Chuck Bush opened Great Road Capital in 2004 to finance individual films from Hollywood and beyond. He and his colleagues quickly found that bankrolling single films was no easier than financing the companies and funds that make those titles possible, so after 2010 his boutique investment firm pivoted to focus on organizational financing.
S&P Global Market Intelligence caught up with Bush in Beverly Hills to discuss the new crop of digitally driven entrepreneurs in Hollywood, the opportunities in a content-saturated world and the future of film finance. What follows is an edited transcript of that conversation.
S&P Global Market Intelligence: How has demand for digital content investments evolved over the last few years, and how has your firm participated in that evolution?
We've followed and sometimes led our clients into that age, so now we bring financing to companies all over the technology and media space. We’re right now working with a company that has an online platform for selling film and television rights. A couple of companies are trying to create the marketplace for the newer titles that would sell to smaller territories and catalogs. If you own a library -- there are hundreds of companies that have a library -- all of the titles for all of the properties are just sitting in a box somewhere. Same for the studios, just sitting on a server or in a box. It's a very inefficient process anyway because the sales agents are in this oligopoly of experts that have relationships with distributors and they set the prices. Over time, my partners and I think there has to be a change in that business model. The internet has made lots of different ways of doing business more efficiently, and for B2B markets like this there are lots of different proven ways to improve efficiency. This is one area that needs it.
So with the rise of all of this content, all of these libraries and platforms, do you think we're in a content bubble? Will it start to lose value?
Chuck Bush: I think we're starting to see that to some extent. Anyone with pre-teens or teens knows that they're not watching a lot of professionally created content. So if you can get 30 million viewers on something that cost $5 to make, and fewer viewers are watching your network TV show, it's tough. I think we are starting to see a stratification of content. For movies, it's been happening for a while because the studios have focused more and more on the tentpoles. It's getting more and more concentrated. You look at the way studios are financing their companies: the capital is focused more and more on fewer titles. That has opened up some space for large production companies and other independents to fill the middle strata, but it's getting harder and harder to get those slots. They need big enough companies that can supply them and financing companies like Legendary.
So it's getting more difficult to get interest from investors for those slots?
Yes, it's harder to get those theatrical distribution slots from the major studios and the mini-majors because there are enough players out there financing themselves to fill those slots. Then you go one level down and there are still slots that are open for rent-a-system deals, or deals where studios would have historically put up [prints and advertising financing], but they're not anymore. So these smaller and medium-size films are increasingly risky. If you're between $10 million and $25 million, that's sort of no-man's land now, and even the $25 million to $60 million is challenged because there're all sorts of factors that are competing for eyeballs.
So there are more small-budget opportunities?
Now we're in a situation where under $5 million you have a viable direct-to-home entertainment release via streaming. Maybe you do a small theatrical release, 50 to 100 screens, maybe more, and that's basically advertising for your home entertainment. Some physical DVD still, you've still got Redbox, and you've got all the on-demand services, so under $5 million you now have a sort of viable model.
There are like 3,000 to 5,000 digital distribution outlets, and that includes OTT. You’ve got all these different channels out there doing their own content [like] Nerdist and AwesomenessTV. A lot of those are owned by big companies now, but they are making content for nothing and getting a lot of eyeballs. And then you've got all of the multichannel networks and YouTube networks that continue to thrive. So that's all low-value content, but it can be very profitable when you get the eyeballs. And the bets aren't that big, so if you’re spending $50 million in digital content, you can produce a lot of stuff. So we are seeing that happen. Anything that's midbudget is tough.
Sounds like you're saying investors and studios are starting to take microbudget content seriously?
Yes, and I think one of the reasons for that is you have all these different ways to monetize it, given the constant evolution of digital advertising. We’re such in the nascent stage of digital advertising. A lot of money can be made in digital advertising but there's still so much more that can be done, and there's a real acceleration happening as data analytics are put into place to optimize that. The ability to automate the attraction of eyeballs via data analytics is just phenomenal. So my belief is that's going to force companies who make any content to really know their customers, especially if you’re making expensive content. It's sort of ridiculous to me that the studios don't know who their customers are. They're starting to figure it out.
Are there any unique content opportunities that have opened up because of new technology?
An associate of mine scooped up some assets that were owned by a VR-focused fund that collapsed. He was able to get those assets -- a bunch of original [intellectual property] for storytelling in virtual reality -- and peel them off. We’re going to help him raise some capital for that. Then there’s some postproduction companies, one that does 3-D conversion, which is still pretty big. It turns out this 3-D conversion company has a small VR department. Maybe 5% of their revenue comes from VR. The postproduction business is really low margin. The studios really squeeze you.
I think there's a really interesting play for companies like that to add on content. Because they know the post process and a lot of the production process. If they owned IP they could have a little more control over their own destiny and pricing. Then they also have all of this cutting-edge technology in VR. So I think there's a really interesting play there for a new generation studio rising out of that world.