Coming soon: studios and producers are attracting significant investments for future films.

LAST year's tepid box office results suggest the general public's love affair with the movies may be waning, but equity firms have never been more fascinated with film, judging from a rash of financing deals.

Beverly Hills-based Relativity Media LLC recently announced a deal to provide more than $600 million in film financing to Sony Pictures Entertainment and Universal Studios in exchange for equity in 18 films. The deal, Sony's first production pact with a non-studio partner, is thought to be the largest film financing agreement ever.

A number of institutional Wall Street investors, who until lately haven't shown much interest in Hollywood, are providing production money at an unprecedented level. With hedge funds and investment groups sitting on cash and looking to spend it, large-scale studio financing deals are in vogue.

"The past two to three years has seen the biggest wave of institutional dollars," said Los Angeles entertainment attorney Steve Saltzman, who has represented film investors as well as production and distribution companies. "In the present climate some (investors) feel that they can get good returns by investing in film."

The timing is right for the studios, too, given continued industry consolidation. Their large and diversified parent companies--General Electric Co., Viacom Inc. and Time Warner Inc.--have more units to bankroll, which means a lesser percentage of funding to send the studios' way.

"Until now, studios were not eager to (seek) finance," said Ryan Kavanaugh, Relativity's co-chief executive. And the studios' parent companies weren't eager to finance them entirely. "These are massive conglomerates with tons of subsidiaries to consider and it's not all about the movie business, it's about their 90 other businesses."

Big movie slates have the right scale for the new investors. Studio production is among the limited arenas that seek investments of hundreds of millions of dollars at a time.

"It gets more difficult to find things that are different enough to entice investment," said Kavanaugh. "Now, it's Hollywood. It's a business that, when done right, without the ego, can show equal or lesser risk than other investments and equal or greater return."

The Sony-Universal agreement calls for Relativity to provide money for 18 films--about $400 million for 11 pictures from Sony, and about $200 million for seven from Universal--through Relativity's investment arm, Gun Hill Road LLC. Relativity raised the capital with Deutsche Bank AG, which underwrote the debt.

The agreement commits Relativity to funding half the production budgets of the Universal films over the next two years, taking home half the pictures' profits. The films include the already released "Doom," "The Inside Man," "The Fast and the Furious: Tokyo Drift," "The Kingdom," "Nanny McPhee" and "Smokin' Aces."

Earlier this month, News Corp.'s Fox Filmed Entertainment secured $325 million for 28 films from Dune Entertainment, an affiliate of multibillion-dollar hedge fund Dune Capital.

In all of the deals, the studios keep creative control and worldwide distribution rights to their individual films. That's not always the case when an individual with deep pockets, such as Mark Cuban or Bob Yari, finances a film or slate.

Kavanaugh said more clearly delineated terms of the deals have allowed brokers and investors to more accurately assess their risks. The general feeling among investors is that the more films on the slate, the better their odds.

"A two- to three-picture slate we would never touch," Kavanaugh said. "It's at six to 10 pictures that you start to really hit that critical mass to make it work. You look in every direction and ask, 'How many of these can bomb and we'll still be OK?'"

Kavanaugh said that the sheer size of the company's 18-film deal with Sony and Universal makes it "fairly difficult" for Relativity to lose on the investment.

Today's dealmakers have learned from failed financing agreements in the past. Frequently, a small percentage of the films that were to be financed were actually produced. Cost overruns on the first or second film of a slate often left other productions under-funded. A recent item in the New York Post quoted sources who said that cost overruns on "Superman Returns" may force Legendary to scale back its deal with Warner Bros. to a fraction of the planned 25 pictures.

The best bet for investors to minimize risk according to Saltzman is to avoid "cherry picking" or focusing on individual projects.

"It's a high-risk proposition to identify good or bad films and evaluate commercial success," Saltzman said. "Anyone who thinks that's easy to do is mistaken."

Entertainment attorney Peter Nelson said that even "star deals," in which an A-list actor or director is tied to a number of films represent something of a gamble.

"If you are talking about creative properties and making commitments to finance films or projects that are already not set to go, the number of films has to be somewhat flexible," Nelson said. "If there are decisions ahead, projects attached, changing cost outlines, or any number of creative variables, the reality is that things could change."

BATMAN BEGINS

Film Flurry

There has been a spate of major film-finance deals in the past six months.

July 2005

* Warner Bros. and Legendary Pictures announce $500 million, 25-picture deal. September 2005

* Relativity Media structures a seven-year financing deal with Marvel Entertainment for $525 million, for up to 10 films that will be distributed by Paramount.

October 2005

* Relativity Media announces it has brokered a deal for investment entity Virtual Studios to provide $528 million for six Warner Bros. pictures.

January 2006

* Relativity Media announces $600 million in total financing for 18 pictures from Sony and Universal.

* Fox Filmed Entertainment and Dune Entertainment agree to a $325 million, eight-film deal.