Tuesday, 9 February 2016
Last updated 21 min ago
May 22 2007 | 8:40am ET
Asset managers have long been tiptoeing onto the turf of Hollywood executives, investing in such big budget films as “Superman Returns” and “Poseidon,” but rarely has the relationship gone the other way. Now, a group of entertainment executives-cum-fund managers is aiming to change all that.
This month, Partisan Media Group, which was founded by a trio of long-time entertainment insiders, launched its first film fund. The new offering, Barbarian Films LLC, is a hybrid hedge fund/private equity vehicle that aims to produce returns before its films ever hit the big screen.
“We will invest in low-budget, independently-produced films which include internationally marketable casts,” says Aaron Kaufman, one of the three principals. “Film investment will be chosen based upon foreign pre-sales estimates, which represent 80-100% of a film's budget.”
Kaufman explains that when the movies are further along in the production schedule—and hence, worth more—the domestic distribution rights will be sold to U.S. distributors.
“We think we can produce consistent 30% returns,” says Kaufman, who prior to founding Barbarian served as a vice president for the Spackman Group, a p.e. firm specializing in media and film. His other two partners, Ron Hartenbaum and Douglas Kuber, also have backgrounds in the media business. Hartenbaum founded the successful radio advertising company MediaAmerica, which was later sold to Jones Media Group, where he took over as president for the merged entity. Meanwhile, Kuber brings a legal perspective to the mix. As a practicing attorney, he has represented such clients as The Academy of Motion Pictures, Arts and Sciences, Warner Bros., and Barry Diller. He has also helped to structure numerous corporate and film finance deals ranging from $10 million to $150 million.
The trio have already begun working with five independent producers, including Benderspink, which has produced such hits as “The Ring” and “American Pie”; Original Media, producer of Oscar-nominated film “Half Nelson”; and GreeneStreet, producer of the critically-acclaimed film “In The Bedroom”, also an Oscar nominee.
The fund aims to invest in 10 films per year for the next five years.
“The most profitable films of all time are made for under $10 million,” Kaufman says. “For example, ‘In the Bedroom’ was made for under $2 million, and that made over $40 million.” With that kind of return in mind, studios are taking a closer look at independent films.
In fact, according to figures, 18% of the U.S. domestic box office releases come from independent distributors, while almost 40% of studio releases are acquired from independent producers.
“If you look at Sundance [Film Festival] over the last two years, the amount paid for films is skyrocketing,” Kaufman says. The reasons for this development are two-fold: Firstly, distributors are finding new distribution channels, such as pay-per-view, and secondly, buyers have larger war chests than in the past, and all the money sloshing around drives up prices.
In addition to financing the films through equity investments, the fund will employ leverage and will utilize state and local government tax credits granted to filmmakers.
The minimum investment in the Barbarian Films fund is $500,000, and there is a two-year-lockup. The principals are aiming to raise $50 million for the fund.