Joker, the brooding character study of DC Comics' Batman villain, is nominated for 11 Academy Awards this weekend, the most of any film. Perhaps more importantly to producer Warner Bros — the once-commanding studio that has fallen behind Disney in superhero fare — Joker is among the most profitable comic book movies ever.
The R-rated film about a murderous mentally ill man made US$1.1 billion ($1.7b) in box-office sales on a modest US$55 million production budget, shocking executives across Hollywood. ComScore analyst Paul Dergarabedian said Joker was "one of the most unexpected results" for any movie he has seen in a 30-year career of tracking the box office.
But Warner Bros is not the only one which cashed in on the unlikely blockbuster. Other beneficiaries include: Canadian pension funds, mutual funds, insurance companies — and a pair of former investment bankers.
That financiers won a handsome share of the Joker's spoils underscores the timidity in parts of Hollywood, where major studios shy away from taking big risks — essentially anything that falls outside the universe of sequels and well-established franchise films. What Hollywood once derided as "dumb money" is, to an increasing extent, bankrolling some of Hollywood's most daring creative bets.
Joker's director, Todd Phillips, whose credits include comedies such as The Hangover, wanted to make a dark homage to 1970s filmmaking like Taxi Driver, drawing a parallel between Joker and the psyche of real-life mass killers.
It took Phillips a year to convince Warner Bros to sign on to the controversial film. "There were emails about: 'You realise we sell Joker pyjamas at Target'", Phillips told the Los Angeles Times. Warner Bros only agreed to it by sharing the risk with two co-financiers, Bron Creative and Village Roadshow, which chipped in about 20 per cent of the production budget each.
"The guess was it would do about US$100m in the US," said Mooky Greidinger, chief executive of Cineworld, the largest cinema owner in North America. "And suddenly it comes and does a billion worldwide. It's crazy."
Outside investors have been bankrolling films for a century, dating back to tycoon Howard Hughes in the 1920s. But within the business, they have at times been cast as naive and spendthrift dupes, enamoured by Hollywood, who underestimate how unpredictable movie sales are. Picking from projects often turned down by big studios was an added handicap.
The practice has been characterised by wealthy individuals with an affinity for film. Billionaires such as Australia's James Packer, Len Blavatnik, the Ukrainian-born investor, current US Treasury secretary Steven Mnuchin, private equity financier Thomas Tull and eBay founder Jeff Skoll have expanded their repertoire into moviemaking.
There have been waves of enthusiasm. In the 1990s, German funds took advantage of a tax loophole to buy into Hollywood. Then Wall Street piled in during the 2000s, as Relativity Media founder Ryan Kavanaugh wooed bankers with access to celebrities. Between 2005 and 2008, hedge funds and private equity groups invested an estimated US$12b in studio film slates, according to University of Southern California data.
After the market crashed, Chinese investors entered, with giants such as Tencent, Alibaba and Dalian Wanda pouring in cash. But now Chinese money has dried up. The major studios are making fewer movies, and even fewer ones that are not tied to existing franchises. They do not want to allow outside investors in on those movies, because they want to keep their expected riches. But for other films, such as adult dramas, studios are keen to hedge their risk.
So who are the lucky investors who got a piece of Joker?
Jason Cloth was an investment banker who got into entertainment through a spur-of-the-moment loan to a manager of the Canadian singer The Weeknd.
The 53-year-old, who makes his Hollywood bets from an office in downtown Toronto, holds a healthy scepticism towards financing movies. "There are 50,000 movies made every year. Maybe 800 in total that will make it into a theatre. And within that, there's maybe a couple hundred that you would ever want to be part of. So I have to worry about how to get a piece of those 200."
Cloth's Creative Wealth Media sources money from institutional investors such as pension funds and mutual funds. The group formed a joint venture with production company Bron Studios in 2016 called Bron Creative. Bron Creative signed a US$100m deal with Warner Bros in 2018 to finance a slate of films, which was how it got involved in Joker.
Joker's other financier, Village Roadshow, which has funded Warner Bros films for decades, is controlled by Vine Alternative Investments, a New York-based asset manager focused on the entertainment industry, and private equity group Falcon.
Vine's chief executive James Moore, a former investment banker for JPMorgan, said he noticed "there was a high correlation between how [entertainment] assets worked and how other assets in financial markets work".
"They were long term durable cash flows that could be measured with a high degree of precision, and you could manage the risk if you managed them properly," Moore told the Financial Times.
Vine buys up libraries of old films and TV shows, which Moore said are attractive because consumer demand for entertainment is "not terribly affected by recessions, capital market events or other exogenous factors".
In hindsight Warner Bros executives may be kicking themselves for giving outside investors a piece of Joker's sizeable profits. But the vast majority of the time when studios seek co-financing partners, sharing the risk is the right strategy, said Tom Ara, co-chair of law firm DLA Piper's entertainment practice in Los Angeles.
"Films based on new and unproven intellectual property carry significant financial risk that studios prudently share with outside financing partners," Ara said. "When it comes to predicting whether a picture will be a hit, as William Goldman famously said: 'Nobody knows anything.'"
Warner Bros declined to comment.
Joker can be likened to Avatar a decade ago: another blockbuster in which co-financing partners made big money. Director James Cameron spent years trying to convince Fox to bankroll his futuristic science fiction movie featuring computer-generated aliens.
Fox, which had been frustrated by Cameron's ballooning spending on their previous collaboration, Titanic, eventually agreed to finance Avatar. But only with the help of two private equity groups — Mnuchin's Dune Entertainment and Ingenious Media — which took on a reported 60 per cent of the financial risk.
Avatar went on to break the record for global box-office sales.
Written by: Anna Nicolaou and Alex Barker
© Financial Times