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🕑 Added 2025-07-09 16:42:40 +0000 UTCChapter 228: Internal Rate of Return
To Dunn, Michael Ovitz’s way of thinking was stuck in the past.
Michael believed his ability to secure film investments hinged on his control over the production crew. With big-name directors and stars as his leverage, he could convince investors to fund a movie. He could even swap out directors or leads based on an investor’s preferences or toss a flashy role to their “honey” to sweeten the deal. By managing the crew this way, he’d win over investors, fulfilling his service promises to the film company with a full package—stars, crew, and funding all wrapped up.
It’s a solid idea, no doubt. Movies are a star-making machine, but they’re not always a goldmine. Plenty of rich folks invest in films not for profit, but for favors, prestige, image, or to impress a girlfriend. That kind of thing was everywhere in the early days of the movie market.
Take old Hollywood, for example. There was this popular “BD” dynamic—B for “sugar baby,” D for “sugar daddy.” Plain and simple, a “dry daughter” and her “dry dad.” But as society shifted and the film industry matured, that setup faded from Hollywood’s core, lingering only on the fringes of the entertainment world. Girls in that game had a nickname: “wannabes”—people dreaming of stardom but not quite there yet.
Across the ocean, in a certain developing powerhouse, as the movie market boomed, a similar “dry dad” culture popped up, along with its own version of “wannabes”—known locally as “peripheral girls.”
Dunn, though, had a vision that outstripped the times. His perspective was broader and sharper than Michael’s. He knew what a proper, healthy, rational, and mature film market needed for financing. And it sure wasn’t relying on big stars or peripheral girls to reel in the cash!
Dunn chuckled. “Michael, I think… your approach is too narrow.”
“Hm?”
Michael wasn’t thrilled to hear that.
He’d admit Dunn was unmatched in film production, but when it came to strategic vision for a company, he’d never bowed to anyone. Back at Disney, if he’d been willing to just follow orders, he wouldn’t have clashed so hard with Michael Eisner.
Dunn took his time. “Michael, times have changed. Star power’s pull at the box office is fading. The old trick of using big names to snag investments—it’s losing its magic.”
Michael’s tone soured. “Stars don’t work? Fine, then tell me—what else is going to draw investors in?”
“Profit, obviously!” Dunn shot back without missing a beat.
Michael replied coolly, “Sure, if they could see a big enough return, everyone and their dog would be throwing money at movies. Problem is, most investors are outsiders. They don’t get films. Without stars as a guarantee, how do you convince them? With smooth talk?”
Dunn burst out laughing. “Smooth talk? Not a chance. Even Reagan’s charm couldn’t pull that off!”
Michael raised an eyebrow, squinting at Dunn. “From the way you’re talking… you’ve got a plan, don’t you?”
“You bet!”
Dunn puffed out his chest, radiating unshakable confidence.
Michael, half-skeptical, said, “If you can actually crack this, you’d be pointing Hollywood in a clear new direction. The whole industry would owe you—and Disney’s mess would sort itself out.”
Dunn grinned. “I’m still young, so I’ve only got a rough idea. The nitty-gritty details? I’ll need your help to flesh them out and connect with investors.”
Michael waved a hand. “Of course. It’s not just for you—it’s for AG too.”
Dunn reached out, signaling his secretary to bring over a carefully prepared file. He handed it to Michael. “First set of numbers: in 1975, the average U.S. film budget was $5 million. By 1987, it hit $20 million. In 1999, it’s over $40 million, with marketing costs at $15 million. You can bet that’ll keep climbing. Investors won’t just see a few star names and dive into that kind of risk anymore.”
Michael flipped through the data, his expression grim. “With budgets ballooning like this, even if overseas markets hold steady, pre-selling rights won’t cover the funding gap.”
“Exactly!” Dunn snapped his fingers, a smile breaking out. “Second set of numbers—good news this time: film companies’ internal rate of return.”
“Internal rate of return?”
Michael’s eyes sparked with curiosity.
Dunn grinned. “Yep, the return on movies. Take Columbia Pictures—sure, they’ve been losing money for years, but their film returns never dipped below 14%. In 1997, with hits like Men in Black, Air Force One, As Good as It Gets, and My Best Friend’s Wedding, their internal return hit [insert percentage]!”
Since Sony bought them out, Columbia’s been in the red. But that doesn’t mean their movies are flops! The losses come from clashing U.S. and Japanese management styles, skyrocketing operating costs, and a global distribution team of over 10,000 eating up salaries. After the acquisition, a lot of Columbia’s old partners jumped ship to other studios, leaving them with a massive distribution arm but not enough films to push. Still, their movie profits—while not up to Warner, Fox, or Universal’s level—have stayed solid.
Michael wasn’t quite following. “What’s that prove?”
Dunn waved him off. “Hold on, hear me out. Over the past few years, Twentieth Century Fox and Warner have ruled the box office. I’ve got a detailed five-year breakdown of Fox’s internal returns here—take a look. The low point was 1995 at 17%. The peak? 1997, with Titanic, hitting 36%!”
Michael frowned, still lost on Dunn’s angle.
Dunn’s voice rose, his excitement bubbling over. “Michael, don’t you see? Strip away operating costs, staff salaries, project cancellations, breaches of contract—all that overhead—and the film industry’s return rate would be the envy of every investor on the planet!”
“But… cutting out operating costs? That’s impossible,” Michael said, his voice low.
Dunn smiled. “Eliminating a company’s overhead? Yeah, that’s a pipe dream. But the investments you bring in—they’re for the movies, not the company, right?”
Michael’s eyes lit up, a realization dawning.
Dunn pressed on, striking while the iron was hot. “No studio can guarantee every film’s a winner, but every major player’s internal return rate is solid. What does that tell you?”
Michael jumped in quick. “It means the big earners offset the losers. That scale of production is why film companies have such strong internal returns.”
“Bingo!”
Dunn clapped his hands, practically buzzing. He’d been worried Michael might be some stubborn old fossil, too set in his ways to buy into Dunn’s half-baked theories. But now? Michael’s insight proved he was still a cut above.
Dunn had laid it out in just a few words, and Michael got it.
Michael’s own excitement kicked in. Dunn’s pitch was like a divine revelation, opening a new window in his career. He’d always thought stars were the key to landing film investments. That’s why, after building AG into a “one-stop shop” agency, he’d been chasing Hollywood’s A-listers. But with his frosty ties to Disney and little chance of collaboration, top stars wouldn’t touch AG—leaving his investment plans dead in the water.
Then came Dunn’s spiel.
It hit him like a ton of bricks: stars weren’t the golden ticket to investors’ hearts. It was the film industry’s stellar, jaw-dropping internal rate of return!
Investing in just one movie—even with the biggest director and hottest stars—still carried a flop risk. But scale it up like the studios do? Fund 20 films, let the winners cover the losers, and even Columbia, the weakest of the Big Six, could pull a minimum 14% return in a year! In a good year, it might top 20%. Hit a Titanic or Spider-Man? You’re looking at over 30%!
Dunn’s data handed Michael the ultimate weapon to hook investors.
And Dunn wasn’t done. His next line nearly sent Michael cheering—
“You know I’ve got some buddies on Wall Street. According to Merrill Lynch, hedge funds there aim for a 12% to 18% internal return. But when a crash like this year’s hits, they—”
Chapter 229: Slate Financing
Your average hedge fund pulls in an internal return rate of 12% to 18%. But over the past five years, even Columbia Pictures—the weakest of Hollywood’s Big Six—has been clocking a 14% return on movie investments!
That’s way easier, cleaner, steadier, and more profitable than the constant wheeling and dealing hedge funds do in stocks, futures, or bonds!
Seeing he’d won Michael Ovitz over, Dunn felt a wave of relief wash over him. He leaned back and said, “In the last decade, U.S. box office numbers have jumped 52%, and overseas? They’ve tripled! Plus, with tech advancing, Hollywood’s revenue streams are only getting broader. That kind of solid return is bound to catch the eye of hedge funds—maybe even investment banks!”
Ovitz nodded. “Sure, but convincing hedge funds, private equity, or investment banks to fork over big money takes more than that. You need a rock-solid pitch.”
Dunn grinned. “Oh, I’ve got it covered.”
He pulled out another file and handed it over. “In probability theory, there’s this widely used trick called the Monte Carlo method. Lately, investment firms have been all over it. Basically, it’s about combining a bunch of risky unknowns into a portfolio to smooth out the ups and downs of returns.”
“This morning, I checked in with some buddies and roped in an analyst from Merrill Lynch to crunch some numbers. Take a look. According to Monte Carlo simulations, once you’re investing in 20 to 25 films, the volatility shrinks big time. Scale up to that many movies, and you’ve dodged the big risks.”
“At its core, movie investing isn’t all that different from stocks—both use portfolios to hedge bets. But unlike stocks, even if the movie market dips, you don’t get a sudden crash. It’s less dicey. I’m calling this approach ‘slate financing.’”
Ovitz took the file, staring at the jumble of probability formulas and charts. His head spun. He shot Dunn a stunned look. “You whipped this up in one morning?”
“Yup.”
“Whoa…”
Ovitz sucked in a breath.
He’d been navigating Hollywood for decades, rubbing shoulders with everyone from White House bigwigs to the little guys. But someone like Dunn, with this kind of insane range? First time he’d seen it.
The media loved calling Dunn a “stock wizard” or investment guru. Ovitz had always brushed it off as hype.
But now, flipping through this detailed probability breakdown, a flicker of respect sparked in him. And maybe a touch of pity for his old rival, Michael Eisner.
Going up against a kid like Dunn? Eisner was either way too cocky—or he’d seriously underestimated him!
The more you hung around Dunn, the more you realized he was a bottomless well of surprises.
You never knew when he’d drop some wild, jaw-dropping idea that somehow made perfect sense.
Ovitz might just be a top-tier agent who thrived on people skills, not a finance whiz, but even he could tell Dunn’s “slate financing” concept had legs!
Still, he was baffled. “Dunn, how the heck did you come up with this? It’s unreal.”
Dunn chuckled. “Just standing on the shoulders of giants.”
Ovitz cracked up, thinking Dunn was joking—playing the humble Newton card.
He had no clue Dunn was dead serious!
With his own limited know-how, Dunn couldn’t have dreamed up Monte Carlo simulations or slate financing on his own.
He really was borrowing from giants!
This whole thing actually kicked off in 2003.
Viacom’s corporate vibe—conservative yet cutthroat—mirrored its big boss, Sumner Redstone. You could tell from how they’d snubbed Dunn’s partnership offers.
Paramount, Viacom’s movie arm, had always struggled with cash flow. Then, in 2003, their VP of commercial ops, Isaac Palmer, cooked up a genius financing fix.
Yup—Dunn’s “slate financing” plan.
Paramount teamed up with Merrill Lynch to set up a private equity fund. Over two years, they’d pump cash into 25 Paramount films, covering 20% of the budgets.
The “slate financing” pitch hit Hollywood and Wall Street like a thunderbolt. In the years that followed, more investment banks and private funds jumped in, raking in solid returns.
It was hands-down the happiest marriage Hollywood and Wall Street ever had—billions of dollars in play.
The big names? Relativity Media, Dune Entertainment, and Legendary Pictures. They acted as middlemen, funneling Wall Street cash into Hollywood.
Here’s the kicker: if hedge funds or private equity dealt directly with studios, they’d get no rights—just a cut of the profits.
But setting up a management outfit like Legendary? That changed the game. Invest 20%, and you’d snag 20% of the rights in negotiations.
Later, when Legendary hit rough waters and nearly went bust, a real estate giant swooped in with a fat buyout. Why? Over a decade of slate deals had stacked their vault with intellectual property.
The profits weren’t huge, but in an era where content was king, those rights could fetch a fortune!
The 2008 financial crisis shook things up—hedge funds and private equity pulled back, tightening the purse strings. Wall Street stepped out, and emerging markets like Asia and the Middle East picked up the slate financing baton.
Right now, it’s 2000. Slate financing isn’t even a blip on the radar yet.
Dunn was stepping up, ready to gift Hollywood this game-changer early—and make sure the whole industry owed him one.
That’s the power of influence!
…
Dunn’s brainstorm finally cracked the puzzle that’d been gnawing at Ovitz.
Back in the day, he’d relied on star power to fund single films. Now, he saw the future: massive, scaled-up slate financing was the real hook for investors.
Thing is, slate financing didn’t quite gel with his old “one-stop shop” vision. This was a beast of a project—way too big for AG Agency to tackle solo.
They’d need more partners to jump in and launch a new company.
AG could take a stake in it and ride the wave of benefits.
Dunn shot Ovitz a glance, catching the barely contained excitement on his face. He teased, “Michael, don’t just think about your own payday. I’m still getting hammered by Disney over here!”
Ovitz froze, then burst out laughing. “Dunn, every studio’s tearing their hair out over cash right now. If your slate financing idea pulls them through, you think Disney’s little tantrum will even matter?”
Dunn frowned. “I need results fast!”
Ovitz got it.
With Disney’s ban hanging over him, every day Dunn stayed quiet chipped away at his cred with Hollywood’s inner circle. People were starting to think he was scared of Disney.
He had to clap back—and quick. A sharp, bold move to prove he wasn’t afraid of Michael Eisner, and that Dunn Films could go toe-to-toe with Disney!
Ovitz mulled it over. “Give me a week to work it. After that, you can hit back at Disney with confidence. Keep it small-scale, though—don’t let it blow up too big.”
“Got it!” Dunn waved a hand, half-skeptical. “A week’s enough? This slate financing thing’s just a framework. Convincing investors takes more prep than that.”
Ovitz grinned. “Leave the people stuff to me—you don’t need to sweat it. Landing big investments takes time, sure, but I can tip off the major studios first. Keep them from piling on you in the meantime.”
Dunn nodded. Fair point.
With Ovitz’s silver tongue, he could easily paint a juicy picture for the studios.
Right now, aside from Dunn Films, every movie outfit was desperate for outside cash. If Dunn could play matchmaker, they wouldn’t dare risk ticking him off by joining Disney’s pile-on.
He trusted Ovitz to handle it.
“Slate financing’s got legs—huge potential. Nobody’s clued into it yet. Once they catch on, Wall Street and Hollywood will be racing to build bridges. We’ve got to keep it hush-hush and strike fast when we move!”
Dunn wasn’t kidding around.
Back in 2003, Paramount and Merrill kicked things off with the slate model. Soon after, Columbia, Warner, Universal, Fox, and Disney all jumped in, partnering with hedge funds to spread the risk.
This was Dunn’s brainchild now—he wasn’t about to let anyone swipe it.
Even if they did, he’d make sure he’d milked it for all it was worth first.
Ovitz caught his drift and waved it off with a laugh. “Relax, I’ve got this. Studios are a mess of insider games—who’d dive in blind? Even Wall Street’s deep pockets won’t touch Hollywood without a safety net. A solid middleman’s the only way to play it smart.”
Chapter 230: Legend
Michael Ovitz’s take jogged Dunn’s memory—and yeah, he was right.
Wall Street had been dipping its toes into Hollywood for two decades, starting with stock investments and equity financing. Sure, it was the movie biz, but at its core, it was still a financial game—and they were pros at that. Then, in 2003, slate financing hit the scene, marking Wall Street’s first head-on tango with Hollywood studios.
It didn’t go well.
That year, Merrill Lynch teamed up with Paramount to launch a private equity fund called “Melrose.” The plan? Invest in 25 Paramount films over the next two years, covering 20% of the costs. Per the deal, Paramount would skim 10% of the gross as a distribution fee, then split the rest with the fund. On paper, it was airtight.
But Wall Street’s greenhorn dive into Hollywood’s inner workings left them blindsided. Paramount, playing the game like old pros, wiped out most of the slate’s profits through industry tricks, leaving Merrill Lynch with nothing but losses. Sue them? Sorry—Hollywood had been fleecing outside investors for over a decade and had the playbook down pat. On the surface, Paramount’s moves were fair, square, and legal—no cooked books in sight.
Lesson learned. From then on, private equity firms and investment banks brought in “middlemen” as guarantors for slate deals with Hollywood. These intermediaries had to bridge Wall Street and Tinseltown, understanding the industry’s ins and outs while keeping tabs on the money flow.
So, Wall Street stopped dealing directly with Hollywood. A wave of middleman companies popped up—Relativity Media, Legendary Pictures, Dune Entertainment, Kingdom Films, you name it.
Michael Ovitz, a Hollywood vet, saw the whole picture. And with his agency roots, he was a natural fit to play that middleman role, linking Wall Street cash to Hollywood dreams.
Dunn let out a relieved breath and grinned. “Alright, how about this? To make it easier for you to pitch to Wall Street’s funds and banks, Dunn Capital will put up $100 million. We’ll start a company together.”
Michael’s eyes lit up.
Whether Dunn’s Wall Street rep was legit or not, his name in the film world was pure thunder. Tell investors even Dunn was jumping in with both feet—wouldn’t they come running?
“If we pull that off, it’s half the battle won!” Michael paused, then added with gusto, “Tell you what—I’ll chip in $80 million personally, and AG will toss in $20 million. That’s $200 million total. Enough to show Wall Street we mean business!”
Since getting ousted from Disney, Michael had been itching to reclaim his glory. Like Jeffrey Katzenberg, who’d left Disney vowing to outshine Michael Eisner and prove himself—that’s what birthed DreamWorks. Michael had that same fire.
Dunn stood, striding over to shake Michael’s hand firmly. “Deal. I’ll wait for your good news!”
Michael laughed. “Don’t worry. Compared to slate financing, Disney’s little blacklist is kid stuff. One week—I’ll have it sorted.”
“I trust you.” Dunn paused, then smirked. “Oh, since it’s a new company, what should we call it?”
Michael teased, “Well, it can’t be Dunn Media or Dunn Fund Management, right?”
Dunn cracked up, thinking for a sec. “Since we’re dealing with Hollywood and investing in films, it should sound like a movie company. How about… Legendary Pictures?”
“Legendary Pictures?” Michael hesitated, then nodded. “Good name. Slate financing’s a game-changer for Hollywood funding. We’re making legends here!”
With Michael Ovitz on board, Dunn felt a weight lift off his shoulders. He could focus on prepping the A Beautiful Mind crew without sweating the chaos.
Jack Nicholson joined smoothly, snagging the role of William Parcher for $1.5 million. Ed Harris, who’d tried to gouge Dunn with a sky-high fee thanks to Disney’s blacklist, got axed. Dunn couldn’t stand opportunists like that.
Days passed with no public peep from Dunn about Disney’s ban. To outsiders, it looked like he’d caved under Michael Eisner’s thumb. Eisner, smug as ever, figured he’d sized Dunn up wrong—thought he was a heavyweight, but a little pressure, and he’d folded. Small fry after all.
Dunn’s unusual silence sent ripples through Hollywood’s inner circle. The towering rep he’d built over the past six months seemed to be losing its shine under Eisner’s heavy hand. But beneath the surface, a quiet current was stirring—stirred by none other than Michael Ovitz. Nobody knew it yet.
Dunn stayed cool as a cucumber, but his buddies were freaking out. Mel Gibson even called, ranting over the phone, cussing out “those Jewish bastards” for choking Hollywood and ruining movies.
Dunn fired back, ice in his voice. “Mel, that’s racist! You realize if this gets out, you’re done for good?”
Mel didn’t care, fuming. “Gets out? What, you gonna snitch on me?”
Dunn snapped, “It’s not about me spilling anything. Your whole mindset’s messed up! Spielberg, Katzenberg, Bill Mechanic, Michael Ovitz—they’re all Jewish, and they’re all helping me! Mel, you’ve got to watch yourself. This matters!”
Mel shot back coldly, “Worried about me? You’re the one getting crushed by that Jewish prick Eisner!”
“Mel, chill out!” Dunn barked. “I’m warning you again—drop the racist crap. It’s your career, your life on the line! And don’t forget—Nat’s Jewish too!”
Mentioning Natalie Portman softened Mel’s tone a bit. “You know I don’t mean her.”
Dunn sighed. “Mel, people blurt stuff out unconsciously. You’ve got to rein it in. If you slip up somewhere and spew anti-Semitic garbage, you’re toast in Hollywood.”
Mel went quiet, then let out a wild laugh. “I’ve got it under control. As long as you don’t squeal, no one’ll know!”
Dunn’s voice darkened. “Just be careful. Also… I heard you’ve got a domestic violence rap?”
“Who said that?” Mel’s tone sharpened.
“Doesn’t matter who. Did you or not?”
“No!”
Dunn snorted. “Better not have. You know if that leaks, it’s as bad as the anti-Semitism mess!”
Mel grumbled, “Goddamn, kid, you’re a drag. Here I am, trying to stick up for you, and you’re lecturing me. Forget it—I’m done talking!”
He hung up.
Dunn sighed, shaking his head. Mel Gibson’s temper—too many tough-guy roles, maybe. Hopefully, he’d chew on today’s chat and not repeat his past life’s mistakes.
By mid-August, Spider-Man’s global box office smashed another milestone: $470 million in North America, $650 million overseas—$1.12 billion total! It wouldn’t top The Phantom Menace’s $580 million domestic haul, but beating its $1.18 billion global take? Locked in.
Universal had already wired the splits: $249 million from North America, $266 million overseas—$515 million total. After Universal’s $1.12 billion distribution cut (which covered the $60 million promo costs and other expenses in their 10% fee), Dunn Pictures pocketed $400 million!
Spider-Man was still running, with another $120–150 million expected, though Dunn’s share would shrink. U.S. theater splits taper off over time—55–58% in the first two weeks, dropping to 45% after ten. That’s why modern blockbusters bank on those opening weeks, then crash like a waterfall, off screens in three months for the home release window.
Back in his talks with Michael Ovitz, Dunn had dug into the numbers. For Hollywood’s big studios, a 20% movie return was a win. But Spider-Man? The stats were insane.
No home entertainment, no merch, not even off screens yet—and Dunn Pictures had already raked in $400 million at the box office! Budget was $150 million, plus $40 million extra promo cash from Dunn, offset by $42 million in German and UK tax rebates. Crunch the numbers, and Spider-Man’s return rate so far? A mind-blowing 170%!
That’s the Dunn Pictures magic.
A measly blacklist from Disney could take down Dunn or crush his company?
Dream on!
