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The Sundance Suckers 

They've got to be stupid to be smart

Thursday, Jan 30 2003
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If you accept the premise that the film business is the folly of the filthy rich, then the independent-film business must seem the folly of the stupidly rich.

Look at the winner of this year‘s documentary award at the just-finished Sundance Film Festival: Capturing the Friedmans, produced and directed and, most importantly, financed by Andrew Jarecki, who at age 25 co-founded MovieFone and sold it to AOL in a deal valued at $388 million. The Sundance media were agog, suffering from amnesia that rich guys are a dime a dozen behind the scenes and, now, even in front of the camera.

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Lore has it that, if a sucker is born every minute, all eventually land in Hollywood -- with a detour to Park City during January alongside stars and wannabes (hard to tell them apart in identical Roc-a-Wear and Juicy Couture beneath those real and fake shearlings). As for financing independent films, it’s a case study in pigeon finding. But now birds of a different feather are flocking to it: hard-nosed businessmen.

Every day, filmmakers who sound more like flimflammers are scouting the next financing angel. Hate those high-pressure supper-time telemarketing calls to your home? Those guys are amateurs compared with the ballsy pros currently crisscrossing the country doing dog-and-pony shows for -- no kidding! -- dentists in Wyoming.

Their spiel is that, given the bursting of the Internet bubble, the declining price of stocks and the tanking of rates on fixed securities to their lowest point in 50 years, the potential returns on the movie business look like attractive investments by comparison. ”Just think: There are a dozen states offering budget-based rebates to lure movie business inside their borders. The current incentive deals range from Hawaii‘s offer of 7 to 8 percent to Louisiana’s staggering 13 to 14 percent. And money markets are paying what?“

The bait is not just another art-house loser but the next Blair Witch Project. Yes, the most successful independent film ever made, My Big Fat Greek Wedding (domestic box office take to date: $236 million), scored producer Paul Brooks that recent big, fat profile in the Los Angeles Times. Barely mentioned is Brooks‘ investor and the movie’s backer -- Norm Waitt, who co-founded Gateway computers with his brother in an Iowa barn 17 years ago and formed the film, music and television outfit Gold Circle Entertainment after Hollywood rejected a screenplay written by his martial-arts instructor. With a net worth of $1 billion, Waitt lost a lot on prior bombs but had the capital to stay in the game. ”He just loves movies,“ Brooks told the Weekly.

Everyone in Hollywood has heard of the film company Alcon Entertainment and its two Princeton alums, Andrew Kosove and Broderick Johnson, and its first monster hit, My Dog Skip. But few know that backing them is the founder of Federal Express, Fred Smith (who claims his canine picture makes everyone ”get a lump in the throat“).

The two wunderkinds‘ mantra was that making money in the movie business is difficult but not impossible, given the right formula. Theirs was to spot the trend earlier than most that the movies business was soon going to mirror the music industry: a handful of distribution and marketing entities, with production and finance coming from the labels, which not only could be more nimble but also negotiate better terms with talent and unions. A go-between helped put the two partners in a room with Smith.

”But we didn’t go to Memphis and charm this man with our card tricks. What Fred responded to was our business plan,“ Kosove tells the Weekly. ”Different investors invest for different reasons. Fred‘s motivation was much more about creating a business than it was about the idealism of making one great movie to change the world.“ (Smith later described how the ”two young men pitched something they thought they could do in the movie business in a way that nobody had ever done before. And it made a lot of sense to me. So I decided to back them -- because they reminded me of me.“)

Waitt and Smith join a growing list of self-made success stories gambling on Hollywood, like Microsoft co-founder Paul Allen, whose $600 million investment jump-started DreamWorks. In Vegas, they’re called the whales. In Hollywood, they‘ve been known as minnows, because so many of the fortunate guys who come to town with a fortune already -- Steve Tisch (heir to New York’s Loews‘ fortune), Ted Fields (member of Chicago’s Marshall Fields family), the late Dodi Fayed (son of Britain‘s Harrods owner) -- were babe-seeking scions of wealthy families located outside California. Here, along with mother’s milk, the well-to-do babies suckle on warnings about the movie biz.

Others have been weaned. In the 1980s and 1990s, Wall Street flashes in the pan were financing independent films because of Something Wild fantasies about Melanie Griffith. In 1999 and 2000, German film distributors raised more than $3 billion in capital from IPOs, then went on a buying spree of Hollywood scripts until the Neuer Markt collapsed. Dutch tax money disappeared. Before that, the Japanese fled. South Africans became a thing of the past. The Australians never lived up to their hype.

Most recently tapped, and then tapped out, was America‘s own Pulp Fiction generation: kids from rock-solid and recession-proof family fortunes based on oil or real estate or banking, like Denver’s Robert Sturm. His independent film production and talent management company, Catch 23, was to produce three to five films a year budgeted in the $3 million--to--$5 million range. But first they wanted to make a splash with a few bigger-budgeted prestige indies. Catch 23 was said to be tanking until its $6 million equity investment in One Hour Photo paid off big time. Although well-known executives have left his two-year-old firm, Sturm pledged in November that ”despite some bumps in the road, we are excited about continuing in the film industry.“

Contrast that with another Denver mega-millionaire, Charlie Lyons, who on his own built Ascent Entertainment (assets at one time included the Nuggets, the Avalanche, Denver‘s Pepsi Center and films from producer Armyan Bernstein) and then sold it to Liberty Media. Now Lyons is CEO of Beacon Pictures (and the newly minted Beacon Television) with hundreds of millions of dollars in capital from himself and other private investors to make 20 to 25 films to be distributed by Disney. Lyons is seen as just the right tight-fisted businessman to keep rein on Bernstein, the company chairman. ”The most dangerous thing a newcomer to the movie business can do is walk in and think this is easy,“ Lyons tells the Weekly. ”Where people get in trouble is they don’t approach it as building a company but instead as investing capital in individual movies.“

That won‘t happen to Bob Yari, the canny Los Angeles--based commercial real estate tycoon who began his career with a degree in cinematography working for Edgar Scherick and as an assistant director on miniseries and movies. After a long hiatus, he re-entered show biz two years ago with the purchase of an interest in Cutting Edge Entertainment, which he later sold to what is now Splendid Pictures. Yari resurfaced again just recently as the backer of the newly formed independent film financing and production company Stratus Films topped by producer Mark Gordon and Miramax refugee Mark Gill. Yari told the Weekly he is ready to reach deep into his pockets. ”To be honest, I haven’t even quantified it. I‘ve left it open-ended depending on performance.“

Talk about a sucker’s bet -- or is it?

Yari calls Hollywood a minefield for investors. ”Simply because even the most credible sources are eager to gobble up capital and toss you up the other end once they strip you of that capital,“ Yari noted. Still, he doesn‘t expect to lose his shirt. ”But stupidity is not a prerequisite for losing your money. You can lose your money even if you’re smart.“

 

If you want to reach Nikki Finke, send her an e-mail at deadlinehollywood@gmail.com.

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