Chapter 54: Using the Distribution Contract to Secure a Loan
Sidney Gannis, who also oversaw Columbia Pictures' production department, had taken a liking to Ghost!
Aaron smiled. "Thank you. Dawnlight is actually very willing to cooperate with Sony-Columbia."
Columbia and TriStar had already merged, but in recent years, some films still needed separate distribution.
Last year, Ghostbusters II and When Harry Met Sally… were distributed by Columbia, while The Truth About Cats & Dogs and Hear My Song went through TriStar. The split reflected both internal competition and different genre focuses.
"Castle Rock—you know them, right? The producers of When Harry Met Sally…—they already have a distribution deal with us, same with Carolco."
"Yeah, I know. But let's talk about Phone Booth first."
Sidney Gannis nodded. "How about a $3 million buyout for the Asian distribution rights?"
Aaron blinked. "Mr. Gannis, you know that Phone Booth has already grossed $28 million in North America, right?"
"Predictions are around $40 million. Japan is the second-largest market after North America, plus South Korea, Southeast Asia, and Greater China. $3 million seems low."
Now the film had actually released in North America, and its box office and reviews spoke for themselves—it wasn't pre-production speculation.
"Aaron, you and I both know that Phone Booth probably won't hit $40 million domestically. Asia might only generate $500k–$600k in box office revenue. The rest would come later from home video or TV broadcasts—it takes time."
Aaron shook his head. "No, the Hollywood vs. international split is roughly 4:6. Films like this perform better overseas. Asia will likely bring in $15–20 million. I think $5 million is a fair price for the Asian distribution rights."
Sidney Gannis flatly refused. "Impossible, Aaron. That's just your guess. Many films earn more in North America than internationally. And most international revenue comes from Europe…"
After back-and-forth negotiations, Gannis finally agreed to $3.5 million for the Asian rights.
"Alright, regarding Ghost, Dawnlight will produce it independently. If Sony-Columbia distributes, what will your distribution fee be?"
Aaron knew Sony, Castle Rock, and Carolco all operated with this model—paying a distributor while keeping production independent—so it suited him well.
"North America gets 15% distribution fees. Internationally, Dawnlight keeps 25% of box office revenue. Marketing costs can be fronted by Sony, to be recouped later."
Aaron frowned—this was slightly better than 20th Century Fox's offer; Sony had given ground on international distribution.
"Mr. Gannis, you know I personally pushed Disney to develop Pretty Woman, right?"
Gannis smiled. "Of course. You made quite a splash in front of Warren Beatty. Everyone knows about it."
"So, for me, 15% distribution fees are too high."
"Not at all. Columbia isn't like those small independent distributors. Their distribution capabilities are in a different league."
Aaron tapped the table. "Here's the deal: under $50 million box office, 15% distribution fee. Between $50 million and $100 million, 12%. Above $100 million, 10%. Internationally, the production costs are my responsibility, Sony only covers some marketing—no risk for them."
"I don't believe Castle Rock or Carolco wouldn't need financing from Sony. I'm shouldering all the risk myself. If Sony won't agree, I can take these terms to another distributor—someone will."
Aaron had acquired Ghost precisely to make a big splash; once it released next year, it would launch immediately into success.
Sidney Gannis considered for a moment. Since being acquired by Sony, Columbia-TriStar needed influence. Facing wealthy Japanese conglomerates, what mattered most now was promoting the Sony brand.
Sony's board spent $200 million to lure Batman producers Peter Guber and Jon Peters from Warner Bros., buying out their shell film company with the money.
Although everyone found the move baffling, Sony went through with it. When Time Warner sued for unfair competition, Sony, seeking to settle quietly, compensated Warner Bros. with half of Columbia's stake in the Warner studio lot.
Originally, the Columbia Pictures Group was based in Burbank. The current Warner Bros. lot in Burbank was a joint establishment between Columbia and Warner Bros. After Coca-Cola acquired Columbia, it neglected the studio lot, while Warner Bros. wanted to renovate. Coca-Cola then moved Columbia Pictures from Burbank to the Culver City lot.
"Agreed. Columbia will honor your terms."
Sidney Gannis consented. After all, Sony's Hollywood operations were now managed by the eccentric duo Guber and Peters. Michael Ovitz had advised against hiring them, but the success of Batman blinded Sony.
Sony now spent money liberally; box office receipts could justify the expense, whether the films made a profit or not. With deep-pocketed Japanese investors backing them, Sony could throw money around Hollywood freely.
"Good decision," Aaron said, standing and shaking hands with Gannis.
The next day, after Daniel Williams in Los Angeles reviewed the contract via fax, Aaron Anderson signed the Ghost distribution deal on behalf of Dawnlight Films.
The Asian distribution rights for Phone Booth sold for $3.5 million, and Aaron planned to use the Ghost distribution contract to secure a bank loan.
With the stock market sluggish, Wall Street had ample capital, and Hollywood's box office growth was tangible. Many investment banks and institutions maintained funds specifically for Hollywood films. Aaron approached one such fund at Credit First Boston with the Ghost distribution contract in hand.
"Mr. Anderson, your reputation in Hollywood is impressive," the fund manager remarked.
Aaron sipped his coffee. "Not bad. You've checked my track record. The production budget for Ghost is $20 million. I want to use the Sony-Columbia distribution contract to secure a $15 million loan. Is that possible?"
The fund manager exhaled. "You plan to produce this film independently?"
Aaron clenched his fist. "I like having full control over my work!"
The manager shook his head. "This is your first film of this scale. We can only offer a maximum loan of $12 million. Three-year term, 9% annual interest. You know banks are tightening, and the economy is sluggish—9% is already low."
Aaron nodded. The annual interest would be $1.08 million. He was ready.