I Lost It at the Movies, N Koch

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Content: I Lost It at the Movies Author: Neal Koch Source: Inc. Magazine - May 01, 2002 URL: http://www.inc.com/incmagazine/articles/24184.html Barry Quart knows what you're thinking. Or knows, at least, what most of Hollywood is thinking as he tools into L.A., into Hollywood's town, a former entrepreneur with his Ferraris, his bankroll, his confidence and ambition, his golden record in an altogether unHollywood line of work. He's a type, Quart is -- another accomplished company builder now come to make movies. And he knows Hollywood sees only an out-of-towner carrying cash and the expectation of success. And that what Hollywood is thinking is, "No living way." But that's all right, Quart would tell you. He's coming anyway. And he has a plan. He'd better have one. Though the occasional outsider has made headway in Hollywood (see "Gone Hollywood," below), "movie folks have a long tradition of removing the money from your pocket," says one media banker. Adds another analyst, Harold L. Vogel, author of the classic entertainment industry Economics: A Guide for Financial Analysis: "Outsiders are sheep to be slaughtered. Lambs to be shorn." Still, they come. Nowadays, according to film banker Lewis Horwitz and producer Jeremy Barber, wealthy entrepreneurs are showing up in greater numbers than ever -looking for power, sex, fame, drugs, a vehicle for promoting their own values, or even the chance to build something. In one respect their timing is good. With a soured economy and the pullout of the latest foreign investors to lose their money en masse (the Germans), cash is again king in Hollywood. The industry needs it. It's just that the arrivistes aren't likely to be left with any of it when they're done. "Hollywood," says one prominent lawyer who has waved many a client away from the business, "is a town famous for the way people beat a path to its doorstep and then leave wearing a rain barrel. I'm talking about very intelligent people -- highly successful and greatly accomplished in their other endeavors." According to a well- informed source, even Microsoft cofounder Paul Allen is looking for a way out of his $500- million investment in Steven Spielberg's struggling DreamWorks studio. (Allen denies it.) Outsiders can invest "for fun," says investment banker David Davis -- to buy entry to the parties, a fringe place in the scene, a fleeting taste of the life. "But they can't do it for profit." "I'm not looking to make high art that no one goes to see." Barry Quart understands. He sits in an upscale Chinese restaurant across Sunset Boulevard from his offices, which cap a strip of low-budget- film companies on the boundary between opulent Beverly Hills and a smarmy stretch of West Hollywood.
Between bites of moo shoo shrimp he says: "The standard [moviemaking economic] model can't work. It's a business you go broke at." And yet ... Quart -- now 45 and with a home, a wife, and a 12-year-old daughter in San Diego -- tells of growing up as the son of an Aircraft Engineer and an encyclopedia saleswoman in L.A.'s neighboring San Fernando Valley back when American Graffiti resonated with teenagers. The valley was dull, hot, and oppressively smoggy, and Quart found his escape inside movie theaters, watching the latest science- fiction horror flicks. Usually, he was the last person to leave; he studied end credits, even noting a film's financiers. He followed the fortunes of high- flying movie companies such as Cannon Pictures that operated independently of the major studios. "I've always been fascinated by [moviemaking] -- not from a celebrity-cult standpoint but from a business standpoint," Quart says. "I couldn't for the life of me sit down and write a script. But when I see a movie, I can say: 'It was a good movie. But it would have been so much better if they had done this and this and that.' I could have done that forever." Instead, Quart got rich by saving lives. As president of research and development at Agouron Pharmaceuticals, a pioneering San Diego drug designer, he shepherded the development and approval of a key constituent drug in the AIDS cocktail, buying HIV victims perhaps years of survival. In 1999, Warner-Lambert bought his company for $2.1 billion, enriching Quart even as it kept him in charge. Soon, though, Warner-Lambert was the victim of a hostile takeover by Pfizer, and Quart became a cog in what is now the world's largest pharmaceutical company. He left and returned to his boyhood fascination. Now, with his fortune, Quart has hired professionals to help him parse Hollywood. He spent months curled up with film-business accounting texts and hours meeting with scores of industry players, working his way into filmmaking's subculture. Quart, who gets his thrills managing risk (as he did in the high-stakes gamble of new-drug research and as he does now by driving race cars on the side), says he has come up with a business model for making movies that can succeed where the Cannons and so many other independents failed. He contends that, executed with discipline, his approach can work -- or at least can cut his losses. In early 2001, Quart officially launched his film-production company, Starboard Entertainment. Here are his self- imposed operational rules. 1. Think commerce, not art. Most wealthy wanna-bes arrive in Hollywood wanting to do pet projects or message films. There's no surer way to fail, say Hollywood hands. Even John Travolta, at a peak in his career, couldn't pull off his beloved Scientology-related picture, Battlefield Earth. (The $70- million embarrassment resulted in a lawsuit filed by the film's German investors.) Not that those potentially in line for a piece of your action will object to helping you try just about anything you'd like. "If you're coming out to spend money just because you want to make certain kinds of movies," says John Ptak, an agent who
specializes in assembling film financing, "we'll send a delegation to meet you at the station." Quart, however, is aiming to develop pictures with proven popular appeal, such as a knock-off of the Prom Night horror series; remakes of such films as the 1957 Brigitte Bardot vehicle, La Parisienne; and a documentary about the life of Richard Pryor, with cooperation from the comedian's current wife. Says Quart, "I'm not looking to make high art that no one goes to see." 2. Diversify your products and plant lots of seeds. Quart knows that betting on movies is dicey -- as is betting on multimillion-dollar drugsearch projects based on little more than gut instinct, which he did in his previous life. Hollywood's rule of thumb is that only one in 10 films makes money. So Quart is spreading his risk over multiple varied products, the way one might invest in stocks through mutual funds. He's developing projects across a range of genres with proven appeal to specific segments of the most active moviegoing audience, 18- to 34-year-olds. Those offerings include horror films, action thrillers, and science- fiction films for young males; romantic comedies for couples; and dark comedies for the entire demographic. He's also planning as many films as he can. His model calls for producing six during the next two years. "It's a numbers game," explains Elaine Douglas, who audits movies for profit participants. "If you're going to do it at all, you'd better make more than one film. Because your odds of losing on one film are almost guaranteed." But even Quart's judicious model amounts to betting against the house. He projects a success rate of one in five -- twice the norm. And he thinks he might be able to do even better. "He's a very optimistic man," says Douglas. "But let's face it: anybody doing this would be. I could sit here for hours and tell you why [Quart's plan] isn't going to work," she says, recalling one investor who backed 13 straight bombs before returning to the insurance business. "That's why I don't invest in films. But thank goodness, somebody does." 3. Prepare for the long haul. It's likely to be at least two more years before Quart sees any of his films in a theater. Even after a major studio gives the go-ahead to shoot a film -- green- lighting it -- the minimum time to completion is 12 months. In most cases, even that's a fantasy. "You're really talking two years to eternity," says Michael Cieply, a veteran industry journalist and former producer. Batman took nine years. And technology has done little to shorten the time. To make his money last, Quart is keeping a tight lid on spending. Neither he nor his partner draws a salary, he says. Starboard Entertainment has only two full-time employees and shares a receptionist with another company from which it subleases space.
The result is that total first- year expenditures for his entire venture ran only $1 million or so, Quart says. With tax benefits, he might be out no more than several hundred thousand dollars. In the end, Quart won't disclose how much he's ready to gamble on making movies, but Vogel says a player has to be willing to drop $20 million to $30 million to get decent odds. 4. Find a trustworthy partner who knows what and whom you don't. Next to money, Hollywood's most elusive treasure is truth. Quart realized he would need an interpreter, an experienced guide with a stake in the outcome of the venture. For that role he's taken on Peter "Gaga" Antonijevic, 43, a Serbian director who is best known for Savior, a vividly gruesome 1998 antiwar movie about the Bosnian conflict, coproduced by Oliver Stone and starring Dennis Quaid and Nastassja Kinski, which The New York Times called "stark and riveting." Antonijevic, who is wary, brooding, and bearlike, says an earlier film helped land him in solitary confinement in what was then Yugoslavia and got him banned from filmmaking there for several years. He doesn't suffer fools gladly or give much away. Although he's won awards and respect, his mainstream Hollywood credentials are not extensive. But he brings what Quart says he needs to break into the movies. First, connections, including the top brass at Paramount Pictures, where Antonijevic's wife is an executive. Antonijevic also has ties to the film community in the former Yugoslavia, where Production costs are cheaper than in the UNITED STATES and where the landscapes and ancient architecture provide ready- made sets for horror movies. Second, the two men, each with something to prove, share a drive to make it in Hollywood. Third, and perhaps most important, Antonijevic is willing to teach Quart. Directors and producers who have already made it in Hollywood would be interested in calling Quart their partner only if he'd help fund their next $50- million movie. "If [Antonijevic] was Michael Bay," Quart says, referring to the producer and director of Pearl Harbor and Armageddon, "and I came in saying, 'I want to start a new production company and start small so I can learn,' he'd laugh." 5. Lay off risk while keeping control. To stretch his Excellent Adventure in Hollywood as long as possible and over as many films as possible -- thus increasing the odds of a hit -- Quart plans to minimize his potential loss on any one film. Small films, with production budgets of up to $1.5 million, he will fund entirely himself. For a medium- sized movie, costing from $12 million to $15 million to produce, he hopes to raise two-thirds of the budget by selling off foreigndistribution rights in advance, a common industry practice. The remaining third he plans to split with other investors through limited partnerships. (He projects that the partnerships will yield about a 20% internal rate of return.) His plan calls for no studio financing. He hopes the studios will want to distribute his films, since they control access to most U.S. theaters. But selling ownership to them would mean effectively handing over to corporate executives the power to decide which
projects he can pursue -- a restraint he left behind at Pfizer. "I don't want to wait for five other people to say yes," he says. Quart also wants to avoid being pressured into using studio facilities to make his films. "It's a hell of a lot harder to sneak shit into distribution costs than into production spending," he says, well aware of legendary studio accounting. Rather, when he produces his own movies, he'll know how much the films actually cost and possibly what the revenues really are -- and that "there are no producers taking limos." 6. Bankroll only what you control. Since Quart opened up shop, movie stars and others have shown up to peddle pet projects no one else wants and to try to persuade Quart that the normal rules of business don't apply in Hollywood. He should trust them, they say. "They're looking for us to simply give them our money and they'll get back to us," Quart says with a smile. Says Jerry Katzman, 30 years an agent, "Don't ever trust anyone who says, 'Trust me.'" Many movie investors wangle producer titles simply by writing checks; then they wait to be called to the premiere. Quart wants to be a classic producer -- developing scripts, casting stars, hiring directors, watching budgets, perhaps scrutinizing shooting on the set, maybe looking over the editor's shoulder in the cutting room, and possibly brainstorming in marketing meetings. "Never," he says, "write anybody a check for any money that you don't ultimately control the use of." 7. Hire a shark. By far Quart's single largest cost, he says, has been lawyers. He spent roughly $200,000 in 2001 alone. He demands detailed contracts for everything, despite the protests of natives used to short- form deal memos. For example, a $15,000 purchase of the rights to one written work cost Quart $20,000 in legal fees, he says; his lawyers turned up instance after instance of rights he was supposedly buying that either didn't belong to the seller or had been previously sold. Says publicist Harry Clein: "It is a business fraught with double-talk. After a deal is done verbally, everybody loves to renegotiate." 8. Buy a Zagat guide, rent a Rolls. New arrivals looking to make a splash in Hollywood often open up in luxurious digs. Savvy insiders call that a waste. Even established producers typically work out of cramped, rundown quarters or warehouse space. "Resist the temptation to gratify yourself," says Cieply, "because it won't gratify anyone else." Two exceptions: with most business done over lunch, "it's important that you have a good restaurant and a good leased car," says Mary Ledding, senior vice-president for legal affairs at Universal Pictures. Quart says that indeed he's liberal with meals, and as for
cars, his entrepreneurial life had already earned him a fle et of 12, including several classic show cars and many Ferraris. 9. To score, swing for singles -- but know when to walk. Hollywood's biggest problem is overpaying, which frequently makes it impossible for a film to recoup its investment, says Quart. Backers faced with escalating costs -- but emotionally invested in getting a film made -- too often justify increased spending by inflating their expectations about how well the picture will perform. Instead, you have to walk away. "I've learned you have to have a very strong internal clock," he says. Harold Vogel, the Entertainment Industry Economics author, has practical advice for rich would-be film producers like Quart: "Why go through all this effort just because you want your name in lights or because your ego is puffed up with the millions you've made? Hire [movie stars] and throw a party. They'll show up for $20,000." Or, he says, "buy a video camera for $400, shoot a couple cassettes of tape, and rent the local movie house for a gala night out. It wo uld be a lot more fun [than actually producing movies]. And a lot less expensive." Probably. Quart himself, on some days, might not disagree. After all, he understands that his movies might never score at the box office. He understands that they might never make it into theaters at all. But in the end, he'll suggest, maybe that's not the point. For all the B-school talk -- for all the managerial rigor -- maybe his ultimate quest is not about money or even about the entrepreneurial gamesmanship that gives him such an obvious kick. Quart on this particular afternoon is dressed in casual moviemaker black, entertaining questions in his sparse office with its view of the Hollywood Hills. Just days before, he was diagnosed with thyroid cancer. Because of his extensive background in the development of cancer drugs, he knows his ailment is eminently treatable. But the husband and father remains subdued. "You need to do what you enjoy, especially those of us with means," he says. Maybe his ultimate quest, really, is about that teenage boy alone in a San Fernando Valley cineplex, the boy who didn't want to leave until every last frame -- every last line of credits -- had scrolled. One way or another, even on a bad day in a quiet office, Barry Quart loves all this. "You just do it," he says, "and forget about all the reasons you shouldn't." Let Hollywood think what it wants. It's all right, Quart would tell you. He has a plan.
Neal Koch is a Los Angeles-based journalist who covers the media and entertainment industries.
Entrepreneur Wealth from
Michael Bloomberg
Bloomberg L.P. (financial information services)
Frederick Smith FedEx
Ted Fie ld
Department stores
Arnon Milchan
International arms dealing, chemicals
James Robinson Subaru dealerships
Norman Waitt Jr.
Gateway computers
Movies made Focus Lost and Found, My Dog Skip, The Affair of the Necklace, others Outrageous Fortune, Bill and Ted's Excellent Adventure, Revenge of the Nerds I and II, Three Men and a Baby, others Big Momma's House, Fight Club, L.A. Confidential, Natural Born Killers, Pretty Woman, others Ace Ventura series, Major League series, Robin Hood, others Double Whammy, Stand and Be Counted (TV documentary)
Where the Money Goes
A pro forma income statement for that medium-budget, independently produced film you've always wanted to make.
SALES ($000) Theatrical rentals1 Home video TV (cable, pay-per-view) Syndication International-distribution rights Salvage value and other2 total sales
7,125 7,500 1,200 750 4,000 700 21,275
COSTS ($000) Production Script and rights Cast and actors' residuals3
100 3,000
Director Producer's fee Travel and living expenses Production, other4 Postproduction5 Total production costs
100 300 200 3,300 500 7,500
Distribution Distributor's fees, U.S. Prints and advertising, U.S. Foreign sales agent's fee Videocassette duplication Total distribution costs
2,500 13,000 500 1,500 17,500
(Including publicity, lawyers,
accountants, insurance, completion bond)
Total costs
1 Refers to the producer's share of box-office receipts after deductions for the theater owner's split (typically 50% of gross box office) and the distributor's fees (typically 15% of gross). Assumes the film is shown in 50 to 200 theaters through a midsize distributor. In reality, the chances of your film screening in any theater you haven't rented yourself, before any audience other than the close friends and associates you' ve personally invited, are slim. 2 Includes airplane and military rentals, plus All Other projected sales over the life of the film. 3 Could vary from $300,000 to $3 million for a film like this. Covers actors whose names may be somewhat recognizable and an unknown director. Casting stars and using a
known director would increase costs by many millions. The rub is that a film with a budget of this size but without stars to lure moviegoers is unlikely to stay out of the red. 4 Includes producer's staff; set design, construction, and dismantling; special effects; cars; props; costumes; makeup and hair; lighting; camera; transportation; location fees; and studio office and facilities overhead. 5 Includes editing, music, sound, film, film labs, film titles and credits, and visual effects. (Sources: Lewis Horwitz Organization; Hacker, Douglas & Co.; Entertainment Industry Economics: A Guide for Financial Analysis.)

N Koch

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