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Company Town | The BIZ

Spyglass Hopes for More Good 'Sense' in Future Projects

May 23, 2000|CLAUDIA ELLER

Sometimes in Hollywood, a guy can get lucky. The partners in Spyglass Entertainment, executive producers of "The Sixth Sense," the supernatural thriller that has grossed $660 million worldwide, know how it feels.

Gary Barber and Roger Birnbaum and their 18-month-old production company have made calculated bets on a number of films. "Sixth Sense" has paid off in spades.

Though on their other films--box-office flops "Instinct" and "Keeping the Faith" among them--Spyglass will be lucky just to break even, the company's profit on "Sixth Sense" could be well in excess of $100 million. The film is the biggest rental title ever and has sold a record 2.5 million DVD units, and it's still in a handful of theaters after nearly a year in release.

How this fledgling company--whose next film, "Shanghai Noon," is due out Friday--leverages its success is critical.

Spyglass is among Hollywood's new breed of self-financing companies that studios enlist to help minimize their risk in a capital-intensive business.

For the Record
Los Angeles Times Friday May 26, 2000 Home Edition Business Part C Page 2 Financial Desk 2 inches; 42 words Type of Material: Correction
"Sixth Sense" producer--In an article published in Tuesday's Business section, Roger Birnbaum and Gary Barber were erroneously mentioned as executive producers of "The Sixth Sense." The Spyglass Entertainment partners put together the film's financing. Sam Mercer was the executive producer.

When studios are afraid they've got too much money riding on films that don't look too promising or when they want to cut costs on expensive films, they'll sell off rights or, as in this case, whole films. The studio remains the distributor and earns a healthy chunk of the revenue.

For "Sixth Sense," Walt Disney Co. will see a profit of $75 million to $100 million. Star Bruce Willis takes home roughly $50 million. But if the film had tanked, Disney would have looked smart for cutting its losses.

It's a risky game for Spyglass, which plans to continue financing films through a network of relationships with Disney and such foreign distributors as France's Canal Plus and Germany's KirchGroup.

Barber and Birnbaum co-founded the firm in 1998 with a $200-million credit facility from Chase Manhattan Bank and equity investors such as Disney, Svensk Film Industri of Scandinavia and Lusomundo of Portugal. Disney has an exclusive distribution deal in the U.S. and key foreign territories for Spyglass films.

"We've built a solid financial base with 'Sixth Sense' and can now explore where best to invest our dollars in other areas, not just movie production," said Barber, formerly chief operating officer of Morgan Creek Productions, who has financial expertise and extensive knowledge of the international marketplace.

Barber said he and Birnbaum, a seasoned studio executive who headed production at 20th Century Fox and as a producer co-founded and ran Caravan Pictures, have "decided to take a portion of our money and make multiple strategic investments in small start-up 'dot-com' companies." They have yet to make any formal announcements.

Barber and Birnbaum, who as equal partners in Spyglass own more than 80% of the firm, say they're also looking to buy select movie theaters, both here and abroad, even though Barber readily acknowledges "that's a tough business." But he believes that it may be the right moment to shop, given that some theater circuits "are either going bankrupt or getting out of the business."

Birnbaum stressed that, while movies will "always be our core business," Spyglass is developing some TV shows and has sold a couple of ideas to larger production firms better able to finance them. "We have a couple of pilot scripts being written for us. And, if we get them on the air and have some success, then we'll hire someone."

On the movie side, Spyglass hasn't had nearly the kind of success with its other releases that it's had with "Sixth Sense."

In addition to the disappointment of "Instinct" and "Keeping the Faith," the firm's investments in certain foreign rights to Disney movies "Mission to Mars" (around $30 million) and "The Insider" (approximately $20 million) also proved ill-fated when those movies flamed out. Spyglass, however, will probably come out OK on those two investments, because it covers much of its downside by pre-selling rights to overseas distributors.

Barber said that the "combined impact" of all four films "will not, in the long run, result in a loss for this company," though some sources are skeptical of that.

John Miller, managing director of Chase Manhattan Bank, said that Spyglass and the bank are pretty well protected because of the company's pre-sell construct.

Miller, whose relationship with Barber goes back many years, said the Spyglass business model of having backing from a major studio such as Disney and strategic partnerships around the world "is the wave of the future . . . we thought it was great for us and from a banking perspective was a very easy deal to make."

There's good advance buzz and strong reviews on Spyglass' next movie release, "Shanghai Noon," a $55-million East-meets-West adventure-comedy starring Jackie Chan. But with audiences drawn to the anticipated hit "Mission: Impossible 2," which opens Wednesday, and such strong holdovers as "Dinosaur" and "Gladiator" there will be some stiff competition over the heavy moviegoing Memorial Day holiday weekend.

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