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The Film Department is trying to pay debts and transform its business with public stock offering

December 7, 2009 |  4:52 pm

SackerGill With just one film release under its belt and $34 million in losses over the past two years, independent movie company the Film Department filed for a public stock offering Monday, seeking to raise up to $85 million.

The surprise filing is part of move by the Film Department, which was founded in 2007 by industry veterans Mark Gill and Neil Sacker, to pay off nearly $42 million in debt and recast itself into a full-fledged studio that not only finances movies but also markets and distributes them.

To make the shift, the Film Department has signed a deal with former Paramount Pictures marketing president Gerry Rich to join the company in March as vice chairman and spearhead the new marketing and distribution operations. However, Rich's five-year deal will take effect only, the IPO filing says, if the company raises "sufficient additional debt and equity financing to execute our business plan." The company in its filing did not specify the amount necessary to retain Rich, but said that in addition to the public stock offering it intends to raise an additional $157.5 million or so in new debt to fund marketing and distribution expenses for future movies.

Rich is currently consulting for the company. Sacker is serving as vice chairman and chief operating officer, while Gill is chief executive officer and chairman.

The Film Department's first two years in operation have fallen far short of expectations and illustrate just how dramatically the movie industry has changed in that time, particularly for independent ventures whose primary business is producing movies. While it originally planned to finance up to six movies per year, the Film Department has so far made only two and released one, "Law Abiding Citizen."

In the IPO filing, the company blamed its problems on the 2007-08 Writers Guild of America strike, a flood of capital into the industry that drove up production costs, and the subsequent credit crisis that has forced down the prices studios are willing to pay for acquisitions.

The Film Department has not struck a domestic distribution deal for its second movie, "The Rebound," starring Catherine Zeta-Jones, although it has made $13 million from selling it to overseas distributors. "Law Abiding Citizen" has grossed a solid $72 million domestically, although the Film Department has paid the movie's distributor, Overture, $14 million in distribution fees. According to the filing, it was unable to provide Overture with $5 million it owed this summer for the movie's release expenses.

When their venture launched, Gill, the former president of Warner Independent Pictures, and Sacker, a former chief operating officer of Yari Film Group, secured a $140-million revolving credit facility, led by GE Capital Markets, for film expenses. The facility was canceled this summer, however, when the company was unable to make debt payments.

In addition, the Film Department borrowed $30 million that has since grown, with interest, to more than $40 million. The Film Department is aiming to pay that back with $36 million of cash raised from its IPO, as well as stock.

Lawabiding The Film Department is far from the only independent film venture to encounter financial problems recently. The Weinstein Co. has struggled to maintain its financial footing, 2929 Productions has currently stopped financing films; and the U.S. arm of Senator Entertainment has unraveled.

By expanding into distribution, the Film Department appears to be following the part of more successful indie studios such as Summit Entertainment. As the company explained in its IPO filing, the volume of films released per year has contracted dramatically since last year, a trend expected to continue even as movie attendance has been growing this year. Major studios are focused primarily on franchise pictures that they own and are cutting back on acquisitions and low- to mid-budget dramas, as evidenced by the elimination or contraction of divisions such as Paramount Vantage, Miramax and Picturehouse.

The Film Department plans to focus on that area, producing star-driven movies for between $10 million and $45 million, as well as acquiring pictures financed by others, and distributing them itself, according to the filing. It would need to rely on international pre-sales, bank loans and other outside financing to cover most of its production costs.

"[C]onsumer demand is up even as supply is dramatically down," the IPO filing states. "This dislocation has created an opening for a company with the right management acumen, financial discipline, and a proven ability to develop, produce, market and distribute star-driven, moderate-budget commercial movies."

The IPO comes after the Film Department unsuccessfully tried to recapitalize itself with private funding over the summer, according to the filing. One industry expert said that investors will likely be cautious about the current proposal.

"It is typically pretty difficult for a company without an expansive track record in the media business to raise money in the public markets," said David Bank, managing director of global media and Internet research for RBC Capital Markets.

Through a spokeswoman, Gill declined to comment.

-- Ben Fritz

Times staff writers John Horn and Steve Zeitchik contributed to this report.

Top photo: Neil Sacker and Mark Gill at the premiere of "Law Abiding Citizen" in October. Credit: Frazer Harrison/Getty Images for Overture.

Bottom photo: Jamie Foxx and Gerard Butler in "Law Abiding Citizen." Credit: John Baer/Overture.

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