Investing in movies: Still a capital idea


More Media and Money confab coverage on page 4.

NEW YORK — The perils of financing film slates are providing lessons for refining the strategies behind the next wave of dollars, according to some of its leading practitioners.

"We're not seeing any letup at all in the interest of financing films," said David Schaefer, partner at Loeb & Loeb and one of many players in the sector who weighed in on its challenges in a pair of panels Wednesday devoted to the subject at the Dow Jones/Nielsen Media and Money Conference. "Both studios and investors are becoming more sophisticated."

The investors noted that Hollywood attracts funds that aren't entirely motivated by financial gain, and the lure of the limelight leads to no shortage of deals.

"There is an unending supply of capital that wants to be there," said Chip Seelig of Dune Capital Management.

Relativity Media CEO Ryan Kavanaugh, whose Gun Hill I fund has received considerable scrutiny, acknowledged that early indications on Gun Hill suggest it has so far performed below expectations but cited adjustments that have been made on the deal to improve the rate of return. He also noted that preliminary estimates fail to take into account the syndication market that will reap additional revenue.

Kavanaugh also noted that another fund he has set up with Sony Pictures, dubbed Beverly, has benefited from the knowledge he gleaned from his Gun Hill experience. Among the differentiating deal points are a longer contract — five years — and an option to opt out of select films.

"We are truly partners with the studio rather than just co-financing the deal," said Kavanaugh, who indicated that negotiations are still going with a second studio interested in Beverly.

The investors also cast their eye beyond film to other entertainment areas that could attract investment. While Kavanaugh indicated that he would like to do deals in both television and digital media, he said of the latter category, "It's a much harder business to create a model that works."

In a second panel on the subject, investors noted that equity deals for the output of specific producers as opposed to studio slates are becoming more popular. It is just one of the adjustments to deals that all involved hope will thaw out the deep freeze coming from the credit markets.

"To get deals done in a slow market, the terms are going to have to change somewhat," said Robert Osher, COO of Columbia Pictures Motion Picture Group.

But Amir Malin, managing principal of Qualia Capital, was deeply skeptical that there are investments out there worth making.

Michael Lynne, co-chairman and co-CEO of New Line, predicted that activity in this sector won't slow for long. "There are a lot of equity deals still in the market," he said.

The panels on film financing were moderated by The Hollywood Reporter business editor Georg Szalai and Paula Parisi, vp — director of conference programming.