Indie STX Entertainment Seeks Cash or a Buyer After String of Box Office Flops (Exclusive)

The independent studio STX Entertainment is looking to merge, raise capital or find a buyer following a string of box office disappointments and the scuttling of a planned IPO last fall, TheWrap has learned.

Board members including Dominic Ng, CEO of East-West Bank, have met with deep-pocketed investors and Hollywood studios in recent weeks looking for a partner, two knowledgeable individuals told TheWrap.

But with high overhead that one knowledgeable insider set at $55 million a year, a minimal film library led by the 2016 hit comedy “Bad Moms” and a business strategy that so far has failed to show significant results, the five-year-old upstart has found no one willing to commit additional funding, those individuals said.

Ng denied that he was taking meetings to do a deal for STX: “I have nothing to do with personally getting involved in putting a deal together,” he told TheWrap. “That is news to me today.” He said he was unaware of anyone else doing so, but could not speak for the board. Andy Warren, STX’s Chief Financial Officer, told TheWrap: “We are fortunate to have the resources, strategic vision and support of our Board and financial partners as we raise additional capital to finance potential acquisitions and other opportunities to significantly expand the company’s capabilities. It’s unfortunate that those who are unaware of our actual plans would be trying so hard to dismiss them.” Others disputed this. “They’re looking for someone to take over the company,” said one industry executive who was approached, who spoke on condition of anonymity. “We won’t touch it because there’s nothing there to buy. We looked at it.” Another industry executive said he was aware of interest in taking over STX but that it would require replacing current management, including chairman and former Universal Pictures studio head Adam Fogelson. The individual said the board was not prepared to do that. The studio, a joint U.S.-China operation launched in 2014 with a $1 billion capital investment, raised an additional $100 million in March from its existing investors, who include private equity firm TPG Growth, Chinese conglomerate Tencent, Chinese fund Hony Capital and John Malone’s Liberty Global. Major lenders include JP Morgan, East-West Bank and others. But multiple individuals said STX has burned through that cash even while seeking to reduce expenses, including shifting two top executives to consulting roles in the last two months: former Chief Content Officer Oren Aviv and Chief Operating Officer Thomas McGrath. According to two individuals with knowledge of the situation, TPG founder David Bonderman is a close friend of Simonds’ father and a key voice in any decision-making around the company’s future. A spokesman for TPG declined to comment for this story. This year, the studio has suffered one disappointment after another at the box office, with one notable exception: In January, STX released the $108 million-grossing domestic hit “The Upside,” a release by The Weinstein Company successor Lantern Entertainment for which STX collected a distribution fee and some back-end profit.

STX’s most recent release, “Poms,” grossed $13.6 million at the box office in May in a distribution deal with producer eOne. STX took on the cost of prints and marketing. Another spring release, “Best of Enemies” starring Taraji P. Henson and Sam Rockwell, took in just $10.2 million on a $10 million production budget.

But the most painful misstep came with a May release of star-studded animated feature “UglyDolls,” which cost roughly $95 million between production and marketing spend and brand tie-ins and brought in only $26.4 million worldwide. The studio had hoped for a hit that would become a franchise based on the popular children’s toys.

Last October, the studio dropped its plans for an initial public offering on the Hong Kong stock exchange. At the time, Simonds cited volatile political and market conditions in China, but the deferred IPO could well have contributed to a squeeze on capital.

STX, which tried to carve a niche by producing modestly budgeted films with name-brand stars, said it mitigates its risk and exposure in films through distribution and producing partnerships. In January, the company partnered with China’s Alibaba to produce and finance more “UglyDolls” content, including an animated TV series with Hulu, digital and print publishing, mobile and educational games, soundtrack and music, and merchandising and licensing programs covering toys, dolls, collectibles and other ancillaries. In addition, the company hoped to leverage its ties to China and 40% Asian investment base by pursuing coproductions with Alibaba and Tencent. The studio scored an early hit with the 2016 comedy “Bad Moms,” which grossed $183 million worldwide. “A Bad Moms Christmas,” which released in 2017, grossed $130 million worldwide. Both films were made on a production budget below $30 million. In April, the studio announced a third installment. But last year’s releases consistently underperformed at the box office, including “The Happytime Murders” ($27.5 million), “Mile 22” ($66.3 million) and “Gringo” ($11.0 million). In January 2018, TheWrap exclusively reported that company co-founder and former president Sophie Watts left the company after complaining of sexual harassment by Simonds. STX has never commented on the report and at the time merely confirmed Watts’ departure; the position was never filled. STX has several movies slated for release this year, including the Dave Bautista comedy “My Spy,” a strippers-get-savvy comedy called “Hustler” and the Chadwick Boseman cop drama “21 Bridges.” The studio’s financial difficulties are one in the latest in a string of indie studios to struggle or fade from view in the last few years — including Open Road, The Weinstein Company, Relativity and Annapurna — as Hollywood has become dominated by superhero franchises and a wave of major studio consolidation.