Rico knows the problem

Proofmark Cinema is having difficulties getting funding for Zone of Fire, and Michael Ciepley and Brooks Barnes have an article in The New York Times about money problems at DreamWorks Studios:

Movie fans are fretting over where to peg War Horse and The Help in the Oscar pool. But Hollywood is pondering something else: What becomes of DreamWorks Studios, the boutique studio behind those films?
The ten nominations between the two movies, including best picture for each, have made DreamWorks a strong contender for honors on Oscar night, 26 February. The two dramas already lead the best picture pack at the box office, with War Horse passing Moneyball over the weekend, according to estimates, to become the second most popular nominee, behind The Help, which had domestic ticket sales of about $170 million.
Behind the scenes, however, executives at DreamWorks and its partners are quietly opening discussions that in the next few months will determine its future and answer a broader question about the state of Hollywood: Can a faltering film industry sustain a company that insists on making ambitious, Oscar-caliber, studio-size films, but without the deep pockets of a Viacom, which owns Paramount Pictures, or a News Corporation, the parent of Twentieth Century Fox?
Created four years ago by Steven Spielberg and Stacey Snider, in partnership with Reliance Entertainment, an Indian financier, DreamWorks was a successor to DreamWorks SKG. The earlier DreamWorks was an independent studio that was created amid much fanfare by three Hollywood heavyweights: Spielberg, Jeffrey Katzenberg, and David Geffen. Eventually they sold it to Paramount and briefly worked with the studio in what became a failed marriage. (The new DreamWorks is unrelated to the publicly-held DreamWorks Animation.)
Over the years, small, independently financed companies— some with their own distribution mechanisms, others, like DreamWorks, without— have generated hits, only to disappear or be merged into larger corporations. Miramax Films was acquired by Disney after releasing The Crying Game, a box-office success and best picture nominee; Disney has since sold the unit. Summit Entertainment was recently sold to Lions Gate; Summit investors saw the end of their blockbuster Twilight series as a prime moment to cash out.
For smaller film companies, the hunger for capital is a perennial problem. Making a studio-level film can require an immediate investment of a hundred million dollars or more. But even the hits pay back their investors slowly, over a cycle that may last as long as ten years, as movies are sold successively in theaters, on DVDs, to Internet streaming and cable television services, and so on.
DreamWorks is now in the ticklish position of having nearly exhausted its first round of financing, which included $325 million in equity from Reliance, and a matching $325 million in lending from banks led by J.P. Morgan Securities. An original plan called for more from each, but the struggles of the national economy brought the investment up short. Now, DreamWorks is left to line up new financing at a time when movies are struggling.
Attendance at North American movie theaters hit a sixteen-year low last year. DVD sales continue to drop. Although some emerging overseas markets are picking up steam, Europe and other important sales territories are uneven. And there are no indications of an immediate reversal of the trends.
So the question becomes whether, or to what extent, Reliance and allied lenders are prepared to back another round. Executives from Reliance and DreamWorks declined to discuss their plans. Over the weekend, however, they said in a joint email that they remained pleased with their partnership: “Our relationship has always been structured to allow us to adapt to changing market conditions and to create the best chance for success for all parties involved.”
Speaking on condition of anonymity to avoid conflict with executives of the companies, people familiar with the situation said talks about further financing will probably open in the next few weeks. The outcome will determine whether DreamWorks, which distributes its films under a long-term deal with Walt Disney Studios but has also worked with other partners, will be able to maintain its ambitious course.
If not, it might have to proceed with a smaller slate of films or potentially less impressive projects, these people say. Whether DreamWorks would even be interested in making lower-risk, lower-profile movies, however, is far from clear.
DreamWorks began making movies in 2009 after raising only half of the hoped-for financing from Reliance and lenders. Despite a top-shelf pedigree— Spielberg is by far the best-selling movie director in history, and Snider oversaw hits like Bruce Almighty and The Bourne Identity while chairwoman of Universal Pictures— the company scratched for more than a year to assemble backing during a worldwide financial collapse in which the number of banks engaged in entertainment lending fell from more than forty to fewer than a dozen.
During that hunt for funds, Reliance and Anil Ambani, the chairman of its parent, stood by a commitment to invest in the venture, even as the terms of the involvement became less favorable. But Reliance put up less than a contemplated $550 million in equity, as it became impossible to raise $750 million in loans to go with it. The hoped-for $1.3 billion total would have seen DreamWorks through this Oscar season and perhaps into 2014.
Instead, the company’s resources are nearly played out, even while the potential from its first round of films remains uncertain. The Help, War Horse, and, by a whisker, Real Steel, appear poised to make money, once their full run is complete. But Cowboys & Aliens (released by Universal), I Am Number Four, Fright Night, and Dinner for Schmucks (released by Paramount) were soft at the box office, and either lost money, or made too little to create a strong portfolio for investors.
Spielberg is currently finishing Lincoln, partly financed by DreamWorks, with additional backing from Participant Media and Fox, which is co-financing another Spielberg film, the sci-fi thriller Robopocalypse, which is set for release in July of 2013 by Disney in the United States and by Fox abroad. (Spielberg’s many television projects are financed separately from DreamWorks Studios.)
Despite rumblings in Hollywood of friction between DreamWorks and Disney, their distribution partnership is solid, with years yet to run. “DreamWorks provides a diverse slate that’s a key part of our release strategy, and we’re pleased with the results so far,” Rich Ross, Disney’s movie chairman, said in an email.
And DreamWorks has co-financing avenues to pursue. Fox, which has previously worked closely with Spielberg, appears ready to continue supporting individual projects. Participant, meanwhile, is eager to help pay for issues-oriented films like The Help, which it backed in part. “We plan to continue to work together on at least one film per year,” James G. Berk, Participant’s chief executive, said in an email.
But the pace of film production and development has already slowed for DreamWorks and its eighty employees, who work from a complex on the Universal Studios lot. Instead, Spielberg, Snider, and their lawyer, Skip Brittenham, are preparing for talks with Ambani and his lieutenant Amitabh Jhunjhunwala. Reliance must now decide whether to double down on an initial investment that was never large enough to match the ambitions of the company it supports.
There is no immediate deadline to hurry the discussions, according to people who have been briefed on DreamWorks and its underpinnings. But the company’s Reliance backers are almost certain to be in Los Angeles for some glamour and glory at the Oscars next month.
And the table talk will most likely be more about money than movies.

Rico says that he needs the rounding error from any of these deals to make his video; anyone with money to invest (like, say Rico's friend Pete, who just made a killing in Apple stock) can email him at mseymour@proofmark.com or call him at 215.866.6184