set up a $20M development fund with the help of CAA

I wouldn’t have been surprised to see private investors throwing money at the film industry before the economy went into the shitter. Movies are, after all, the ultimate vanity investment. But why would investors in the current economic climate be willing to throw buckets of money at something as risky as a feature film? On the surface it makes no sense.

“…individual project wagers…have long been regarded as a high-risk investment. Individual projects usually need at least 18 months to percolate, and sometimes a decade or longer. A producer who gets three movies made out of 10 scripts has a high batting average; the funding for those other seven projects is money down the drain.

Those are some scary statistics. Anywhere from eighteen months to ten years before you see a return on your investment. A slim chance that you’ll be able to get something made to begin with. If you look at it from a business point of view it’s completely ludicrous.

What starts to take some of the risk away is the structure of the deals. These are very established, successful producers, and they’re giving up a fair bit in order to secure these financing deals.

The Reliance Big Entertainment fund makes (some) business sense. RBE’s development fund was used to

…[stake] 10 top stars and filmmakers — among them Brad Pitt, Tom Hanks, George Clooney, Julia Roberts, Jay Roach, Jim Carrey and Brett Ratner…Reliance’s goal for its $20 million investment is to co-finance the projects with a studio. The producers are incentivized to star or direct: They’ll get their usual wages plus an ownership stake through Reliance’s interest in each film.

By hitching your wagon to an established star, and essentially bribing them to star or direct, the chance of actually getting the film made goes up substantially.

Arnold Kopelson’s deal with Equus Total Return takes a slightly different approach. Kopelson’s goal

…was to develop projects that would trigger his established gross producer fee without the slowdown of requiring a studio to say yes. He has acquired nine projects out of 2,000 submissions and just set the first, “Sleeper Spy,” at CBS Films.

Kopelson believes Equus’ entire investment in Kopelson Entertainment will pay off with one success. The fund recoups cost and interest on a script when the project is acquired by a studio. Later, the fund also gets a piece of Kopelson’s backend.

In other words, Kopelson bribed Equus with a very generous set of terms, giving up a big slice of his pie, in exchange for the ability to have a free hand developing the projects he wants to develop.

It’s interesting to see the different ways established producers are finding to keep developing the ideas they want to develop. It’s undeniable that things are changing, this might be one direction the industry moves.

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