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28 Nov 2006

Hedge Funds and Film Companies

Hedge fund managers are beginning to see film financing as a high return sector that is on the rise, the global audio visual sector is expected to be worth $1.3 trillion by 2008 and is not correlated to returns in the stock, bond or commodities markets.

Hedge fund investors are developing a trend of financing film producers with a proven record of success directly. In dealing with the producer, the investors avoid the expensive and time consuming hassle of working through a major studio production agency.

Mark DiSalle, CEO of BioPassword, now has plans to launch his own hedge fund, Colosseum pictures. BioPassword is an Issaquah company that has developed software to protect computer passwords based on how users type. DiSalle bought the BioPassword technology for $500,000 in a bankruptcy sale three years ago, he said its roots can be traced to Morse code operators in World War II who figured out how to determine message senders based upon tapping patterns. BioPassword has already acquired over $25 million in venture capital and strategic investments.

Some major studios are also actively looking to outside financing sources to back independently produced films. Outside financing reduces the studio’s risk, reduces the amount of cash they have tied up in projects, and still allows them to obtain product for distribution in their existing pipeline.

Other hedge funds investing in film include Mark Cuban, entrepreneur and owner of the Dallas Mavericks, and eBay founder Jeff Skoll, each have a fledgling film company. Billionaire Phillip Anschutz is financing big budget films, David Sacks, a founder of PayPal, financed "Thank You for Smoking," for $7.5 million, and it has worldwide gross of over $27 million. Bob Yari, who made millions in real estate development, is backing the production of numerous films. Bill Pohlad, a multi-millionaire whose family owns the Minnesota Timberwolves, made "Brokeback Mountain" for $14 million and it has grossed $184 million worldwide. A recent $220 million deal with an individual producer included investors such as J.P. Morgan, D.E. Shaw, and GE Capital. George Soros also bought the DreamWorks library in a deal that valued the 59 film library portfolio at $900 million, later releasing all of them.