May 11 2007 11:11AM EDT - Portfolio.com
Mark Cuban's Latest Hollywood Innovation
Even if you can't stand his Dallas Mavericks, his sloppy mien or his often blustery and petulant ways, you gotta' love entrepreneur Mark Cuban and his affable busines partner Todd Wagner. They are constantly challenging the static minds of Hollywood and attempting to turn a buck by overhauling what they view as a superannuated system, whether its rethinking the theatrical business from the ground up, slamming together windows of distribution, or, as they are doing now, changing how back-end points are paid out by trading cash value for future profit participation.
Today, Variety's Cynthia Littleton writes about a nascent company that Cuban and Wagner (who also own 2929 Productions, Magnolia Pictures and Landmark Theaters) are backing called Content Partners, which buys out the profit-sharing stakes held by individuals in films and TV programs "in an effort to assemble a portfolio of properties that in aggregate will generate a stream of steady income."
It's really quite an innovative idea (brought to Cuban/Wagner by Steven Kram, former executive VP and COO at William Morris Agency and Steven Blume, former CFO of Brillstein-Grey Management) and fills a definite need in the industry--everyone has heard the horror stories of how hard it is to collect from the studios and how it can often lead to an lengthy and aggravating audit process. The business plan also seems a tad gauche to some; my friend Tom Tapp over at Hollywood Wiretap likens it to "check cashing stores in a seedier parts of town." Nevertheless, Littleton writes that the "company aims to bridge the gap between the time that actors, writers, directors and producers are granted points in a picture or a piece of the backend in a TV series and when they actually see the first checks from thos profit-participation stakes."
The company launched a year ago and has $100 million in funding and a growing list of clients (which they decline to name for reasons of confidentiality). Here's more specifics about the risks and rewards from Variety:
Content Partners' deals with profit participants are buyouts, not long-term loans, a la the so-called Bowie Bonds that were floated to music rights holders about a decade ago without much long-term success for the banks that funded them.
In assessing the value of a profit participant's stake, Content Partners runs the numbers and comes up with detailed long-term projections for a property's potential in all manner of venues and formats -- from international TV sales to remakes and sequels to the potential for DVD re-releases, etc. -- and ancillary markets a la licensing and merchandising. In some cases, profit participants want to hedge their bets against the possibility of a future bonanza by selling only a portion of their stake, Kram said.
Once they cut the profit participant a check, all future money from that stake, or portion of the stake, flows to Content Partners. From there, the responsibility for monitoring how the studio or copyright holder treats the property and deciphering studio income statements is on Content Partners.
Making such long-term bets means that there's genuine risk involved for Content Partners as technological changes are rocking the industry and there's no telling what the long-term value of individual movies and TV shows may be, noted top legal eagle Martin Singer, who said he's had several clients cut deals with Content Partners. There's an important comfort factor, however, in that Kram and Blume have solid reputations and long-term professional relationships with the town's top talent reps.