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Positive cash flow through hits and misses makes Focus Features an attractive asset

The indie film company and subject of takeover rumors has been consistently profitable, parent Universal Pictures says.

May 25, 2010|By Claudia Eller, Los Angeles Times

Focus Features remains one of the rare specialty film companies tied to a major studio. And at the moment, it has more to brag about than its parent Universal Pictures.

Focus celebrated Mother's Day with the better-than-expected debut of its feel-good documentary "Babies," which chronicles the lives of four infants around the world from birth to first steps.

The movie company, known for such unconventional hits as "Brokeback Mountain" and "Lost in Translation," also has one of the most anticipated independent movies of the summer coming July 7, the family comedy-drama "The Kids Are All Right" starring Annette Bening and Julianne Moore as a lesbian couple whose two teenage kids seek out their sperm donor.

"Babies," a low-cost acquisition, will no doubt make money for Focus, and prospects for "The Kids Are All Right" appear strong based on the positive buzz the film has generated since Focus bought its distribution rights at January's Sundance Film Festival for just under $5 million.

Such promise is welcome news at Focus, which could use a hit following the flame-outs of its recent releases "Greenberg," starring Ben Stiller as a failed musician, and "Taking Woodstock," about the role a dilapidated Catskills motel played in the famed 1969 music festival.

Despite a mixed track record, Focus has been consistently profitable over its eight-year history and occasionally hits a home run, as it did with Ang Lee's 2005 drama "Brokeback Mountain," about a secret love affair between two cowboys, and with the animated feature "Coraline," which it didn't produce but which earned Focus a hefty fee for distributing.

But, like all distributors of high-brow independent movies aimed at adult audiences, Focus finds itself under the watchful eye of its corporate parent to meet financial targets amid a tough climate that has prompted a steep decline in DVD sales, among other challenges.

"The business is tougher and we face the same pressures as everyone else," said Focus Chief Executive James Schamus. "We have always managed to keep costs and overhead down — but I always think it's fair to demand more from ourselves."

With Walt Disney Co. poised to sell Miramax Films, Focus will become one of the only remaining specialty film companies owned by a major studio, along with News Corps.' Fox Searchlight and Sony Corp.'s Sony Pictures Classics. The other media giants, among them Time Warner Inc.'s Warner Bros. and Viacom Inc.'s Paramount Pictures, have opted out of the low-return independent movie business after a slew of box-office misses and mushrooming overhead and marketing costs made the economics unworkable. These studios have expressed a preference for more mainstream, branded entertainment with greater upside potential.

Many in Hollywood questioned whether Universal might look to unload Focus for similar reasons when in mid-March the studio entertained an unsolicited offer to buy the specialty label and its 250-title library from film finance and production outfit Media Rights Capital. While a deal never materialized, the serious nature of the talks sparked widespread speculation that Focus would be the next casualty and that Universal would willingly part with the label if it could ever fetch a high enough price, which some estimate to be around $500 million.

That would seem to be wishful thinking, given that Miramax and its much bigger library of 611 films has a current price of $625 million. Last year, Universal sold Focus' genre label Rogue Pictures for more than $100 million.

The Universal brass is itself under enormous pressure from corporate parent NBC Universal after a dismal box office run in 2009 that continued with this year's "Green Zone" and "Wolf Man" and soft results from "Robin Hood." It is unclear how the proposed purchase of NBC Universal by Comcast Corp. will affect the movie studio and its various holdings, including Focus.

Ron Meyer, president of Universal Studios, insists that Focus is neither being shopped nor in immediate danger of being downsized. Meyer noted that Focus continues to be a prestige business and that Universal likes having it in its fold.

"Focus has been consistently profitable for the last eight years and we are committed to the management team and the films they produce and distribute," Meyer said. "At the present time, there are no plans to scale back the number of films or headcount at Focus," which employs 95 people in New York, Los Angeles and London.

And why would there be? Focus is not a financial drain on Universal's coffers.

Executives at the studio explain that Focus' business model enables it to operate largely autonomously from the studio. Historically, it has generated enough positive cash flow from its movies and library sales to more than cover its annual operating expenses, including overhead, development, production, acquisition, marketing and distribution costs.

Focus funds its movies through the combination of foreign pre-sales, a co-financing deal with Dresdner Bank and by taking on equity partners on a picture-by-picture basis. Unlike most other specialty units, Focus has a strong international sales arm that enables it to reap foreign as well as domestic revenue on its pictures.

Still, Focus has to operate within agreed-upon annual budget parameters, as well as meet performance targets, which according to Universal executives it has exceeded more often than not.

As for the fate of Focus, Schamus simply quipped: "All these rumors about a big sale of Focus are flattering, of course — who doesn't want to be worth gazillions of dollars? But, the support and understanding we get every day from the team at Universal is more flattering still."

claudia.eller@latimes.com

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