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FedEx Chief Banks on Film-Making Package

March 14, 2000|CLAUDIA ELLER and JAMES BATES

Can a guy who delivers 5 million packages a day deliver a few hit movies too? It's something Fred Smith, the near-billionaire founder of the Federal Express empire, is betting a chunk of his personal fortune will happen. More puzzling is why the Memphis tycoon--one of the nation's legendary entrepreneurs--would plunge into the risky business of making movies.

"I've asked myself that a couple of times over the last little while," chuckled Smith, who's rarely spoken about his behind-the-scenes dabbling in the movie business and who swears his name will never appear in the screen credits.

But, last week, Alcon Entertainment, the little-known film company that Smith has been quietly bankrolling for the past few years, signed a five-year, 10-picture distribution deal with Warner Bros. on the heels of the surprisingly strong results from Alcon's family film "My Dog Skip," directed by Jay Russell.

Through the weekend, the film, based on the late author Willie Morris' memoir about a boy and his dog growing up in a small Southern town during World War II, grossed $14.1 million at the box office. While most movies lose business each week, "Skip" was actually up 3% over last weekend.

Given that it only cost $7 million, "Skip" has already recouped its negative cost and should be highly profitable for Alcon, named after a mythological archer who helped Hercules.

And, like a proud father, Smith, 55, is not only beaming over the movie's success but over the chance he took on two young Princeton graduates--Andrew Kosove and Broderick Johnson--who presented the FedEx chief with a 220-page business plan for launching a movie company.

Indeed, Smith's decision to back Kosove and Johnson in Alcon mirrors his own legendary story as an entrepreneur.

"I had an affinity for them because I was an entrepreneur exactly they way they are," Smith said. "They are very smart, disciplined and not full of themselves."

As an economics student at Yale, Smith wrote a term paper in 1965 describing a business that would guarantee overnight delivery on the theory that businesses needed to get packages immediately. Smith's professor dismissed the idea, giving him a "C."

After serving as the commander of a Marine Corps rifle company in Vietnam, Smith returned to launch FedEx in 1971, starting operations two years later. After some trying years, the company today is a $17-billion-a-year enterprise.

Before meeting Kosove and Johnson in 1994, Smith had dabbled in movie investing with a London-based financier friend. "We made and lost some money, but overall, it turned out all right," Smith said.

When Kosove and Johnson helped Smith land distribution for one of the independent films he was financing, "Love Is All There Is," they asked in return if he would read their business plan.

Kosove and Johnson had what they believed was a strategy for lowering the risks and increasing the odds for profitability.

"It was one of the most well-thought-out plans I had ever seen," Smith said. "They clearly had a passion for the business and were extremely knowledgeable about the business and could analyze it."

Although they're not naive enough to claim they have any kind of formula for success, in essence, Kosove and Johnson believe that if you keep within a narrow budget, make creative deals with talent, do films only in certain genres such as family films, and have solid studio distribution in place, over time you have a higher probability of making money.

"When we went to Fred with our business plan to start this company, the essence of the business plan was to take the best of the independent world and combine it with the best things the studio world has to offer," said Kosove, 30, who graduated with a joint degree in politics and economics.

Smith believes "the movie business is much more adaptable to business principles than most people believe it is."

For the past 3 1/2 years, the Alcon partners said Smith has paid them each a salary of $4,000 a month.

Smith said he agreed to finance three movies initially, "assuming they were done well."

Alcon's first attempt, "Lost & Found," an $11-million comedy starring David Spade that cost a whopping $20 million to market, bombed badly, losing at least half of its investment.

Kosove acknowledged that Smith was unhappy about the loss, but stuck with them.

Johnson, an economics major who worked for 2 1/2 years as a Saloman Bros. analyst in New York before quitting his job to produce movies, added, "We have the economic backing of Fred Smith in order to take performance risk in the business."

While many independents pre-sell their movies as a way of raising financing, which often means forfeiting lots of upside, Alcon can take advantage of Warner Bros.' worldwide distribution system by paying a reduced distribution fee of 15% while retaining the upside and copyrights to its films.

The timing is ripe for self-financing outfits such as Alcon as the studios are increasingly looking to share the high risk of making and marketing movies.

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