The Hollywood Reporter - Independent Producers & Distributors
September 2007

Content Is King

Can buying profit participation rights make good business sense?

Steven Kram hopes so.

Samuel Goldwyn famously said that an oral contract is not worth the paper it is written on, and many in Hollywood would say the same thing about profit participation. But not Steven Kram. The former COO of the William Morris Agency has raised $100 million for a new company, Content Partners, with a view to snapping up rights to the profits due to various filmmakers, artists, companies and individuals' estates.

"We (Kram and partner Steven Blume) saw that there was no way for people who owned profit participations to get any liquidity, so they could be waiting the rest of their lives to collect their money," Kram says. 'We felt if we could provide an opportunity for diversification to participant holders, it would be warmly welcomed."

Just how warmly it has been welcomed is unclear, since Kram won't name any individual players who have agreed to sell Content their rights. But the venture has been greeted with open arms by the investment community. Kram and Blume, a former CFO of Brillstein-Grey Entertainment, have raised $50 million in capital - including some from Todd Wagner and Mark Cuban - with another $50 million in debt orchestrated by JPMorgan Chase.

While every deal differs, Kram says Content generally offers around 80% of what it estimates the long-term profits to be worth, after an extensive analysis of the contracts and revenue streams. "We try to figure in the credit-worthiness of who owes the participant money and the cash-flow model meaning how the money comes in and over what period of time - which all goes into our calculation of what we pay the participant today," Kram explains.

He says Content already has bought rights to the profits owed to individual filmmakers by four major studios and is in talks with some of the leading agencies to buy their share of profits owed to some clients. No stars have yet signed up for the deal.

Getting a cash advance of roughly 80% against profits that might never materialize sounds too good to be true, but is it such a good deal for investors? Especially at a time when the studios' accounting practices have once again made headlines after producer Alan Ladd Jr. successfully sued Warner Bros. Pictures for profits he was owed?

"In many cases of success, they do see money over long periods of time, and we want to (access) that," Kram says.

- Stephen Galloway