Chapter 172: Debt-to-Equity Swap

Simon returned from Cannes, and as the release of "Pulp Fiction" approached, the media debates and controversies about its Palme d'Or win became increasingly heated, even overshadowing Ronald Reagan's upcoming state visit to the Soviet Union at the end of the month.

With too much work accumulated over the past two weeks, Simon barely had time to adjust to the time difference before diving back into the hectic affairs of the company.

Besides "Pulp Fiction," "Basic Instinct," scheduled for release on July 15, had entered its final editing stage since its commencement in February. As an investor, screenwriter, and the person most familiar with the project's selling points, Simon naturally got involved.

Twentieth Century Fox, responsible for distributing "Basic Instinct," had released the first TV trailer for the movie during Simon's attendance at the Cannes Film Festival. The film was to be submitted to the MPAA for rating in early June.

During this period, Dustin Hoffman spontaneously decided to make some changes to the script of "Rain Man," inevitably extending the film's shooting schedule, with completion expected by the end of June.

Hearing this news in Cannes, Simon could only hope the project would not exceed its $25 million budget. He also realized where Tom Cruise got the bad habit of turning all his starring films into 'Tom Cruise movies' with his own team of screenwriters, regardless of the outcome.

Apart from "Rain Man," projects like "Scream," "Mulan," and "Dead Poets Society" progressed more smoothly. The selection process for Batman's lead role had entered the third round, with Simon beginning to take part personally.

After a series of screenings, production meetings, and casting auditions, Simon flew to New York on May 30 to participate in the recording of NBC's "The Tonight Show Starring Johnny Carson" for the promotion of "Pulp Fiction." Amy Pascal also joined Simon on the East Coast due to several reality TV shows.

Meanwhile, the summer box office competition was heating up.

Lucasfilm and MGM's joint venture, a special effects blockbuster "Event Horizon," suffered from weak reviews and box office performance, prompting Paramount and TriStar to advance the release of "Crocodile Dundee II" and "Rambo III" to the Wednesday slot on May 25.

As the sequel to 1986's second-highest-grossing film after "Top Gun," "Crocodile Dundee II" eventually screened on 2,837 screens. Sylvester Stallone's "Rambo III" opened on 2,562 screens.

From May 20 to May 26, "Event Horizon" accumulated $11.05 million over seven days, ranking first in the weekly box office.

"Crocodile Dundee II" earned $4.75 million in just two days, ranking second.

"Rambo III" earned $4.46 million in the same period, ranking third.

Notably, "Rambo III" had a runaway budget of $63 million. In contrast, "Crocodile Dundee II," which had earned $174 million in North America two years earlier, maintained a production cost of $14 million.

Furthermore, another over-budget film was approaching this summer, "Who Framed Roger Rabbit."

Disney initially set a $45 million budget for "Who Framed Roger Rabbit," a significant production for the 1980s, but Robert Zemeckis ended up pushing the cost to $70 million.

Disney could not afford a failure for a project budgeted at $70 million. Although Simon knew "Who Framed Roger Rabbit" would perform well at the box office, Disney was in turmoil over this project, with several executives preemptively distancing themselves from responsibility.

The release date for "Who Framed Roger Rabbit" was set for June 24, which is not mentioned further.

The new releases significantly impacted "When Harry Met Sally," which had been performing well at the box office. Its revenue dropped by 33% this week, much more than the consistent 20% weekly declines since its release.

In its 11th week, "When Harry Met Sally" earned an additional $4.11 million, bringing its total to $94.23 million, closer to breaking the $100 million mark.

Upon arriving in New York for "The Tonight Show Starring Johnny Carson," Simon also had to manage business for Westerlo Company.

Jennifer's father, James Rebould, had recently finalized a loan, and Westerlo's investments in companies like Cisco, along with various important affairs of the technology companies the company had stakes in, required Simon to discuss, review, and sign many contracts and memos in person with James Rebould.

On another front, Amy continued negotiations with television networks.

All four major networks showed interest in the four reality TV shows proposed by Daenerys Productions. However, because Daenerys Productions wanted to retain as much control as possible to share more profits later, progress was not smooth.

Networks typically categorized these reality shows as traditional variety programs, where the network buys the idea, invests directly, and owns the copyright. Even if outsourced, the production company usually earns a service fee, with a possible bonus for high ratings, but that's about it.

Simon would never accept such terms.

Shows like "Who Wants to Be a Millionaire" and "Survivor," which could anchor a network's ratings in the original timeline, brought in hundreds of millions in net profits from advertising revenue alone, not to mention their role in boosting overall network ratings.

Moreover, once successful, the international production rights for these reality shows could represent a significant income stream. For example, "Who Wants to Be a Millionaire" had licensed versions in dozens of countries at its peak, all of which paid licensing fees.

If the copyright were given to the network, Daenerys Productions would see a significant reduction in future profits, and overseas licensing income would be unrelated to the company.

In the Upper East Side, at the Rebould family's apartment, it was June 1. The previous night, "The Tonight Show Starring Johnny Carson" aired a special interview with the creators of "Pulp Fiction," bringing the film closer to its release. All pre-release marketing efforts were complete, and the film's market performance was awaited.

That evening was a dinner invitation at the Reboulds, attended by Simon, Amy, and the Reboulds' close friends, the Eggers.

After prolonged negotiations, Daenerys Productions finally reached an agreement with ABC for "Who Wants to Be a Millionaire."

ABC would acquire the North American rights to "Who Wants to Be a Millionaire," while Daenerys Productions retained rights outside North America and took full responsibility for the show's production. According to the contract, ABC could not produce the show without Daenerys Productions, which also could not sell the show to other domestic networks.

This contract ensured neither party could dismiss the other.

Additionally, Daenerys Productions would bear the production budget and prize money, with ABC paying a season purchase fee based on ratings. Daenerys Productions would produce a week's worth of pilot episodes to test the show's effectiveness, with airing set to begin on June 20.

If the show met ratings standards, both parties would negotiate the purchase price for the first season.

This year's fall schedule was severely impacted by a writers' strike. If "Who Wants to Be a Millionaire" passed the pilot phase, ABC planned to order 69 episodes, airing three times a week, perfectly filling the traditional fall to spring 23-week slot.

As an indoor quiz show, "Who Wants to Be a Millionaire" had a relatively low production budget, with basic filming costs around $200,000. The $1 million prize was not easily won, with an average prize budget of $100,000 per episode being more than sufficient.

Even at $300,000 per episode, the total production cost for 69 episodes would exceed $20 million, a significant expense.

ABC's break-even point was 10 million viewers during the fall season.

Viewer numbers below 10 million would result in a purchase price offer from ABC below $20 million. Within the network's tolerable ratings range, Daenerys Productions would need to rely on internal sponsorship fees to cover production costs if it wished to retain the program.

In an era before cable TV's dominance, the threshold of 10 million viewers was not low but certainly not insurmountable, indicating ABC's modest expectations for "Who Wants to Be a Millionaire."

Additionally, because the pilot was scheduled for the traditionally low-rated summer season, ABC set the pilot viewership target at 6.5 million.

At the dinner, the conversation naturally turned to the reality TV shows.

Robert Egger, seated opposite Simon, discussed "Who Wants to Be a Millionaire" before shifting the topic to "Survivor," considering it more interesting but riskier due to its need for a full season's production without a pilot, making it difficult to cancel if ratings were poor. He suggested airing "Survivor" during the summer season, where success could lead to a move to the fall season, minimizing network impact if it failed.

Simon agreed but lamented the timing wasn't feasible.

Many popular reality shows initially aired during the summer as pilots before moving to prime slots. Robert Egger's keen professional intuition to recognize this trend underscored his acumen as a network executive.

"Actually, this is an opportunity, as everyone lacks content this year, requiring some risk-taking," Egger continued, suggesting a compromise on cooperation terms for "Survivor" to secure an immediate deal with Daniel.

With "Who Wants to Be a Millionaire" already contracted, Simon felt less urgency for the other three reality shows. If the pilot succeeded next month, these projects would naturally attract buyers, granting Daenerys Productions more leverage.

However, failure would be unavoidable.

"Bob, I can accept 'Survivor' terms similar to 'Who Wants to Be a Millionaire,'" Simon refused, adding, "if Daenerys Productions' TV business flourishes, would you consider joining us?"

Simon had previously explored this with James Rebould and now openly asked in front of everyone, turning all eyes to Robert Egger.

Egger, surprised, responded favorably to the idea of a better career platform but remained skeptical of Daenerys Productions' potential.

Simon took this as a promise, intrigued by what working for him might entail.

Egger's earlier curiosity about Simon's attempt to acquire New World Entertainment led to discussions of leveraging General Electric's (GE) contact, as GE was a major creditor of New World Entertainment, now insolvent. A public acquisition would entail assuming nearly equal debt to New World's market value. However, purchasing GE's debt and pressuring New World into a debt-to-equity swap could secure at least 90% of New World's stock at half the cost.

Simon, realizing the strategy, acknowledged the impact on minority shareholders and Westerlo's own covert stake but saw it as a necessary risk compared to potential bankruptcy losses. He decided to pursue the debt-to-equity swap.

After dinner, Simon and Rebould planned to discuss New World Entertainment further, with Simon driving Amy Pascal home.

Simon decided to halt negotiations with NBC and other networks for the reality TV shows, directing Pascal to focus on show preparations instead. This move aimed to leverage the reality shows' potential success to negotiate with GE for a favorable debt-to-equity swap for New World Entertainment, considering GE's ownership of NBC and the mutual benefits of content provision.

Returning to his Lexington Avenue apartment, Simon found Catherine waiting, leading to an intimate evening that underscored their personal connection amidst the professional maneuvers.

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