Dumber Than Dumber
Some time ago I pointed out that the Wall Street Journal had subtle ways of making predictions without smacking readers in the face with their bias. One method, which is sneaky but kind of amusing, is to pick a rather questionable figure as the representative for a questionable trend. The Journal had this particular tactic in full force back in April when they picked (subscription required) former dot-bomber Ryan Kavanaugh as their feature for hedge and "private equity funds" that invest in Hollywood movie productions.
The Journal didn't make too much more than a paragraph of the fact that Hollywood has sucked in "dumb money" from outsiders for decades without even a Christmas card to the dozens of bankrupt shells of investors they left behind. And with respect to Ryan Kavanaugh, they might have done better if they picked Benjamin Waisbren. An astute attorney reader forwarded me an article in the LA Times (who else?) describing the fallout from the Poseidon debacle. Now, maybe it's just me, and maybe it's hindsight but I think Poseidon might have been near the top of my list for bomb predictions had I been paying attention. Says the LA Times:
One person who worked on "Poseidon" is already out of a job. Just days before the film opened Friday with audience surveys showing scant interest, Benjamin Waisbren lost his position running Virtual. Waisbren, who also served as a "Poseidon" executive producer, did not return telephone messages Monday seeking comment. Stark Investments, the primary hedge fund behind Virtual, declined to comment on the film's performance but said Waisbren's leaving had nothing to do with the film.
Under Waisbren, Virtual signed a deal to invest $528 million in six Warners films. Returns so far have been unimpressive. The first co-production, March's "V for Vendetta," collected good reviews and grossed $85.6 million domestically but less than that in overseas theaters. "Vendetta" cost more than $50 million to produce.
As I mentioned back in April, one of the major issues cutting against outside investors is the preference order on these deals. The LA Times doesn't miss a beat here:
In the case of "Poseidon," Warners and Virtual split production and marketing costs. But Warners will recoup prints and advertising costs, collect interest and pocket a distribution fee of 12.5% before it shares any revenue with Virtual, according to people familiar with the deal. The film's gross-profit participants are also paid first.
As a result, Virtual covered about $125 million, or half of the $250 million it should cost to make and market "Poseidon" around the world. At the current rate of ticket sales, Virtual could end up with $75 million or so from "Poseidon" — meaning it could lose more than $50 million on the movie, said two people familiar with the film's finances. A Stark executive disputed that worst-case scenario and also said its Hollywood investments should not be judged on the domestic box office of one movie.
And who comes to the rescue for Dumb and Dumber Money?
The "Poseidon" premiere should not be seen as a referendum on private equity investing, said one prominent person in the field. Ryan Kavanaugh, chief executive of Relativity Media, among the biggest suppliers of private equity film financing, said that "while no one is jumping for joy over the domestic performance of this one film, its future is yet untold as the international markets have yet to open. There are also other ancillary platforms where revenues will be made that will help to define this picture's outcome."
