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For some Hollywood investors, the pandemic opened new doors

Tom Cruise in Paramount Picture's "Mission Impossible: Fallout."
(Paramount Pictures)

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-year-old 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 multipicture finance deal as a sign that studios are increasingly eager to bring in partners to help mitigate the risks of financing 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 find other ways to release their movies and recoup investments. Independent filmmakers 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 floodgates for deals to sell movies to streamers and for rich individuals in the U.S. and overseas to back film production.

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“The pandemic and its negative impact on theatrical exhibition has certainly shifted the studio film financing 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, theatre shutdowns, etc. And those risks impact all films, 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 financing 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 flows of performance,” said Andrew Gumpert, chief operating officer for Paramount Pictures. “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 [film] assets could be appealing to third-party investors.”

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Multi-picture deals — sometimes called slate financings — 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 Rat-Pac 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 financing partnerships.

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

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Oliver had already proven 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 now 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.

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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-19-linked shutdown, many banks have been unwilling to back these movies.

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

One such firm is Santa Monica-based financier 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” filmed 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.”

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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 financing films or TV shows.

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Investors can charge three to four times what banks would normally earn for financing 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.

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 Pasadena-based East West Bank. He cited increased activity from streaming and the fact that bankers are working harder to find creative ways to finance films given the challenges caused by the pandemic.

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

Tyler Perry was among the first major filmmakers to restart shooting amid the coronavirus outbreak. He followed rigorous health and safety measures at his Atlanta studio.

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 film, television and digital content practice at law firm Manatt, Phelps & Phillips.

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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 find 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 Netflix 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 figure out how to make movies,” said Roeg Sutherland, co-head of media finance at CAA, which was 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.”


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