Meet the Guys Behind the New 'Blade Runner' Movie

Backed by FedEx's Fred Smith, Alcon Entertainment made millions in Hollywood's midbudget no-mans-land. Now they're reinventing blockbuster economics.

This article appears in the March 12, 2012 issue of Forbes Magazine.

If it weren’t for The Blind Side, you’d never know or care about Andrew Kosove and Broderick Johnson or Alcon Entertainment.

In Hollywood, a town full of corporate conglomerates regularly uncorking $150 million movies like Transformers and Thor or fragile independent flicks like Our Idiot Brother, Kosove and Johnson occupy the netherworld in between. They make movies that usually cost under $60 million and deliberately ­appeal to a wide swath of the mega­plex-going public, movies like Dolphin Tale, Something ­Borrowed and The Book of Eli. Movies that, for the most part, your mother would be happy to see. No blockbusters, just a solid balance sheet. Not bad.

But like any good Hollywood story, this one has a twist. In 2008 they bought the rights to The Blind Side, Michael Lewis’ bestseller about a rich white woman who adopts a homeless black kid and sets him on a path to NFL stardom. It was another midlist marvel, with a budget of $34 million and Sandra Bullock in the lead role.

The film turned out to be the ­surprise hit of 2009, earning $310 million. Alcon didn’t have any outside investors, so Kosove and Johnson’s small company kept all of the profits, an estimated $200 million, turning them into the smartest men in the game.

So what are Kosove and Johnson doing with all that cash? Something very out of character. They’re looking for that most elusive of all Hollywood harlots: a franchise. The pair recently bought the sequel rights to the classic sci-fi film Blade Runner and the Patrick Swayze/Keanu Reeves surfer/crime film Point Break. That means embracing bigger budgets and higher marketing costs and, with these two titles, ­angering some middle-aged fans of the originals. “The upside is so transformative to the company that it’s worth ­taking the risk,” says Kosove. “But there’s no magic bullet against risk.”

They should know. Kosove, 42, and Johnson, 44, hit it off while undergrads at Princeton and got into movies in 1991, after Kosove read a New York Times article about Pee Wee Kirkland, a New York City street basketball star who chose the life of a drug dealer over an NBA career. Without ­experience or connections the pair convinced Kirkland to sell them the rights to his story for $3,000 cash.

They had no idea what they were doing. They quit good opportunities (law school for Kosove, Salomon Bros. for Johnson), bought a stack of books and studied up on the economics of the movie industry. Then they got a lesson from the school of hard knocks. A past-his-prime producer, Elliott Kastner (The Long Goodbye), recruited them to help pull together a romantic comedy and share in the upside. When he disappeared they were left with no money, and there was no movie.

Despondent, Kosove and Johnson were preparing to quit the game and get real jobs when they got a call from a lawyer representing FedEx founder Fred Smith. He had invested money in Kastner’s dying project and wanted some answers.

“We were honest about the situation,” says Johnson. “We said this is not how the business should work and this is not how a wealthy individual should be using his money.”

Smith was impressed. He agreed to give them “Gatorade money” to finish the comedy and find a buyer so he could at least write off his investment. Kosove and Johnson asked for one thing in return: They wanted Smith to read a business plan they had in mind. Smith, whose nascent plans for FedEx were once laughed out of a class at Yale, agreed.

The problem with the independent movie business, they explained in their 220-page proposal, was that it was too risky. Taking on the full financial burden in the hope of selling films didn’t make sense. The smart play was to first get a guaranteed distribution deal in place from a studio and only then finance films. They would pay a studio a 15% distribution fee and keep bud­gets and overhead low. For the first three years Kosove and Johnson planned to take salaries of only $48,000 each. Smith was impressed.

“They took a quantitative approach to managing risk,” says Smith. “They approached the movie business like venture capitalists. They knew they weren’t going to produce hits every time out, so the key was to minimize the risk.”

He agreed to bankroll their movies. Their first outing, a David Spade stinker called Lost and Found, bombed. Then friends at Warner Bros. threw them My Dog Skip, a movie the studio had destined for DVD. Kosove and Johnson made it for $6 million, and it earned $35.5 million at the box office. It was the 75th-highest-grossing film of 2000—and Alcon made a tidy profit of roughly $20 million.

Over the next few years Alcon ­produced a slew of similar financial winners, movies like Dude, Where’s My Car?, The Sisterhood of the Traveling Pants and P.S. I Love You. Kosove and Johnson have used one of two financing models. If a film has the potential to play well overseas (like the action flick The Book of Eli) they presell the rights to the film to overseas distributors and collect tax breaks by filming in places like Canada and Georgia. To hedge risk further they cover only 30% of the budget out of their own coffers.

For smaller films that don’t seem to have a lot of overseas potential they let Warner Bros. handle foreign distribution and finance the budgets on their own. Not every film has made money, but Kosove says they’ve never lost more than $10 million on one picture.

Their frugality paid off in 2009 with The Blind Side. Sports movies tend to be box office poison because the rest of the world doesn’t care much about American football or baseball. So Kosove and Johnson, with the help of a $500 million production facility led by JPMorgan, backed the $34 million budget for The Blind Side themselves. Their risk was offset by tax breaks from Georgia and money they knew they would get when Warner sold the film to its TV channels further down the line.

Suddenly the two of them found themselves sitting on a pile of cash and dreams of a franchise (Smith, a partner in the company, shares in those riches, but he stays out of the day-to-day decision making). “Companies don’t grow in straight lines; you have to have a big leap forward,” says Johnson. “For us that meant a franchise movie.”

Last March they bought the rights to Blade Runner for $1 million. (They will have to pay more once the film is green-lit.) They can do anything with the story except remake Ridley Scott’s 1982 film. Scott is on board to direct again, but star Harrison Ford won’t reprise his role (despite frenzied Internet speculation). Six months later they got the rights to remake Point Break. The new version will be set in the world of extreme sports.

Turning one of these properties into a successful franchise will be a much riskier endeavor than producing the $37 million family-friendly film Dolphin Tale. First there’s the angry fanboys. When the company announced plans to remake Point Break the Internet lit up with tweets like “Children of the ’90s, prepare to die a little inside. The Point Break reboot is on its way.”

Then there’s the expense. Both of these films are likely to cost $100 million each before marketing. If Kosove and Johnson cover 30% of the budget, that’s $30 million on the line if the film tanks.

So why upend their risk model, which now has a market-tested place in the Hollywood ecosystem? Because it isn’t the first movie that counts when you’re talking about a franchise. It’s the second and the third and the fourth. Almost every second film of a franchise has made more money than the first. Iron Man 2 earned $623 million to the first film’s $585 million. The first Pirates of the Caribbean movie earned $655 million. The most recent earned $1 billion.

In other words, their sequel plan is just a blockbuster version of their core risk model. Because the properties are globally known, they’ll have no problem raising money from foreign distributors to cover a good portion of the budget. And they can still manage costs: Don’t be surprised to see the futuristic Los Angeles of Blade Runner get filmed in Canada.

“The downside is that you could lose $30 million on a film like this,” admits Kosove. “But the upside could be worth hundreds of millions of ­dollars. At some point you have to take some swings.”

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