Risk Markets And Politics

Friday, May 26, 2006

"Our friend dere in Burbank - You want I should pay him a visit?"

Mark Cuban's new venture Content Partners will buy equity in films and tv shows. The company will offer up to $25 million to established actors and other talent in exchange for 50 to 100% of their "back-end" participation rights, which are shares of profit in specific projects. The film industry seems to be moving away from paying talent based on sales alone, and towards such arrangements. Steven Soderberg, who worked with Cuban on "Bubble" had recently stated, "There should be a true partnership between those who make the films and the people who finance it. That means, initially, a lot of people who are being overcompensated up-front [via revenue-sharing, or "first-dollar gross"] would have to be willing to take it on the back [via profit-sharing]." Such a trend would clearly bode well for Content Partners, but to the extent that profits aren't paid-out with interest by studios, rising rates will work against them.

Barring an industry-wide move towards profit-based compensation, one wonders though why actors would agree to the higher risk/reward profile of back-end deals only to sell away their upside (a call-like cash flow) to Content Partners. The initial story by Jane Wells of CNBC stressed the difficulty and time involved with collecting the back-end profits from studios. Since the "enforcement" will largely fall to people already employed by the talent, which will just represent some incremental cost, this angle is only marginally convincing - to this Hollywood outsider at least.

Content Partners apparently has no plans to regularly sell the profit rights they buy. While a full-fledged secondary market would be interesting, it might create conflicts of interest. Likewise, the majority of deals will probably be hammered-out before money starts flowing in. As always, contract language is important.

Following Cuban's abandoned plans to start a sports-gambling hedge fund, some had speculated that he would become involved in prediction markets. While by no means a prediction market venture, Content Partners is certainly an innovative business, is obliquely reminiscent of HSX, and expands the set of tradable interests.

1 Comments:

  • I cover similar matters relating to the various funding models of Hollywood and Silicon Valley on my blog at www.digimediafinance.com.

    By Anonymous Barry Caplan, at 1:55 PM  

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