By ANNE RILEY-KATZ - Posted date: 5/7/2007
Los Angeles Business Journal

Talent scouts have been on the Hollywood scene for decades, looking to land plum roles for tomorrow's stars.

Now, a new firm is scouting talent, but its goal is to buy equity stakes from top actors, actresses and directors who worked in films and TV shows.

The company is Content Partners LLC, started last year by billionaire entrepreneurs Mark Cuban and Todd Wagner along with Paul Wachter, a Los Angeles financial advisor; Steve Kram, former William Morris executive vice president; and Steve Blume, the former CFO of Brillstein-Grey Management, which managed such heavyweight talent as Brad Pitt, Nicolas Cage, Courtney Cox, Bill Maher and Lorne Michaels.

"It's like the stock market, people buy and sell for all kinds of reasons; it's perceived future value," said Wachter. "They are making a market. You will make a lot of money if you get lucky or if you build a big business in volume."

The Westwood-based firm buys the equity stake in films and TV shows owned by established actors and other talent – up to $25 million worth per client – in exchange for 50 percent to 100 percent of their "back-end" participation rights, which are shares of profit in specific projects. Back-end profit is money paid out to actors or other participants, such as producers, after a studio recovers its production and promotion costs.

For example, an actor who expects to get $10 million to $20 million from a film over the next few years may be willing to sell that right today for, say, $8 million.

The firm is tight-lipped and takes client confidentiality seriously, so it's unclear what kind of discount is typical. Content Partners' services include monitoring future participation statements, auditing when necessary, employing expert distribution consultants in the audit process and negotiating audit settlements.

"A lot of people don't want to have to go through the long process of enforcement and collection. It's a distraction, emotionally and financially draining, and it makes sense to want a sophisticated operation do it at its own cost," said entertainment attorney Michael Sherman of Jeffer, Mangels, Butler & Marmaro, LLP, who said he has clients interested in the company's services.

Content Partners is taking on the risk that eventual payments will not be great enough to cover its payout, although it can enjoy outsized rewards if the movie or TV show is a hit. And it is taking on the risk that the eventual payments will be made in a timely way.

"The longer it takes (Content Partners) to collect, the more it will hurt; they're either paying interest for money loaned by their backers or losing the time value of that money," said Lindsay Conner, an entertainment attorney for Dickstein Shapiro LLP. "If you look back on pioneers of most kinds, they will either strike it rich or go bust trying. Tune in after a few years."


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