Multibillion Dollar Baby
By Ronald Grover
When the Oscar for Best Picture is presented at this year's Academy Awards on Feb. 27, Hollywood's most powerful banker won't be anywhere near the Kodak Theatre. Instead, John W. Miller, who financed three of the five finalists, will be in Kansas City at a family reunion.
Six-foot-six with closely trimmed white hair, Miller "could be out of Central Casting if you were looking for a banker," says Lakeshore Entertainment Group producer Tom Rosenberg, "except that he is the most un-Hollywood guy in Hollywood." Rosenberg produced nominee Million Dollar Baby with part of a $200 million line of credit from Miller.
Managing director of J.P. Morgan Securities' entertainment group, Miller, 59, shuns Tinseltown's glitz. He doesn't attend A-list parties, rarely hits the red carpet at premieres, and travels to the Cannes Film Festival each year only because that's where the deals are done. "I don't have to stay out late and watusi to understand this business," he says.
DATA OVER DIALOGUE.
Indeed, the dozens of lucite "tombstones" that litter his spacious office in a Century City high-rise commemorate three decades of arranging loans for most of Hollywood's biggest dealmakers. He has helped launch movie powerhouses such as DreamWorks, Revolution Studios, and Time Warner's (TWX ) New Line Cinema. His financing credits include three of the last five Best-Picture Oscars (A Beautiful Mind, Gladiator, and American Beauty), as well as Ray and The Aviator along with Million Dollar Baby this year. A Miller-financed action film, Mr. and Mrs. Smith, starring Brad Pitt and Angelina Jolie, is generating buzz though it won't be released until June.
How Miller figures out which films to back would make movie buffs groan. He's strictly a numbers guy. Although he often goes to the movies, he doesn't read scripts, doesn't care about plots, and doesn't worry about which stars have signed on -- unless they threaten to bust the budget. He relies instead on a sophisticated financing model fueled by data on how more than 300 films performed at the box office. It allows him to tune out the noise and focus on what really counts in a movie's success: its business plan, especially its budget, release date, genre, and distribution schedule.
Unlike the industry he backs, Miller is no risk-taker. He issues loans for slates of films at a studio -- 5 to 15 at a time -- not single flicks. He figures 3 of 10 movies will do well and one will hit the jackpot, offsetting losses from the flops. "If you get up to 15 films, it's hard to lose money on a slate," says Miller. What's more, he places most of the loans with a syndicate of banks, laying off much of the risk.
Miller has $7.5 billion in loan commitments to production companies, but his bank is on the hook for only $1.3 billion of it. David Hotkins, managing director of Imperial Capital Bank's entertainment finance division, says he has bought into some of the syndications largely because of Miller and his team's analysis of the risks. "They have such a wealth of knowledge about this industry that they cut the risks way down," he says.
Miller wields a big stick. To combat Hollywood's spendthrift ways, his loan documents are loaded with covenants, covering everything from limiting how much of the bank's money a producer can spend on a single movie to requiring his O.K. before producers add financial partners or foreign distributors. Miller insists on quarterly reports to make sure producers keep their promises, often sending in audit teams to doublecheck. "He makes you work for your money," says Charlie Lyons, CEO of Beacon Pictures, which has a $200 million credit line with Morgan. "It imposes discipline on you."
Miller says he has never lost money on an entire slate of flicks "other than one time when there was fraud involved." But there have been a few close calls. In 1999, Miller sued insurers who had backed his loans but pulled out after movies such as The Mirror Has Two Faces and The People vs. Larry Flynt bombed. Miller says the bank ultimately prevailed, getting back $600 million with interest. By Ronald Grover
"A SMALL INDUSTRY."
Miller's trusty model has kept J.P. Morgan in business arranging movie loans while studio bankruptcies and box-office disasters have forced out other banks. "With 80% of the market, they own this business," says Hotkins. That allows Miller to charge interest rates of up to 3 percentage points over the rate that top banks pay to borrow from each other. That's on top of fees of up to 3% of the loan commitment, which is shared with banks in the syndicates. It makes for a lucrative profit center: Miller says margins for the business can reach 80% of revenues.
Fresh from the University of Arizona in 1968, Miller got his start at Union Bank of California in the humdrum world of workouts of bad loans to manufacturers. In the early '70s, looking to expand the Beverly Hills branch, he met business managers for celebrities such as Johnny Carson, Elizabeth Taylor, and Cary Grant. It was one of those contacts who told famed Hong Kong production house Golden Harvest to call Miller when it was looking to finance its latest movie, even though Miller had never done this type of work.
The movie never got made, but by working on the deal he gained entrée into the business and got known around the bank as the go-to guy for movie financing. He switched to Chase Manhattan Bank, now part of J.P. Morgan Chase (JPM ), in the early 1980s and never looked back. Today, he's the ultimate Hollywood insider, knowing who to back and who to avoid. "This is really a small industry," he says. "There is always someone you know who you can call up about the person you're dealing with."
POWER OF ANOINTMENT.
Even major studios seek Miller's imprimatur. When The Walt Disney Co. (DIS ) was mulling putting $65 million into Graham King's Gangs of New York, then-studio chief Joe Roth contacted Miller, Roth recalls, "to figure out who the hell this guy Graham King was." Miller vouched for him, and Disney advanced the money.
Roth and Miller had known each other since the early '80s, when Miller had financed Roth's Tom Hanks film Bachelor Party and the slapstick Revenge of the Nerds. When Roth set up Revolution Studios in 2000, Miller provided $600 million in financing -- which Roth says has grown to $900 million.
Miller has a knack for nurturing upstart filmmakers while keeping his exposure to a minimum. King, the head of Initial Entertainment Group, which made the Leonardo DiCaprio film The Aviator, says Miller gave him a tiny $21 million line of credit in 1997 to make movies such as Traffic, which cost $48 million and grossed $124 million in the U.S. Miller raised King's credit line to $210 million so he could make such films as Gangs of New York. Rosenberg, producer of Million Dollar Baby, had to prove himself before Miller lent him his first $10 million.
Morgan's biggest hit in Hollywood may well be the $1 billion revolving credit it granted DreamWorks in 1992, along with financing for a Gulfstream IV for the studio's execs. The deal paved the way for the bank to be one of two lead underwriters for the $812 million initial public offering of DreamWorks Animation SKG (DWA ) last October, and for Miller to arrange another $1 billion credit line for the studio.
Not quite an Oscar, perhaps. But Hollywood's banker didn't have to attend a fancy ceremony to claim his prize.
Grover is BusinessWeek's Los Angeles bureau chief