For 22 years Jeff Sagansky worked in "old media," holding top management posts at the studios and networks including NBC, CBS, Paxon Communications, Sony Pictures and Sony Corp., where he oversaw the American launch of the Sony PlayStation and the acquisition of Spanish-language broadcaster Telemundo.
After becoming "increasingly skeptical about the long-term viability" of the those businesses, Sagansky forged out on his own and over the last decade has invested in some 40 firms including a TV syndication company, a private cable outfit in Florida and a U.K.-based distribution operation, and co-founded new media start-ups specializing in digital production, mobile search and Web-based social viewing.
He also co-founded Winchester Film Capital, a hedge-fund backed film and TV finance company that invests inmovies, among them George Clooney's comedy "The Men Who Stare at Goats," and TV shows, including Dean Devlin's TNT drama series "Leverage."
Company Town talked to Sagansky about his transition from Hollywood mogul to new media investor and how the worlds of film and TV have changed in the digital era.
Did the decades you spent in traditional media inform your decision to start up digitally based businesses?
It certainly helped me navigate the life I am in now as an investor. The digital transition was just beginning but I could see the tremendous impact on the traditional business which we haven't seen the end of. I understood in a very organic way that the economics of these businesses were going to put a huge strain on the distribution of film and TV product.
The overhead structures of the studios were totally out of line with the underlying profitability, and the cost of production was rising much faster than the revenues. It became clear that in order to drive profitability, the studios would have to make these big expensive movies. The number of films the studios are making is going down so much because all the resources are going into the bigger pictures.
That's why we started Winchester, to finance independent films and TV productions that get made outside the studio system. We're looking opportunistically at artists that want to own their own productions. The studios' definition of profits is changing so it's increasingly difficult for the creative community to see any back end.
How large a fund is Winchester? Has your criteria for investing in movies changed since you first launched?
We've made commitments for hundreds of millions of dollars. Our average investment is about $10 million a movie, and our criteria have definitely changed. We're much more selective. With the recession, the foreign markets for independent films have been hit very hard, particularly Japan, Spain and Central Europe. Foreign distributors are saying they now need to rely more on the theatrical release to drive the value of DVD and TV sales and want independent movies they can release against the majors that have something promotable like star value or special effects.
What about your TV investments?
We're looking to invest with producers like Dean Devlin who want to own what they produce — which is rare on the scripted side. The number of show runners who see back end profits on successful shows are very few.
How bad are the economics of network TV these days?
I don't think we can write off traditional media, even broadcast because it's the first time in 18 years where broadcast has maintained its share of the audience. But, the preponderance of value of the big media companies like Viacom, Time Warner, News Corp., Disney and NBC, is their cable assets. Showtime, or for that matter Starz Encore and certainly HBO make more operating profit than any of the broadcast networks and, in fact, probably all the broadcast networks put together.
Is there a sound business model for companies like your Electric Farm Entertainment, which produces "webisodes" like MTV's teen vampire series "Valemont" that can be exploited across the Web, mobile devices and TV, actually make money in the digital space?
It's an evolving business. Every single production has to be hand crafted and there is no formula, which there is for TV. The economics have improved but I believe the Internet is an interim technology that doesn't give you reach and frequency. Mobile advertising is going to be the Holy Grail because you're matching consumers ready to act with retailers ready to sell.
Do you think digital distribution will eventually boost the declining values of old film libraries like MGM's?
It is unclear how libraries are going to fare in the digital world.
So what are the best businesses today?
Cable and games are the two leaders, but most of the media companies have avoided investing in the game space.