Magazine article Variety

Room in the Midlle

Magazine article Variety

Room in the Midlle

Article excerpt

From its new offices atop the tallest building in Burbank, STX Entertainment literally towers over the competition.

Backlots at Warner Bros., Disney and Universal can be glimpsed from the windows of the start-up company's gleaming headquarters. The view is emblematic of STX's immense ambitions - to carve out a place for itself as the next major Hollywood studio.

STX was launched last year by film producer Robert Simonds and TPG managing partner Bill McGlashan with a mission to fill a hole in an entertainment business that has become fixated on budget-busting superhero epics. Instead of cooking up its own answer to the Marvel universe, the studio plans to produce films in the $20 million to $80 million budget range with big-name actors. It aims to release as many as 15 films annually by 2017, and already has lined up projects with Matthew McConaughey, Julia Roberts, director Gary Ross and "The Purge" producer Jason Blum.

With strong financial backing from venture-capital firm and co-founder TPG, Chinese private-equity firm Hony Capital and investors Gigi Pritzker and Beau Wrigley, along with film financing from China's Huayi Brothers, STX intends to spend as much as $1.1 billion annually on producing, marketing and self-distributing its films by 2017.

The company, which is also armed with guaranteed release commitments from the country's four largest theater chains, and multiyear output deals with Showtime Networks and Universal Pictures Home Entertainment, appears well positioned to compete alongside the more-established majors, while maintaining a lower overhead and a more streamlined creative decision-making process.

Still, the challenges of starting a studio from scratch are great. Hollywood is littered with companies that launched with plans to upend the movie business only to falter or collapse. For instance, DreamWorks operates today as a glorified production company, despite being founded as a multi-tiered entertainment studio in 1994 by Steven Spielberg, David Geffen and Jeffrey Katzenberg. Relativity, headed by Ryan Kavanaugh, is continually hustling to raise money, and has few hits to its name. Many others, among them Orion Pictures and Savoy Pictures, are now only memories.

The problem, analysts say, is that the movie business requires a lot of cash, and for startups like STX - which lack a vast library of past films to exploit, or well-established television operations to lean on for revenue during the lean times - the economics often don't work.

"There is always an exception, but the odds don't favor them," says media analyst Hal Vogel. "You had guys like Spielberg, Katzenberg and Geffen, who were extremely well connected and wealthy, doing DreamWorks, and they couldn't make it work. It's presumptuous (to think) that another company can."

Simonds, best known for Steve Martin comedies such as "Cheaper by the Dozen" and "The Pink Panther" films, and Adam Sandler movies including "The Waterboy," thinks comparisons to DreamWorks and its leadership are faulty.

"Those are three of the best people in the business and three of the smartest," says the STX chairman. "But when they launched their company, it was a very different competitive landscape."

While Simonds may lack Spielberg's name recognition, he's an adroit fundraiser whose pitch to fill a void and make money doing it convinced savvy investors to sign on. The money is fully committed, he says, and STX will spend $750 million over the next 10 months without needing to pick up a phone for approval.

The company says it has raised more than enough money to cover any film failures and to keep production running for years to come. It's also not ruling out buying a library to pump out cash from licensing pacts or DVD sales, if one becomes available.

"We're in buying mode, and we are looking at a lot of things," Simonds says. "It would be disingenuous if you had this much money that needs to be deployed to not be looking at everything. …

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