Continuing on in our look at Hollywood and its investors, let's see a couple of the things that are changing.
One of the issues that are being worked on is the studio distribution fees, which investors are insisting upon more flexibility in. Another aspect of the deals are what type of person should be the one putting the deals together. Funds are leary of the majority that are considered both businessman and producers.
In reference to distribution fees, the hedge funds have felt from the beginning that their inclusion in deals maked the deal one-side and slanted toward the studios to begin with. What they have been fighting for is lower fees until a specific, agreed upon performance level is reached. From there the studio could impose a higher fee. The negotiations have changed things a little as studios have dropped the fees to 10%, whereas they were normally 12.5%, and as high as 15%.
Concerning the studios, they have varying interests as well. Some do see the importance of long-term partnerships like Warner Bros., and they stay with their partners over the long haul. Others like Fox (NWS) and Paramount go the other way and look for those that are passive, financial investors.
Stephen Prough of Salem Partners said, "There's still some uncertainty about whether or not passive investment in anything the studio does, or a solid producer in between the studio and you, might improve your odds."
Two of the options that are being debated is also if they should go with a "straight slate" or whether they should be able to decline a specific film, which is called "selection."
One weakness of the "straight slate" is that there can be a huge hit that makes a lot of money but is then cancelled out by a couple of losers that drain the profits; the reason why "selection" is preferred by some.
Even in this, it's not as clear-cut as it seems. For example, Fox, which is considered the best run studio in Hollywood, can do "straight slate" deals with funds because they have a tremendous track record that can be measured by investors. They also include investors in some of their high-potential upside projects as well; something most studios won't do.
Overall, the industry is still slanted way too much toward the studios who in reality need the discipline of outside investors to start lining up with financial realities, rather than burning through investors money while not taking a fair share of the risk.
Of course that's the funds' problem. If they are willing to work with that much inequity in a deal, they're free to do so. It is good that they are taking a more hands-on approach starting to whittle slowly away at the huge differences that have been part of the financing of Hollywood projects in the past.
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