SCREENDAILY - 21 Mar 2008 by Jeremy Kay
United States - Profit Sharing
Content Partners is a two-year-old company that offers talent with back-end participation a chance to cash out at a discount
Nestled in the bustling West Los Angeles neighbourhood of Westwood lies a company that may well become a friend to stars, directors and producers long after their careers have waned.
That is not to say that Content Partners, the 2006 brainchild of accountant and former Brillstein-Grey CFO Steve Blume and longtime William Morris Agency COO Steve Kram, does not also cater to talent at the height of their success. Far from it.
The company has pioneered a business plan that enables talent and investors to cash out all or a portion of their back-end deals at a discount. In return, Content Partners acquires a passive royalty stream that pays out over time. "In every successful film there are talent profit participations and those are contractual obligations by the distributor to a participant who rendered services on the film to give talent a share of the profit," Blume says. "This is not the same as receiving a royalty; nonetheless, it's a good incentive for the talent to do their best work.
"However, it's hard to plan your life on profit participation. Talent get their profits once or twice a year and they never know how much it's going to be because it's subject to studio accounting. We take the risk out of it and give you a big upfront cash payment for your part. We then go and administer it and audit the studio."
For a back-end participant uncertain of what and when the full payment will be, the service offers a timely intervention. "You may be going through a divorce or refinancing your home or be planning a big life change and you need to monetise your profit participation right away," says Krista Parkinson senior vice-president and former William Morris agent.
Blume points to three levels of profit participation. Lowest on the totem pole is the net profit participant, typically a new or lower league talent who will not see a return until the distributor has recouped all its costs and the film has broken even. Basically these participants have a snowball's chance in hell of getting paid. B-list talent may get a pre-break gross deal, where the studio reduces its fees and the participants get a percentage of every dollar after the film breaks even. "The Holy Grail", as Blume puts it, is the dollar one-gross deal offered to superstars such as Tom Cruise, Leonardo DiCaprio and Jerry Bruckheimer. It pays out after minimal fees are recouped, regardless of the film's budget, and makes its recipients very rich.
Content Partners, backed by a credit line from JP Morgan and private equity investors including Mark Cuban and Todd Wagner, only buys back-end after a film has gone on release in most of the world.
"At that point the p&a's been spent and we're projecting the ancillary markets," Blume says. "We buy older titles and newer titles, study the studio accounting and consult experts and our database of similar films to see how they performed in ancillary markets to generate comps. Then we take a view as to what we think the income's going to be and make an offer. It's not a big negotiation."