'Dumb money' wising up

That seems to be the case with Citicorp joining up with Bev Hills-based Relativity Media to fund at least 45 studio films over the next five years, and possibly as many as 100. Variety said the overall investment could reach $1.1 billion, which would be one of the largest pools of outsider money to reach Hollywood. At least one studio, most likely Sony, is close to finalizing a deal with Relativity in which up to $550 million would be invested in a slate of 40-50 films. THR reports that under terms of the deal, Relativity will share in the distribution fees earned by the studios (usually 10 percent to 15 percent of what's left of the box office once exhibitors get their share). This would be a big deal because in the past outside investors never saw any of those distribution fees - and by the time everybody else got paid, they would often wind up with zippo.

Another interesting aspect of this thing, if you believe the flackery, is that Relativity will be informed of what movies the studios are prepared to green light - at the time of the green-lighting. This is supposed to avoid the sleight of hand known "cherry-picking," where studios dump the less desirable projects into the outside investors' slate. "We've seen it many times -- where one film in a bad slate can put you out. In our deals, we will not enter into contracts where we do not get to see virtually every film," Relativity Media's Ryan Kavanaugh told THR. "Effectively, we need to be shown the product at the same time the studio is making a decision to make a movie, or shortly thereafter. It's a structure that properly aligns the studio and the investors." From THR:

Relativity represents the new wave of film financing, whereby Wall Street takes a portfolio approach to a studio, investing debt and equity financing into a slate of studio films. Last year, the financing company invested $600 million in Universal Pictures' slate and $400 million in Sony's slate. It has co-financed such films as Universal's "Smokin' Aces" and Sony's "Catch and Release," both of which opened Friday, along with Sony's 2006 boxoffice hits "The Pursuit of Happyness" and "Talladega Nights: The Ballad of Ricky Bobby," among others.

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Similar deals have been struck around town. Paramount Pictures has a slate deal with Merrill Lynch, while the hedge fund vehicle Legendary Pictures has a five-picture, five-year deal with Warner Bros. Pictures. In the case of Legendary, though, Warners chose the majority of the projects, which left Legendary co-financing such 2006 disappointments as "Lady in the Water," "Beerfest" and "The Ant Bully." The fund did have success with its participation in "Batman Begins" and "Superman Returns."