It May Be a Classic : Fox Deal, Which Puts Financing Onus on Producer, May Help Cut Film Costs

This week’s unusual $500-million production and distribution agreement between Twentieth Century Fox and film producer/director James Cameron--the latest evolutionary step in the relationship between movie makers and their financial backers--shows how Hollywood at last is trying to put a lid on out-of-control production costs.

The arrangement between Fox and the maker of the blockbuster “Terminator 2: Judgment Day” borrows a page from television. The TV networks for many years have helped finance the start-up of independent program production companies in exchange for an exclusive supply of prime-time shows.

Similarly, under the agreement announced Tuesday, Cameron’s Lightstorm Entertainment will deliver Fox 12 pictures over five years. Cameron is considered one of the most “bankable” filmmakers in Hollywood--trade parlance for a director whose work is almost guaranteed to earn big profits.

But Fox is not giving Cameron $500 million--the estimated production budgets, collectively, of the 12 pictures.

Instead, the studio will finance a portion of each film’s cost--said to be about $15 million per picture--and Cameron’s company will raise the balance by selling distribution rights in other countries; bringing in outside investors, reportedly from Japan, and borrowing from banks.

In return, Fox gets what it hopes will be a steady stream of highly commercial films to distribute in the United States and Canada as well as in secondary markets such as home video, pay TV and free TV--all for a comparatively modest investment.

“We are the minority partner,” said Joe Roth, president of Twentieth Century Fox Film Corp. “No matter how much the film costs, our investment is capped.”

Roth declined to elaborate on the financial details, but he said the deal’s structure protects Fox from some of the risks involved in science-fiction action pictures, where budgets can mushroom out of control.

The arrangement is unusual.

Typically, studios acquire worldwide distribution rights, foot the entire production bill and own their pictures outright. Producers make their films for a fee--usually lucrative--and the promise of participation in the film’s profits, which often prove chimerical.

Long-term relationships under these terms can be risky if a filmmaker loses momentum. In 1990, Paramount gave producers Don Simpson and Jerry Bruckheimer, the team behind “Beverly Hills Cop” and “Top Gun,” a five-year deal valued at $300 million. Ten months later, the duo’s costly “Days of Thunder” proved a disappointment at the box office, and the producers left Paramount.

A major difference in this deal is that Cameron will retain ownership of the pictures he produces, enabling him to build his own library--potentially creating an extremely lucrative asset. But he also has to line up a majority of the financing for his films.

“I think you are going to see the studios entering into arrangements of this sort more often,” said Larry Kasanoff, president of Lightstorm Entertainment. “Filmmakers will bear more of the financing responsibility and share in the upside.”