[Part Two] Hollywood Financing is Broke

Open Road Films

As first reported by the Wall Street Journal, Tang Media Partners is set to purchase Open Road Films for an undisclosed amount.

Sources close to the negotiations confirm the price might as well be one dollar, given Open Road’s massive debt load.

Open Road was founded as a joint-venture by AMC Entertainment and Regal Entertainment in 2011 to fill the gap between studio and independent films.

Fast Start

After an impressive track record in the domestic distribution market through 2014, the last three years have been a disappointment, besides the Oscar wins for Spotlight.

In 2012, films released by Open Road grossed $137M; in 2013 $150M; 2014 $162M; 2015 $89M; 2016 $88M; and 2017 $44M.

Below is a breakdown of Open Road’s slate from 2011 through 2017.

Open Road Films Slate

AMC announced a Q2 2017 loss of $179 million compared to earnings of $24 million in the same quarter last year. The massive headwinds facing exhibition was enough to propel AMC to unload Open Road from its books.

Broken From Top Down

Open Road was in the highly-unique position, owned by the two largest exhibitors in the U.S. with no shortage of capital, and still, couldn’t achieve profitability.

It’s no news to independent producers and financiers that marketing and overhead expenses are killing the film business, which is the case with Open Road.

While Open Road did develop and produce some of their films, the business model was to buy distribution rights to larger budget independent films, usually up front as a presale.

Under this model, Open Road would acquire domestic rights to films like Triple 9, The Gunman, Chef all for around $3 million.

One of Open Road’s high profile acquisitions was the indie hit Dope for $7 million at Sundance in 2015. They pre-bought Triple 9 for $3.5 million and acquired Chef for $2.5 million.

Lionsgate Model

According to reports, Tom Ortenberg will remain the CEO under the new ownership, but it’s likely his exit is merely delayed a few months, similar to Thomas Tull’s ouster at Legendary Films.

As reported on August 7th by various media outlets, Stuart Ford, the founder and CEO of IM Global was forced out by Donald Tang, after Tang Media’s buyout of the sales and finance company for $200 million last June. Ford founded IM Global in 2007.

After Ortenberg’s departure from Lions Gate, he was named CEO at Open Road. He implemented the strategy he developed at Lions Gate, namely a shotgun approach.

Open Road’s distribution model released a few mid-budget guy films (Killer Elite, Triple 9, The Grey), a healthy dose of genre fare (Machete Kills, Hit and Run), some horror (Silent Hill, A Haunted House 1/2) with the occasional drama (Jobs, Chef, Snowden, Spotlight), the latter earned an Academy Award for Best Picture and Best Original Screenplay.