Joe Roth Plays Let's Make a Deal

His new movie studio has majority control and minority risk

If ever anyone has learned the Hollywood lesson of using other people's money, it's Joe Roth. Back in 1986, before he ran movie studios for Rupert Murdoch and Michael D. Eisner, Roth faced the loss of his Brentwood (Calif.) home after pledging the house to help finance a $6.5 million film called Stone Boy. When Stone Boy tanked, Roth managed to save his house only by using $500,000 he got for a future directing gig. Still, Roth has said, he was traumatized by the experience.

Not to worry. Today, Roth's new Revolution Studios is getting its start with the heftiest financial backing a Hollywood studio has amassed since DreamWorks SKG raised $900 million in equity in 1995. Roth has $250 million just to make films, with investments from Sony Pictures Entertainment, Murdoch's Fox studio, and Starz Encore Group.

SWEET DEAL. It's the first time Starz, a pay-TV service controlled by cable titan John Malone, has helped finance a studio. This year, Revolution is expected to release six films, starting on Mar. 30 with the teen comedy Tomcats. With his investors' money, plus some advances from foreign distributors in Japan and Germany, Roth is in the enviable position of paying for roughly 25% of his films' costs but owning 65% of each film he produces, sources say.

Revolution aims to rewrite the decades-old Hollywood rule that says no one but the stars get rich by making movies. Revolution will own no real estate, maintain a skeleton staff of 25, and go light on high-priced deals with stars and producers. Still, the stars are signing up, mostly because they owe Roth for earlier megadeals. On board so far: Bruce Willis, Adam Sandler, and Julia Roberts, whose longtime agent, Elaine Goldsmith-Thomas, is an equity partner in Revolution.

What's equity in Revolution worth? Hard to say, since without the cash flow generated by libraries of older films, studios rarely are profitable. And Roth has a history of leaving his production companies, as he did before landing top jobs at Fox studio and Walt Disney Co. Still, Revolution's calculus is compelling: Sony is putting up 40% of the cost of making a film, plus all fast-escalating marketing costs. That's a better deal for Sony than making all of its own movies or relying on higher-priced producers. Starz and Fox jumped in to be able to secure a steady flow of films on TV.

Sony figures it will make back its money on the 12.5% of revenues it takes off the top for distribution. What's more, for Sony, Roth's connections will bring talent it might not have gotten otherwise, including Bruce Willis, who is making the $75 million action film called Man of War for release next year. Roth's business plan calls for him to make films $10 million below the industry's $52 million average.

HIT MAN. Roth, who resigned as Disney's studio chairman in January, 2000, has had a string of hits. At Fox, he found Home Alone in a Warner Bros. dustbin. Disney had Hollywood's top market share during his five years there, with such winners as The Waterboy. But he frequently overspent, especially on marketing, letting films such as The Insider and Beloved ravage Disney's earnings.

Even if he keeps costs down, how long will Roth be around to keep the experiment going? Rumors persist that he wants to take over Sony's studio in early 2002, when his noncompete contract with Disney expires and Sony Chairman John Calley, 70, is expected to retire. Roth isn't talking. For now, he's parked in Las Vegas, directing his first film in 11 years: America's Sweetheart, starring Billy Crystal and Catherine Zeta-Jones, with a tiny part for Roberts. With all players giving up a chunk of their salaries, it's said to be coming in at $45 million--cheap, considering the lineup. Sure, Revolution's model is attractive. But do you need Joe Roth's star-filled Rolodex to make it work?

By Ronald Grover in Los Angeles

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