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Slate financing: StudioCanal signs Europe’s first slate financing

Potential in other media; Pooled films reduce risk

StudioCanal, the pan-European film, production and sales distribution arm of French media group Canal+, has signed a slate financing to fund film projects. The firm owns the largest film library in Europe and was behind the recent blockbuster Tinker, Tailor, Soldier, Spy.

The slate deal is the first of its kind in Europe – these structures first appeared in 2004 and have been popular among US film studios. Using technology akin to securitization, investors in slate deals buy into a portfolio of films rather than a single project. The studio usually retains worldwide territorial distribution rights, with a pre-negotiated distribution fee.

expected cumulative investment in StudioCanal

expected cumulative investment in StudioCanal  

Before 2008 the bulk of financing to Europe’s film industry came from banks such as Crédit Agricole, Société Générale and Deutsche Bank. But appetite for this risk from banks has declined. The €150 million StudioCanal deal involves an agreement with Anton Capital Entertainment, a Europe-based media fund, to co-finance 100 international films over the next three years. The cumulative investment is expected to reach €500 million, with the equity component raised by StormHarbour Securities. Investors include several large European institutional investors along with US-based Falcon Investment Advisors, Union Bank and Bank of America.

Anton Capital will finance 30% of StudioCanal’s releases, providing the studio with capital to build on its multi-territory distribution model. "StudioCanal has a diversified and prolific annual output," says Sébastien Raybaud, founding partner of Anton Capital. "The size of its distribution network and its best-in-class reputation meant it was uniquely positioned in Europe to complete this kind of slate transaction. It is a true market leader in the European cinema landscape."

The deal differs from previous US slate financings in that the portfolio is far more diversified. US deals have tended to include a portfolio of between 15 and 40 films whereas the StudioCanal portfolio is far larger. An early slate financing in July 2004 involved Paramount inking a deal with Merrill Lynch through which 18% of the cost of 26 consecutive Paramount movies (including War of the Worlds and Mission Impossible II) would be financed through a vehicle called Melrose Partners. Merrill Lynch was also involved in a 2005 deal for Paramount under which it would distribute and market 10 films based on Marvel characters funded via a seven-year, $525 million debt facility.

"When hedge funds were investing in the film business some years ago, they were attracted by the Monte Carlo theory whereby if, for example, from 20 films there was one breakthrough film, this alone would cover the investment," explains Jonathan Blair, an entertainment lawyer at law firm Michael Simkins in London. The financing technique has declined in popularity in the US since the financial crisis, however. Between 2006 and 2010 the number of films released by the main US studios has decreased by 30.9%.

This deal could provide a blueprint for other media outlets to raise capital in the same way. "We see the principles behind this slate financing as infinitely applicable to several other sectors of the media industry, which is such a large and growing market worldwide," explains Anton’s Raybaud. "Slate financing like this is particularly appropriate for intellectual property deals, where hard assets are less common, and where there can be a large product portfolio."

There is also potential for slate financing to move to other parts of the world.

"The growth of the middle classes in China, Russia and Brazil for example and their increased accessibility to media has increased the film industry’s consumer base," says Raybaud.

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