Franchise Fee

Next time the Terminator is back, it may be from Sony Pictures.

The Culver City-based studio will make an offer by the end of the day, when bids for rights to make future movies in the 26-year-old action franchise are due, people familiar with the process said.

In addition, production and animation company Threshold Entertainment is seriously considering a bid, one person close to the process said, pending the resolution of issues with its financial partners.

Lions Gate made a so-called "stalking horse" bid last month of $15 million and 5% of future revenues for the rights to make future "Terminator" movies.

As part of the process submitted to the court by Halcyon Group, the bankrupt production company that owns the rights and financed last year's "Terminator Salvation," any bidder that goes up against Lions Gate must offer at least $15.95 million. 

If any buyer other than Lions Gate ends up with the rights, it must pay the independent studio a breakup fee of $450,000.

[Update, 6:43 p.m.: A previous version of this post said that the minimum amount of a new bid was $16.25 million and the break-up fee for Lions Gate is $750,000. In fact, according to a person close to the process, Lions Gate's break-up fee was reduced by the court to $450,000 and minimum bid is $15.95 million. The previous version also incorrectly said that a new bidder must match Lions Gate's offer of 5% of future "Terminator" revenues on top of a cash payment.]

Sony and Threshold both have histories with the franchise. Sony distributed "Terminator Salvation" and 2003's "Terminator 3: Rise of the Machines" internationally. Threshold's chief executive, Larry Kasanoff, was previously president of Lightstorm Entertainment, the production company controlled by "Terminator" and "T2: Judgment Day" director James Cameron.

Warner Bros., which distributed "Salvation" and "Rise of the Machines" in the U.S. and Canada, is not bidding, a person close to the studio said.

It's still possible that other bidders could swoop in by the end of today.

FTI Consulting, which is handling the sale for Halcyon, will hold an auction in its offices on Monday for all potential buyers. There will then be a hearing on Wednesday at which a bankruptcy judge must approve the sale.

A potential logjam in the process is Pacificor, the Santa Barbara-based private equity fund which claims to be owed more than $30 million by Halcyon. According to people close to the process, Pacificor is attempting to submit a "creditor's bid" that covers the amount it is owed and forces any other buyer to pay more. If there is no offer higher than the creditor's bid, then Pacificor could end up owning the "Terminator" rights.

Halcyon disputes that it owes Pacificor that much, however, so it is unclear whether the bankruptcy judge will allow the private equity fund to have a say in the process.

--Ben Fritz

Times staff writer Claudia Eller contributed to this report.

Photo: Arnold Schwarzenegger in "Terminator 3: Rise of the Machines." Credit: Reuters.

Hold the Phone, NHL 2K11 May Not Be Dead After All

After telling everyone that NCAA Basketball and NHL 2K might be getting passive cancellations, I've been sent this tip from an anonymous reader: According to an ad listing, 2K Sports is seeking artists for an NHL 2K11 soundtrack.

The listing, at Sonicbids - a music gigs site pairing artists with clients - 2K Sports was looking to pay a $3,000 flat fee to bands "who can provide a song to help round out the NHL 2K11 soundtrack. NHL 2K11 is the latest in a series of critically acclaimed hockey games, due out in September 2010."

While the listing is not time stamped (and it expired Jan. 20), the account posting it was initiated Jan. 6, well after the mid-December speculation that the NHL franchise was toast after Take-Two corporate left it off a list of upcoming key releases. At the time, a 2K Sports spokesman said only that the division was evaluating its portfolio of titles and had yet to make any decisions on them.

I've emailed a 2K Sports representative for comment.

Send an email to the author of this post at owen@kotaku.com.

Opening a Franchise: What does it take to open and operate? Author: Ellen Feig Week after week you drive by the local Domino’s Pizza and see the “Franchise Opportunities” sign in the window. What would it take for you to own and open your own franchise? WHAT IS A FRANCHISE? A franchise is usually a branch or offshoot of a well branded business – think McDonald’s, Century 21 and Pizza Hut. All franchises have defined elements that include a refined business system outlining how the business will be run anywhere in the United States, a well identified brand and a fee arrangement between Franchisor and Franchisee. The Franchisor will license, once the fee is paid, the right to use all trademarks, service marks, logos and anything else that is identifiable to the business. A Franchisee may be limited to using the brand name alone or may use the brand name along with a new trade name they have established (i.e. Century 21/Jones Realty). WHAT IS A BUSINESS SYSTEM? A business system is the way of doing business that is common to all franchises. A business system may, dependent upon type of business, govern all aspects of how the franchise is run or may even allow the Franchisee a degree of freedom. All franchises have fees associated with the business which the Franchisee will pay to the Franchisor. These fees can include initial costs, royalties, service and license fees and advertising costs. As a Franchisee is considered an independent contractor they will be responsible for paying employees directly and for payment of any associated taxes. It is important to know that payments must be made even if the franchise proves unsuccessful. WHAT ARE THE FORMS OF FRANCHISES? There are five forms of franchises. 1. UNIT FRANCHISING: A Unit Franchise is the basic form where the Franchisee has the right to a single business in a specific location. 2. AREA DEVELOPMENT FRANCHISING: This type of franchise grants the Franchisee a territory where he/she can operate a number of businesses pursuant to a schedule. The Area Development Agreement will outline the territory and schedule for the units agreed upon. The Unit Franchise Agreement will then be signed for each unit opened. If the Franchisee does not open units as scheduled, the Franchisor may terminate. The Franchisee does retain the right to continue to operate those units opened. 3. SUBFRANCHISING: Sub franchising involves three parties. The Sub franchisor obtains territory from the Franchisor and will agree to establish units pursuant to a schedule. A Sub franchisor may then sell units to third parties who will sign unit franchise agreements from the original franchisor. This type of franchising is also known as “master franchising” and is the most common form of franchising in the United States. 4. CONVERSION/AFFILIATION FRANCHISING: The owner of the business decides to affiliate with an established chain. The chain then allows the owner to use pre existing name with franchisor’s brand. 5. NONTRADITIONAL FRANCHISING: A franchisor grants a franchisee a specific location in a non traditional setting – i.e. a kiosk in a mall, a cart at a sporting event. It is important to remember that franchising is not a dealership, distribution or licensing arrangement. WHO GOVERNS FRANCHISES? Franchises are governed by the Federal Trade Commission (“FTC”), franchising trade regulation and by registration and disclosure laws in over fifteen states. The franchisor must provide prospective franchisees with disclosure documents, copy of franchise agreement, any financial statements, names and addresses of other franchisees and any other pertinent agreements. These documents must be received at least two weeks before an agreement is signed and before any money changes hands. The franchise disclosure document is also known as the Uniform Franchise Offering Circular (“UFOC”) and must provide the franchisee with all information that is needed to make an informed decision. If a franchisor fails to disclose information they may be subject to fines and investigation. States have laws imposing regulations on franchisor conduct including standards of termination agreements, renewal of franchise agreements and franchisee duties. In general franchises are regulated by contract law, antitrust law, federal and state standards.

Next time the Terminator is back, it may be from Sony Pictures.

The Culver City-based studio will make an offer by the end of the day, when bids for rights to make future movies in the 26-year-old action franchise are due, people familiar with the process said.

In addition, production and animation company Threshold Entertainment is seriously considering a bid, one person close to the process said, pending the resolution of issues with its financial partners.

Lions Gate made a so-called "stalking horse" bid last month of $15 million and 5% of future revenues for the rights to make future "Terminator" movies.

As part of the process submitted to the court by Halcyon Group, the bankrupt production company that owns the rights and financed last year's "Terminator Salvation," any bidder that goes up against Lions Gate must offer at least $15.95 million. 

If any buyer other than Lions Gate ends up with the rights, it must pay the independent studio a breakup fee of $450,000.

[Update, 6:43 p.m.: A previous version of this post said that the minimum amount of a new bid was $16.25 million and the break-up fee for Lions Gate is $750,000. In fact, according to a person close to the process, Lions Gate's break-up fee was reduced by the court to $450,000 and minimum bid is $15.95 million. The previous version also incorrectly said that a new bidder must match Lions Gate's offer of 5% of future "Terminator" revenues on top of a cash payment.]

Sony and Threshold both have histories with the franchise. Sony distributed "Terminator Salvation" and 2003's "Terminator 3: Rise of the Machines" internationally. Threshold's chief executive, Larry Kasanoff, was previously president of Lightstorm Entertainment, the production company controlled by "Terminator" and "T2: Judgment Day" director James Cameron.

Warner Bros., which distributed "Salvation" and "Rise of the Machines" in the U.S. and Canada, is not bidding, a person close to the studio said.

It's still possible that other bidders could swoop in by the end of today.

FTI Consulting, which is handling the sale for Halcyon, will hold an auction in its offices on Monday for all potential buyers. There will then be a hearing on Wednesday at which a bankruptcy judge must approve the sale.

A potential logjam in the process is Pacificor, the Santa Barbara-based private equity fund which claims to be owed more than $30 million by Halcyon. According to people close to the process, Pacificor is attempting to submit a "creditor's bid" that covers the amount it is owed and forces any other buyer to pay more. If there is no offer higher than the creditor's bid, then Pacificor could end up owning the "Terminator" rights.

Halcyon disputes that it owes Pacificor that much, however, so it is unclear whether the bankruptcy judge will allow the private equity fund to have a say in the process.

--Ben Fritz

Times staff writer Claudia Eller contributed to this report.

Photo: Arnold Schwarzenegger in "Terminator 3: Rise of the Machines." Credit: Reuters.

Hold the Phone, NHL 2K11 May Not Be Dead After All

After telling everyone that NCAA Basketball and NHL 2K might be getting passive cancellations, I've been sent this tip from an anonymous reader: According to an ad listing, 2K Sports is seeking artists for an NHL 2K11 soundtrack.

The listing, at Sonicbids - a music gigs site pairing artists with clients - 2K Sports was looking to pay a $3,000 flat fee to bands "who can provide a song to help round out the NHL 2K11 soundtrack. NHL 2K11 is the latest in a series of critically acclaimed hockey games, due out in September 2010."

While the listing is not time stamped (and it expired Jan. 20), the account posting it was initiated Jan. 6, well after the mid-December speculation that the NHL franchise was toast after Take-Two corporate left it off a list of upcoming key releases. At the time, a 2K Sports spokesman said only that the division was evaluating its portfolio of titles and had yet to make any decisions on them.

I've emailed a 2K Sports representative for comment.

Send an email to the author of this post at owen@kotaku.com.

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