By Katie Benner March 11, 2013: 5:00 AM ET -finance.fortune.cnn.com/2013/03/11/content-partners-csi

Meet Content Partners: The investors who bought CSI

FORTUNE -- When Content Partners said that it had bought a 50% interest in the CSI television franchise, the announcement marked a major milestone for a specialty financial firm that is quietly transforming the way that producers, artists, directors, and even major financial firms buy and sell the rights to future cash flows from film, television, and music.

Content Partners worked with LionTree Advisors to buy the stake from Goldman Sachs' private equity arm. Terms of the deal were not disclosed, but newspaper reports estimate that Goldman (GS) got more than $400 million in the deal.

Even at that price tag, Content Partners may have gotten a bargain. It now shares with CBS (CBS) the rights to all of the revenue generated by past and future episodes of the blockbuster series. CSI, now in its thirteenth year, is one of television's most profitable properties. The New York Times reports that the worldwide audience for CSI has surpassed 70 million; and the spinoff CSI Miami ranked as the most-watched show in the world before the last season aired last year. The CSI franchise (which also includes CSI New York) so far includes 724 episodes, which can be sold on DVD and syndicated many times over.

CSI is a big win for a firm that started out doing relatively modest deals. At first Content Partners worked with artists who were locked into contracts that guaranteed them a cut of future revenue streams, like DVD sales of a movie. But cash flow from these so-called profit-participation deals often doesn't start until long after the deal is struck. Content Partners gives artists a one-time payment in exchange for these future earnings. When the firm launched, the founders told the press that they were simply shrinking the gap between when artists signed contracts for back-end revenue streams and when money actually appeared in their bank accounts.

One of the keys to Content Partners' early success is the fact that it's run by entertainment industry insiders Steve Kram, the former chief operating officer of the William Morris Agency, and Steven Blume, who was CFO of Brillstein-Grey Management, a talent company that has worked with celebrities including Brad Pitt and Nicolas Cage and produced the television hit The Sopranos.

"We have a combined 60 years of working on behalf of incredibly creative and talented clients," says Kram. "These people don't just talk to anyone, but they know and trust us and are willing to work with us."
Opportunities to do even bigger deals opened up in the wake of the financial crisis, when players like hedge funds and private equity firms began unloading entertainment properties they had acquired during the boom. According to Reuters, hedge funds alone invested about $15 billion in films, in the hope of capturing a share of the profits generated by movies.

These financial players were often forced to sell their entertainment stakes at a discount, and Content Partners was able to pick up the rights to revenues generated by whole slates of movies.
The CSI deal shows that Content Partners is also dealing directly with studios and networks in order to acquire the rights to revenue generated by film and television shows. "We believe in the future of intellectual property, and we continue to find ways to acquire those assets," Kram says. He adds that the firm is looking all over the world for deals.

Content Partners launched in 2006 with $100 million in funding, helmed by big talent agency names and backed by Dallas Mavericks owners Mark Cuban and Todd Wagner. (Cuban even name-checked the firm on an episode of Entourage.)

While the CSI deal was just too large and involved too many high profile players to keep under wraps, Content Partners has generally been tight-lipped about the deals it has done. It's hard to find information about specific properties that Content Partners owns, but since launching in 2006, the firm has acquired rights to the future cash flows generated by more than 120 films and over 1,000 hours of television shows.
Most of the firm's limited partners are institutional investors, and it has raised two funds. The first fund, which closed in 2007, is fully invested.

"It's not that no one had ever advanced money against the future revenues from profit participation deals, there was just no company set up specifically to do such a thing," says Paul Wachter, a founding partner at Content Partners who also runs the asset management firm Main Street Advisors. Wachter was instrumental in putting together the CSI deal. He also introduced Kram and Blume to Cuban and Wagner, and has been friends with Kram since they were eight-year-old kids growing up in New York City.

What will make Content Partners successful, says Wachter, is whether the firm can predict the future value of these profit-participation deals. "Then you can create a steady, reasonably predictable stream of cash flow for the investment firm."

Predicting the value of such contracts is tricky. The DVD business is in decline, the music industry has long struggled to find a way to fight shrinking revenue, and new technology like video-on-demand and music subscription services are changing the way the entertainment industry shares profits. While content is valuable (a claim Kram implicitly supports by saying that he's betting on intellectual property), that value has been in flux. And it takes an understanding of numbers and an ability to understand consumer tastes to correctly guess how valuable a show will be in its first or second syndication.

With their long careers in the entertainment industry, Kram and Blume seem uniquely positioned to assess the value of profit-participation deals. If they guess wrong and overpay, they could be stuck with duds that generate little cash.

But if they guess correctly, the money that comes into Content Partners is distributed to the partnership and the firm's limited partners. The aggregated cash flows should ideally create a steady stream of cash to investors that give an equity-like return with the steady payments of a bond or a dividend stock. If Kram and Blume can pull that off, they will have created a perfect blend of business, relationships, and art.