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LA Business
Journal
~ Michael White
Business Week
~ Ronald Grover |
NEWS & SUCCESS STORIES
March 7, 2005
Multibillion Dollar Baby
J.P. Morgan's John Miller is holding the hottest hand at
the Oscars
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.
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.
WORKOUT
BACKGROUND
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 double-check. "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.
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 three
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 (UB
) 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, 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."
DREAMWORKS
BET
Even major studios seek Miller's imprimatur. When 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 Inc. (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.
March 7, 2007
By Ronald Grover in Los Angles Business Week
Copyright 2005, by The McGraw-Hill Companies
Inc. All rights reserved.
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