T-3: Lights! Camera! Investors!
Arnold Schwarzenegger said he'd be back. On July 2, the muscle-bound action star once again goes into cyborg mode to battle for earth's survival in Terminator 3: Rise of the Machines. But the real ride was getting this movie to the screen. At $175 million, it's the most expensive film ever made outside a studio, and the guys who did it are a couple of impresarios who long ago mastered the first rule of producing action films: Make 'em big, make 'em splashy, and make 'em on someone else's dime.
This time, Mario Kassar and Andy Vajna may have outdone themselves. Before the studio they created, Carolco Pictures, collapsed under too many bombs in 1995, they produced such big-budget blockbusters as Rambo and Total Recall. Now, armed with the rights to T-3, the two lined up enough financing to guarantee themselves a $5 million payday -- even if the movie doesn't sell one ticket.
Plus, they'll get a share of any profit and royalties from licensees such as Toyota (TM ), whose new T-3 Tundra truck is showcased in the film. Even more unusual: They'll retain the rights to make Terminator 4, 5, or however many more sequels Schwarzenegger may have in him.
VOTE OF CONFIDENCE.
For everyone else connected with the movie, except the 55-year-old Schwarzenegger, the project carries huge risks. Backers are counting on some leftover magic from 1991's Terminator 2: Judgment Day, which grossed more than $514 million worldwide. "I was very skeptical. Does anyone still care about the Terminator?" asks Moritz Borman, CEO of German movie investor Intermedia Film Equities Ltd. Still, he put down $20 million after a consumer survey he commissioned gave it the thumbs-up.
Others liked the idea, too. Sony Pictures Entertainment (SNE ) paid $75 million for most of the foreign rights, even though the producers had already collected $20 million by selling the Japanese and German rights. Warner Bros. (AOL ), eager to make sure no other producer could schedule T-3 against its own summer blockbuster, The Matrix Reloaded, bid a steep $50 million for the U.S. rights, while slashing its distribution fee.
Additional funding came from sponsors -- PepsiCo (PEP ) paid $1 million for the promotional rights in Russia -- and Intermedia, which agreed to cover any unmet expenses. "There is always money," says the low-key Kassar, "if you have the right project."
WAITING FOR THE CALL.
Putting together that project started back in 1996. That's when Kassar and Vajna bought back half the T-3 rights for $8 million in Carolco's bankruptcy auction. Then they paid T-2 producer Gale Anne Hurd $7 million for the other half.
To sell Warner and Sony, of course, the duo needed Schwarzenegger, who had been itching to do another Terminator flick for years. "I would have done it two years after the last one. It was their fault," he jokes. "They bankrupted Carolco." He didn't come cheap, receiving $30 million up front. He'll also get a chunk of the gross and 20% of the merchandise and computer-game sales.
Warner and Sony figure to do less well. The film likely needs to generate $150 million in the U.S. for Warner to earn a decent return, says Gerard Klauer Mattison & Co. analyst Jeffrey Logsdon -- possible but hardly certain. The producers, though, have already gotten back most of the $20 million they spent for the rights, lawyers, and other items, says Samuel R. Falconello Jr., CFO for the producers' C2 Pictures.
What could go wrong for the producers? Not much. But Vajna says the two, who reunited in 2001 after Vajna split from Carolco in 1989, want to make as many as three big-budget films a year. And as any producer knows, getting fresh capital from partners means making sure your current partners don't walk away unhappy. That's the second rule of being a Hollywood producer.
By Ronald Grover in Los Angeles