Betting on Hollywood ending

Where does it say that Hollywood's profit participation deals have to involve the actual participant? Mark Cuban, the billionaire owner of the Dallas Mavericks who has become a real presence in the entertainment world, is backing a new L.A. company called Content Partners. Here's the deal: Actors, directors and producers are bought out of the future profits they would be making on movie grosses, DVD sales or whatever. In return, the company has the right to those future earnings. CEO Steven Kram (he's a former William Morris executive), tells the WSJ that the company has several deals locked down.

Such profit deals can bring in many millions of dollars for A-list talent. Tom Cruise, for instance, had a profit deal under his previous contract with Paramount Pictures that gave him as much as 30% of gross box-office receipts for acting in and producing his movies, plus a slice of DVD revenue, according to people familiar with the deal. His last movie under that contract, "Mission: Impossible III," sold $398 million in tickets and a similar amount of DVDs. Still, since these payment streams can last for years, if not decades, some actors have to chase down checks, even waging legal wars to get what they say is owed them.

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One risk is that Content Partners is essentially gambling on the future of the entertainment industry. In calculating the lump sum it is willing to pay, Content Partners estimates how much revenue a movie is likely to generate from the box office, DVDs and television. The movie industry is in the midst of a transition, with DVD sales slowing, piracy increasing and Internet distribution emerging. Christa Thomas, a banker at J.P. Morgan Chase & Co., which is putting up half the initial $100 million of financing for Content Partners, notes the deals the company buys "have been through the riskiest part of their life cycle." That is because Content Partners buys a profit deal only after a movie has been released in theaters or a TV show has gone into syndication. Thus, they have a pretty good idea how it is going to perform down the road. One risk is that the performer does something to undercut their popularity or the company paying the checks goes out of business.