Quick! Who signs million-dollar paychecks for Catherine Zeta-Jones, Michael Douglas, Dennis Quaid, Leonardo DiCaprio and Martin Scorsese? Would you believe a German company with a name that could come from a Mel Brooks farce? Cologne-based Splendid Media is co-producing the movie Traffic, which Zeta- Jones, Douglas and Quaid are filming. Splendid is also putting up $65 million for Scorsese and DiCaprio's $90 million The Gangs of New York. And if all goes according to plan, it will funnel more than $100 million into a series of co-productions with Zeta-Jones' production company, Milkwood Films, over the next two years.
What's more, if Splendid weren't doing it, other German companies probably would be. In the past year, German production companies and film funds have acted as money men for John Travolta, Bruce Willis, Tom Cruise and former Disney Studios boss Joe Roth. Nearly 20% of the $15 billion that Hollywood is turning into films and videos this year has come from Germany, where in 1999 the word media had the same dizzying effect on investors' neurocircuits as dotcom did in the U.S.
Last year, 12 relatively unknown German film distributors tossed their shares out onto the then roaring local stock market and reeled in more than $3 billion in capital. They have used that war chest to gobble up strategic chunks of the shape-shifting worldwide filmmaking and distribution industry. They ran rings around established German players like Kirch Media and Bertelsmann, who were left with token pieces of carefully selected merchandise. Another $1 billion flowed into German film production funds, which raise money from private investors for specific films such as Mission: Impossible 2, which got $100 million from German sources.
Most of these seeming upstarts have been around for 20 years or more, eking out an existence buying German-language rights to non-German films and then selling them to cinemas and TV stations. Like film producers, such distributors succeed or fail based on their ability to pick winners and avoid losers. But while a producer has the advantage of being able to control cost and content from day one, distributors only had the ability to bid on individual films or bundles of films. It made sense, therefore, that someone who could make money with his hands tied as a distributor could make more with his hands free to tinker as a producer — if only he were given the opportunity. Last year, a cash crunch in Hollywood and a Geld glut in Germany provided that opportunity. Splendid Media was one of the first to move on Hollywood, agreeing to buy 51% of strapped Hollywood film financing and distribution company Initial Entertainment Group last July. It was through that deal the folks at Splendid hooked up with Scorsese.
But many of these "co-productions" are really just old-fashioned "output deals" which lock up distribution rights to a successful producer's next five, 10 or 20 films but yield little in the way of direct control. A real producer swims far enough up the production stream that he has some say-so in a film's budget, talent and content. Werner Koenig, who runs Munich-based Helkon Media and is one of the few of this new wave with actual production experience, has just finished a Leslie Nielsen comedy called Space Travesty. "We filmed most of it in Germany, with a German team," Koenig says. His company is now part of a consortium that wrestled production of the new Rollerball remake away from MGM. "A studio will only sell you rights to a film if it thinks you're paying more than they can earn on it themselves," he says. "MGM tried selling us Rollerball sight unseen as part of a package deal, but instead we brought our Neuer Markt money directly to Atlas Entertainment, the originator, and became partners."
And the buying hasn't been limited to Hollywood. During last year's bidding cycle for European film rights, Germans scrambled not only for rights to individual films and packages of films, but also for the European companies that produce and distribute movies. Kinowelt is easily the biggest of the young Turks with a market capitalization of $1.2 billion and a string of distribution and production companies from Hungary to Canada.
But while the upstarts were out forming European alliances and sealing long-term package deals with American producers, the veterans were playing it tight, even failing to outbid Kinowelt for a $300 million package of television rights from Warner Brothers. Kirch Media and Bertelsmann, however, control almost all of Germany's commercial television stations, which means Kinowelt paid more for the films than its probable customers were willing to.
This comes just as the amount of locally produced TV fare in Germany crosses the 50% threshold and a worldwide trend towards locally produced television kicks into high gear. But competition for viewers' eyes is fierce. "Movies like The Matrix were in that deal," Koenig says. "Kirch and Bertelsmann have a tremendous library of films, but they will still need to put up blockbusters from time to time when the public stations run something big." Either way, a wedge now exists between the big old German boys and Hollywood's hot new indie producers.
So far, the gamble has been a losing one. Munich-based Intertainment sparked a euphoric burst of schadenfreude when they took an unspecified hit on the $70 million sci-fi flop Battlefield Earth. Although preselling the television rights across Europe helped offset some of the loss, that may come back to haunt them if stations think twice about buying in the future. The company is betting on a $500 million, 10-film output deal with Anne and Arnold Kopelson, who produced Outbreak and The Fugitive, to keep their credibility alive.
The Germans aren't the first foreigners to try their hand in Hollywood. Japanese companies lost a bundle in the early 1990s, as did a series of French and Italian ventures. But this wave of German companies isn't just buying studios; they're buying production teams and burrowing into the production process itself. "Each company is pursuing a different strategy involving a complex mix of production and distribution elements," says Stephan Seip, media analyst at Merrill Lynch. Some of those strategies have a fantasy feel: "For $65 million, you too can be a movie mogul and rub shoulders with the stars." But others are based on long-term plans and objectives backed by years of experience at home. The inevitable shakeout will come with next year's first-quarter earnings — an event the suits in Hollywood will be watching as closely as the Oscar nominations.