Sharing the Risk and Wealth : Studios Turn to Co-Financing, Other Deals for Big-Budget Films

It was a deal made with the flip of a coin.

Warner Bros. won the toss and with it came the North American distribution rights to “Twister,” this year’s potential blockbuster movie about tornado chasers from Steven Spielberg’s Amblin Entertainment.

Universal Pictures lost and got the foreign rights.

The coin toss between Terry Semel, Warner Bros. co-chairman, and Sid Sheinberg, then president of Universal’s parent firm, MCA Inc., was somewhat symbolic. Each studio had already agreed to put up half the costs and split the revenues evenly when the film opens May 17. All that was left to decide was which studio would place the movie into its domestic release schedule and spearhead the advertising campaign.

It wasn’t the first time the two studios had used a coin to make such a decision. Years before, Semel and Tom Pollock, then head of Universal Pictures, did the same for “Gorillas in the Mist.”

Hollywood’s major studios are usually fierce competitors, whether it’s battling for box office, taking part in bidding wars for hot scripts, wooing A-list actors to their pricey projects or competing for Oscars.

But on occasion, studios do cooperate, whether it is entering 50-50 co-financing ventures, as with “Twister,” or selling off distribution rights to their rivals, as was done with Oscar-winner “Braveheart,” the Bruce Willis action film “Die Hard With a Vengeance” and the Michael Douglas romantic comedy “The American President.”

Some studio executives look at the $70-million to $100-million price tags on major movies and say selling off rights is the smart way to do business.

“We want to make movies with major stars--event movies,” said one executive, who, like many interviewed for this story, asked not to be identified. “But we can’t because the above-the-line costs are so high. So we have to ask ourselves, ‘Are we going to take a bite for $100 million?’ If we’re wrong, we could destroy an entire year.”

“Twister” is only one example of studio co-financing that is commonly referred to in the industry as the “one pot” or “central pot” deal because the studios pool their money and share equally in the revenues. (Sources close to the production maintain the film’s budget is $72 million, though other industry sources predict it will eventually approach or surpass the $100 million mark.)

Sony Pictures Entertainment and Walt Disney Co. are currently co-financing two films by this method: “Starship Troopers,” a $95-million science-fiction action film about soldiers doing battle against an army of bugs that attacks the Earth, which begins principal photography April 29; and “Peter Pan,” a live-action adaptation of the James M. Barrie classic currently in development.

Under the deal they struck, Sony will release “Starship Troopers” in North America with Disney getting the international rights, while the arrangement will be reversed on “Peter Pan.”

Last year, Paramount and Sony entered a similar deal, splitting the costs and revenues on the children’s fantasy “The Indian in the Cupboard.” And the two studios did the same on the 1993 film “Alive.”

Studios enter these deals for a variety of reasons, either because they want to reduce the exposure on a big-budget movie or because they have some contractual involvement in the material the movie is based on.

“Twister,” for example, became a joint Warner Bros./Universal project largely because Spielberg and author Michael Crichton had production deals at both studios and everyone wanted to maintain those relationships.

There is, however, debate in the industry about whether studios should ever sell off any of their costs.

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Casey Silver, chairman of MCA Motion Picture Group, said Universal has no hard-and-fast rule when it comes to co-financing and added that he will entertain such deals if the price is right and the studio believes in the project.

But by limiting the risk, Silver noted, studios get only half the upside if a movie becomes a hit.

“If you believe in something and have control of it, presumably you want to take the ride all the way on the upside, and stomach the ride all the way on the downside,” Silver said.

Much has been made of the fact that Paramount Pictures took only the domestic rights to the Mel Gibson film “Braveheart,” while 20th Century Fox acquired the foreign rights, after the projected budget of the Scottish battlefield epic soared to $60 million.

Was it a smart deal? Paramount and Fox certainly thought so. Paramount put up only about $17 million and saw the domestic box office for “Braveheart” go over $74 million. Fox put up $43 million for the foreign rights and has seen the overseas box office reach $115 million to date.

But some question why Paramount didn’t keep all the rights.

“Why sell off ‘Braveheart?’ ” asked one industry observer. “It had a big movie star, it takes place abroad and, if it works, it works much better in foreign than domestic. . . . Some studios think you should sell off rights to lower your risks, but I think that is a fool’s game.”

But others defend Paramount’s strategy. “It’s not a fool’s game,” said one film executive. “It’s a way to deploy your assets. It’s like investing in a mutual fund as opposed to one stock. It’s a way of diversifying.”

“Braveheart” involved a second way that studios finance films today. Called a “two-pot” deal, it comes into play when one studio simply purchases the foreign or domestic rights from a rival, then does its own marketing and keeps to itself whatever revenues come in.

Arnold Schwarzenegger’s “True Lies” is another example of a two-pot deal. Sources say Fox, which had the domestic rights, put up $80 million and watched the movie take in $146.3 million at the U.S. box office. Universal, meanwhile, put up only $30 million for the overseas rights, and the movie went on to make about $100 million internationally.

Similarly, Universal spent $17 million for the foreign rights to “The American President” out of a $60-million budget. The film, which was released domestically by Columbia Pictures and Castle Rock Entertainment, has taken in more than $44 million overseas.

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Hedging Their Bets

With costs increasing, some studios are co-financing big-budget productions or selling off distribution rights to rivals. (Budget figures below are based on information from studios.)

“Twister”

Partners: Warner Bros. and Universal Pictures

Budget: $72 million

“Braveheart”

Partners: Paramount Pictures and 20th Century Fox

Budget: $60 million

“True Lies”

Partners: 20th Century Fox and Universal Pictures

Budget: $110 million