EXCLUSIVE: It was only a year ago in Berlin that newly minted Global Road Entertainment CEO Rob Friedman told international buyers on the first day of the European Film Market that Global Road planned to spend $1 billion in film production over three years. The company would exploit an East-meets-West company that would meld the best of Hollywood and China, put together by Tang Media Productions chief Donald Tang with the bedrock of acquired companies IM Global and Open Road. Just six months later, the whole thing imploded. The bold plan was predicated on fund raising that fell flat; lenders called in their loans and the majority of the staff was let go, with no severance. It was a stunning turn of events.
Rob Friedman Exits As Global Road Chairman/CEO
Months later, Tang says he is still spending most of his time trying to untangle the Global Road mess. Open Road was bought in bankruptcy by Raven Capital Management for $87.5 million, and now Tang is working to liquidate IM Global’s holdings to appease shareholders and creditors. Tang’s had time to think about all of this and agreed to share with Deadline readers how it all went so wrong, so quickly, for Global Road. It is an interview similar to the instructive postmortem that Broad Green co-founder Daniel Hammond gave Deadline when he was shuttering his production division, and laying off staff on the way to shuttering, after a cold streak and the cost of building an infrastructure left the Wall Street billionaire unwilling to lose any more money.
DEADLINE: It is a year since the European Film Market, where Rob Friedman unveiled those bold plans to international buyers in Berlin. What has happened since the mass layoff, and where do you go from here?
TANG: Well, you know what happened with Open Road and Raven Capital. That transaction is closed and we are working as much as we can with the process to make sure all the creditors are getting as much recovery as they can. My focus has shifted to working with all creditors of IM Global, which is going through a similar process. IM Global creditors recognize there is not much in assets to go after. So instead of pushing us into filing [bankruptcy], we are able to work with the lender and other creditors, effectively saving money by downsizing ourselves to about half a dozen people, and then to collect as much as we can. We are seeking as much of a recovery for everybody as we can. That’s my focus, and what I am doing at this moment.
DEADLINE: It sounds like there is an exit strategy for IM Global similar to Open Road, but without the bankruptcy. Am I reading that right?
TANG: I think you are. Except, there’s not much opportunity for much recovery for the equity shareholders, unfortunately. The creditors pay for the bankruptcy, because the assets are the assets. Right now, all the assets are going to the creditors. In bankruptcy, those costs come off the top and creditors pay. The only thing a bankruptcy benefits are the professionals who provide the services, the lawyers and others. The creditors are going to get what they’re going to get, from the assets. I’m working as hard as I can, not taking any salary, to try getting as much of a recovery as possible. How fast, that is isn’t totally under our control. We have a skeleton staff, to collect the cash flow from the IM Global library, to pay off our lenders. Once that has taken place, whatever is left we’ll use to try and satisfy our other creditors.
DEADLINE: What became of that staff built to handle an anticipated infrastructure that included generating original productions under Rob Friedman, who left late last year?
TANG: There’s no development people left. There are only library servicers left.
DEADLINE: You’ve had a lot of success in banking, strong relationships in China and Hollywood. What’s your next act after this book gets closed?
TANG: The book is not closed yet, so we need to focus on doing that. The creditors of IM Global, that’s all I am focused on. The minute we turn the page, hopefully sometime in the future, this year or next, I hope to get on the next page. Because there has been a lot of heartache and a lot of people were hurt and I feel very badly about that. We need to get this thing done, first.
DEADLINE: What is the most heartbreaking part of what you’ve gone through over the last few months?
TANG: The partners, the shareholders, lenders, creditors, and the employees that gave us a lot of confidence. I had a very good team that was able to attract all kinds of great people. And then, we didn’t execute it right.
DEADLINE: Is the long view lesson to have the money raised before you build an infrastructure and boast about what you’re going to do? Or is that required when you are raising money in Hollywood and China?
TANG: I would put it this way. When you are talking about resources and revenues and what you hope will be successes, you always want to underestimate the potential revenue and over-reserve your resources, financially and otherwise. I thought we did it pretty conservatively, but the facts tell me I did it the other way. It wasn’t conservative enough. Events unfolded much faster than I thought. Some of the films came out, and way, way underperformed, and that triggered a lot of things that put us in the wrong direction. And then, when you are caught in a storm, it’s just hard to get out of it.
DEADLINE: Tang Media Partners raised the money to acquire IM Global and Open Road, but right around the time of the latter acquisition last year, IM Global founder Stuart Ford exited, acrimoniously, Rob Friedman got installed above Open Road founder Tom Ortenberg to his surprise, and then he exited. Friedman told foreign buyers at the European Film Market in Berlin last February that the company would spend $1 billion in production over three years. Global Road hired people away from other jobs, spent money on an office space in Century City. Only six months later, the banks stepped in, around 50 staffers were let go without severance. The time span here was stunning, and some sources told us they were disappointed they didn’t see you around the offices as all this chaos was unfolding. What did you miscalculate in going from a company that seemed so promising in Berlin to one that hit the rocks half a year after?
TANG: There are a lot of pieces that you’ve given me. Without any order of importance, let me try to answer. My reflection is the following. I believe I had us scaled up too quickly. That responsibility is clearly mine. I had originally planned to do this, without duplicating a Hollywood business model that I thought could be improved upon. But I ultimately built a company that looked very much like traditional Hollywood production and distribution companies, without their ample resources. We hired great people and we had a great team, and I believe they did good work. But we had, or rather I had, a scale and an overhead that forced us to move so quickly, and to invest too heavily in projects, before our longer-term business plan could be built out, especially in terms of unfavorable P&A economics.
So once you are in motion, it is very difficult to hold off production and distribution activities when you have as many employees and as high an overhead as we had. So that’s sort of like the overall reflection. In terms of what you mentioned, the Berlin billion dollar plan as the press had it, I learned it for the first time when I read it.
DEADLINE: How is that possible?
TANG: Look, these are questions I appreciate people may have, but ultimately the bottom line is the buck stops with me. I am chairman of the parent company that owns 100 percent of the operating side and its affiliates. So although we had a good operating structure, ultimately everybody reported to me. What happened did so on my watch, and so it’s my responsibility.
DEADLINE: Right, but beyond the headlines about the billion dollars, Rob Friedman also said Global Road would be making 15 to 20 films a year by 2020. After that, we heard about the numerous dog and pony shows done to try to raise the hundreds of millions in capital needed to back that up. What didn’t go right? It sounds like a picture was painted, without enough paint to fill up the canvas. Perhaps missing was the caveat that all we are saying here is predicated on our ability to raise a lot of money, which obviously didn’t happen?
TANG: You’re right. Just as much as people read into the billion-dollar thing in Berlin, I think we also were quoted in the press that we were in the process of raising money to match with the plan that we have. OK. So let me take you through the process and the original plan, to match the reported number of films that we wanted to do.
We had a pretty comprehensive process. We hired the best bankers we know and we believe that process was going quite well, heading into the spring as we kicked off early February. We had potential interested investors, had many meetings throughout the globe. To make the long story short, during that process of fundraising, we had three under-performing releases as we were resolving valuation issues. And by the time of our third, our investors, or rather our potential investors, not only got cold feet, they totally abandoned the effort of completing the company’s valuation, as well potentially committing to the participation of it.
DEADLINE: That started the downward trajectory?
TANG: Our existing shareholders at that point, by the time of the third release, were just not willing to commit the additional equity or lead the round by committing vast amount of equity that potentially would be necessary just to pay for all of the losses and satisfy our auditors as a growing concern to fund forward, and then restart the fundraising process. They were just not ready or willing to do that. And then we explained all of those things to the banks. And the rest is obviously history.
So the entire situation, it was not only fluid but was happening very, very quickly. We responded with as much transparency to everybody involved as we could, but it still looked pretty clumsy.
DEADLINE: If you could do it over, what would you have done differently? It is understood that a company like this has obligations to put out movies according to its release schedule, and some work and others don’t. What wisdom has hindsight given you?
TANG: I had an original plan to do certain things. I should always have stuck with the original plan, and not veered off the plan to go down to a different path. So if we had stuck to the original plan, I would have made sure to not have very high overhead, and would want to make sure to always estimate the releases’ revenues to the bone, to the lowest possible point. All of those things I still think today are valid, and we should continue to do that and not try to do things too quickly. Once you take one step, and sometimes you morph into the other, it’s very hard to bring it back.
And on the marketing P&A side, it’s an industry problem, and I have been very vocal about how we should do it differently. But I ended up doing the same thing, if not more. So these are all the things that we should have done differently. In other words, we shouldn’t have done it any differently than the original plan. Another thing I want to add to the question you asked. I think once we explained to the banks, they did the appropriate thing. And then we had to respond quickly, because once they started to take certain actions, then we know we have to cut back our spending and the payrolls dramatically and significantly. That harmed our employees and their planning, and for that I feel very bad and I’m very sorry.
DEADLINE: You mentioned three movies that came out and didn’t perform but you weren’t specific. The one I kept hearing more than others while covering the company’s implosion was Hotel Artemis. It sounded like Global Road execs, after getting strong reaction to test screenings, smelled a hit and doubled down on the P&A spend. The movie didn’t work, and word is the film lost over $20 million. That is a torpedo blow for a small company raising money and in need of momentum. Is it fair to pin the failure on that or another setback? Was Hotel Artemis the proverbial straw that broke the camel’s back?
TANG: Look, hindsight is 20/20. A lot of people can come to their conclusions. I continue to believe that we had a good plan, but we executed wrong. That responsibility is with me. Getting to the specifics of how this particular one movie had done us in, I do not know, but I think obviously it cost us a lot, and the timing with potential investors and our shareholders that had been so supportive throughout the process at that point, didn’t want to throw good money after bad. I think it’s all very reasonable in terms of stakeholders. Basically, we screwed up.
DEADLINE: Before Global Road, your background included evaluating for Bear Stearns investments like the one Global Road was seeking. Listening to you here, it sounds like a very risky bet for someone with money on that side of the coin, to project growth before you actually have the money, which means the whole strategy could be undone by a series of misses with no cushion to absorb the blow. What made you so bullish that you could raise the money you needed either through China or in some other way?
TANG: OK. So without boring you, if I have to take us through the whole thing it’s going to be too long, so I’ll try to be short and succinct. First, I think the dual-core strategy is the right one. I believe I have unmatched relationships throughout my career with China, and it turned out to be the biggest market, soon to be the biggest film market in the world at some point. I saw that as an opportunity. And I endeavored to build our China operations both in Beijing and Shanghai, and we successfully obtained the distribution licenses over there. So these are intrinsic and significant advantages that we were building for the company, and I think Hollywood saw that.
I also saw that with the content business, much can be learned about Hollywood in terms of its storytelling magic and its productions and its ever-increasing innovation in terms of how to do better production to appeal to people’s senses. All of those were things that China can learn a ton from. So I thought if I were to put together a credible operation with great people at the helm, and when we combined those synergistic factors it would be an explosive one plus one equals 10 kind of thing. With the know how of a strong team and with the supply and demand, also the willingness to work together, I thought, that’s a great company in the making. That was original plan, the dual-core strategy I believed would work. I still think it can work, with the right kind of execution process.
During the process there was, in my view, a mis-allocation of resources. Chinese business does not require a lot of capex [capital expenditure] or opex [operational cost]. We have much lower overhead over in China. Our upside potential is much, much bigger. So when I’m thinking about an asset, the resource allocation, you think about how many people, how much money, when you are funding all these things. How much money are you putting into capital expenditure? China costs us 10 percent of how much it would cost us in the U.S. So on one side you have optionality and the other we ought to match the resource commitment. The U.S. business is a mature business and there are intrinsic problems such as P&A on the marketing side and such as the long lead time and so you have to make acquisitions in the interim. We had a self-production plan which would take over a year to materialize. During the time spent waiting, you have to do something else and that something else is combined with the legacy problems and committed contractual obligations we had. And while we are estimating, whatever the prior management is estimating on the film that they committed to, we took their estimate way down. But unfortunately not low enough. All of those things, they are all part and parcel of execution errors which I am responsible for.
DEADLINE: You bought control of three Hollywood companies — IM Global, Open Road, and Chaotic Goods — and the founders of all three exited by the time these troubles occurred. Usually when you buy businesses successful enough to have acquisition appeal, you keep at the wheel the people who built those businesses. What happened?
TANG: I would answer it the following way, I think first off, there is a company in there that I cannot talk about because of the mutual agreement we have reached. So I cannot breach that. In other situations, were perhaps the redundancy of the capabilities…when you have certain positions to fill, you don’t want to have triple heads or co-heads or stuff like that, that happens in acquisitions and integrations. Without getting into the details, those are all mutually satisfactory situations of separation and not acrimonious.
DEADLINE: The word was that Tom Ortenberg signed a long-term deal to continue, but was surprised when Rob Friedman came in above him, and he left. Is there anything you should have done differently, there?
TANG: I wanted to build the best team possible, I wanted to hire the best people, and I assembled the core team and let that core team do its work. At the end of the day whether it should be this way or that way, until this day I still don’t have a good sense of how these things ought to be done to come out in the right place. What I’m trying to say is, sometimes you want to make all the compromises, you want all the right things to happen, but people involved in the situation may not see it that way. So it just came out the way it came out.
DEADLINE: Observers of the Global Road implosion also looked at IM Global as an entity you bought that had a viable revenue stream from a library, but they said that after Stuart Ford and his team exited, there wasn’t a lot of new business. Then, some of the Open Road projects came out, with the original people who had the passion enough to acquire them not there to see them through. How much of that interruption of continuity hurt your business plan? You had to hire a lot of people to replace those who left.
TANG: So first off, I’m thinking that the original question you had is all of those CEOs, they immediately departed. But let’s look at the facts. The CEO of IM Global stayed on for over a year and a half, and then something happened that I cannot go into and he departed. In terms of Open Road’s prior CEO, if he wanted to stay he could have stayed. We wanted him to stay. He wanted to leave but it wasn’t…it is true that there was a CEO of a combined company called Global Road, he was offered that job, but he wanted to leave so we separated. So it wasn’t that immediately after the acquisition we wanted to let people go. That wasn’t true.
DEADLINE: It sounds like you had a plan, but then while you were trying to raise money, the legacy releases that came with the acquisitions you were contractually obliged to release, failed. At the worst possible time. It is understandable that if I was a potential investor, looking at your projections and seeing film releases that didn’t come close to succeeding, I would be skeptical.
TANG: You are thinking just like those potential investors did. They look at us touting the plan of gaining U.S. credibility by being a great team and great releases. Even if we had a break-even situation or lost a little bit, we could have been OK. But with ample resources committed to not only the legacy issues, mandatory releases with P&A commitments, we also had our own mishaps, our own acquisition that went awry. So all of these things adding together, step by step the potential investors fell from very interested to skeptical to disinterested. That progression was in place between March and June. The things that we thought were going to assist us to build a very good company, we spent money initially to build it up and to give us credibility…the first few releases derailed us. It’s hindsight, but that’s how it happened.
The trajectory is, this happened so therefore the fundraising got stopped and then therefore the lenders wanted to make sure they were safe. And then, therefore, I see the terrible thing happened to my partners, employees, and the stakeholders.
DEADLINE: You were on the investor side of the coin at Bear Stearns, putting money into speculative ventures and hoping they go well. What was it like to be on the other side of the table, owning a business where everything that could go wrong goes wrong at the worst possible time? You’d started to build out pricey offices and hired people away from other jobs, and then suddenly you find out that the bank is not going to back your play anymore. From an emotional, personal standpoint, what’s it like to be in the middle of a maelstrom like that?
TANG: Well, it gives me pause…I’m conflicted in the way of emotion, because without the support of the lenders it’s very hard not to impact the lives of the employees. I don’t know how to express my unhappiness about that and how bad I felt. On the other hand, because I have been on the outside I absolutely understand why lenders did what they did. Their responsibility is for their shareholders and when they saw things in a dynamic way moving quickly they had to act, and react. I see both sides. My focus became doing the best I could to focus on how to minimize the damages for both.
DEADLINE: I was reading up on you and how you came from China at age 17 to pursue your future wife, and you had much success at Bear Stearns and Bear Stearns Asia, where you oversaw such deals as Dalian Wanda’s acquisition of AMC. What has the last year cost you personally, financially, and for your professional reputation?
TANG: People succeed sometimes, and fail sometimes. I’m obviously no different. It is a very significant event in my life, but I don’t feel this is the final chapter of my life. I will continue to try to do what I can to contribute. I love the content business, I think this is one of the greatest businesses in the world and it can influence people, help people. Not only can it do well, you can also do well if the business model is viewed correctly. I felt we have found something unique and I managed to convince some other people to come along with me and I failed them. And the key mistake is, along the way, I have gradually and permanently or irrevocably changed the path and that path veered too much from the middle and I got to a place I couldn’t get myself back.
DEADLINE: You’ve given a lot of thought to how the intersection and relationship between China and Hollywood can work. But in recent years it has been a conundrum. I’m asking your opinion: on what kind of firm ground are other companies who rely on China for their investments right now?
TANG: To answer that questions, obviously, is above my pay grade. I have one thing I’m certain of. The content business itself in China has a lot of growth left. That I know. The U.S.-China relationship, eventually, will be at a good place at some point. I’m not smart enough to know when, but for the people who really want to create a synergistic force out of those two great countries, I believe it will be rewarded. But it can’t be a short-term approach, and whoever figures out how to do it right is going to be rewarded ultimately.
DEADLINE: Has Hollywood delivered enough wins for China investment to expect anything better than what has happened, including Global Road?
TANG: Our story, you know well. Other stories, I don’t know how exactly it’s going to all unfold. It also is not finalized. China’s market is not just about wanting to absorb or not take the Hollywood concept. For example, we had successfully distributed a movie which is entirely in Indian language. It’s a fabulous Indian story, and we had a great success through our distribution platform over in China. So the opportunity for growth is there, there’s no question about it. Their superior storytelling capability is second to none, so if you have the market and also the know how, and then if you can combine with the right business model, and not change your original vision, but continue to believe in it and embrace it in a die-hard manner, somebody will succeed.
DEADLINE: You have shared a lot in defeat here. Is there anything that Deadline readers should know about you and your intentions that might have gotten lost in all the rapid-fire coverage about layoffs and the Open Road bankruptcy?
TANG: OK. Well, first off, I think in view of the conversation we just had, the main thing I want to emphasize in how I felt when it happened a couple months ago with Open Road is, the buck stops with me. I take the responsibility. It’s ultimately my responsibility and the biggest concern and the most amount of time I want to really focus on right now is to minimize the pain of the creditors and the people who are counter parties and how we’re going to minimize their losses. And my shareholders. So these are my top and only priority at the moment. How I could have been perceived differently, that’s not as big of a concern right at the moment. How the future is going to unfold for me personally and my team, we’ll see.
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