Fresh Money in Old Shows TV: Revenue from Streaming Alters Big Picture for Some

labusinessjournal.com LOS ANGELES BUSINESS JOURNAL Volume 38, Number 5 THE COMMUNITY OF BUSINESSTM February 1 - 7, 2016 • $5.00 Up Front Brothers Divided by Air Line Feud Dov Charney AVIATION: Surf Air co-founder doing this,” said David Eyer- ly’s lawyer, Skip Miller of Refuses to Fold alleges stake devalued in scheme. Century City’s Miller Bar- $1 ondess. “They did it in the billion CLOTHING: By GARRETT REIM Staff Reporter dark without his knowledge, Founder to start consent or participation.” Estimated value rival to American Apparel? While Santa Monica’s Surf Air is flying high Meanwhile, the subscrip- of Surf Air with customers and investors, the airline’s success tion airline founded by the By DAINA BETH SOLOMON Staff Reporter has left David Eyerly, the company’s co-founder Eyerly brothers and several others in 2011 has and former chief operating officer, out in the cold. become popular among tech entrepreneurs, who “I’m not going away,” The 31-year-old Eyerly is fighting Surf Air and regularly fly its Los Angeles-San Francisco route. insists Dov Charney, the OP-ED several of its investors in court, claiming he was the It has raised more than $84 million in investments. ousted chief executive of Dov Charney victim of a complex scheme that not only caused his David Eyerly’s legal team values Surf Air at $1 bil- American Apparel who reflects and opines. brother and co-founder, Wade Eyerly, to force him lion and is seeking at least $125 million in damages. saw the clothier slip out of PAGE 41 out of the company, but also diluted his ownership The company’s valuation is built on its appeal his grasp in bankruptcy by 94 percent, taking him from a 12.5 percent equi- to frequent flyers, offering them the ability to avoid court last week. How Tessa Young ty position all the way down to 0.75 percent. long Transportation Security Administration security Vowing to stay in the public eye, he told the is amplifying jobs “It was his baby. He was stripped of his stock for women DJs. and he didn’t even know (the investors) were Please see AVIATION page 36 Please see CLOTHING page 34 PAGE 3 SPECIAL REPORT: THE BUSINESS OF ENTERTAINMENT News & Analysis Fresh Money In Old Shows TV: Revenue from streaming alters big picture for some.

By MARNI USHEROFF Staff Reporter

V show “Happy Endings” may have been axed by ABC several years ago, Tbut the series is living up to its name after finding a second life on streaming ser- More than 1,000 vices offered by Hulu and Amazon.com Inc. people already And it’s not alone. Lots of programs have want to buy been rising like Lazarus from their graves the 151 condos in thanks to companies such as Netflix, which this DTLA building. allow them to connect to a new audience, PAGE 6 often made up of younger viewers. The trend is not only changing the entire entertainment industry (see page 12), but it also can provide a surprise financial boon to Real a number of former cast members, producers and writers. Estate Danielle Prunier, a senior vice pres-

RINGO H.W. CHIU/LABJ ident of wealth management for Merrill Why a once- Social Presence: ‘Supernatural’ actress Ruth Connell connects with her fans online. Lynch in Century City, said she first noticed struggling El the situation three years ago after hearing Monte shopping from entertainment industry clients as they center just sold watched their old shows become popular on for a huge price. streaming platforms. PAGE 31 TECH’S “I was getting phone calls from clients saying, ‘I can’t believe this but a whole new generation of kids is watching the show I created that’s no longer on the air,’” she said. Exec In one blockbuster deal last year, Santa NEW STAGES Monica’s Hulu acquired the exclusive sub- Style scription video-on-demand rights to all nine he might play the mother of the King of Hell on popular TV show “Supernatural,” but Ruth Connell didn’t seasons of megahit sitcom “Seinfeld” for a need to strike a deal with the devil to become internationally famous. reported $160 million – creating huge new S Instead, the West Hollywood actress used social media to build her fan base and create both a streams of money. market for her own T-shirt line — based on her character in the CW series, Rowena — and to set up lucrative While the growing value of online deals convention appearances around the world. is great news for creatives overall – not all of Read about how she and other prominent figures in the L.A. entertainment scene are using digital media to them are able to reap the rewards. boost their business in this special section focusing on film, TV, theater, music and entertainment law. “If a writer, producer, actor has a profit

BEGINNING ON PAGE 12 Please see TV page 35

A fashionable local architect explains the crayons in What it takes to get ahead. her bag. PAGE 38 labusinessjournal.com/subscribe

Printed and distributed by PressReader PressReader.com +1 604 278 4604 • ORIGINAL COPY • ORIGINAL COPY • ORIGINAL COPY • ORIGINAL COPY • ORIGINAL COPY • ORIGINAL COPY • COPYRIGHT AND PROTECTED BY APPLICABLE LAW FEBRUARY 1, 2016 LOS ANGELES BUSINESS JOURNAL 35 TV: Old Shows Make Big Splash, Money Online participation until they renego- Continued from page 1 tiated in the third or fifth year,” Marks said as an example. participation in a show, then yes, the second “Right now you have to be one or third life of a TV series on Netflix or of the participants who have a Hulu can mean a lot of money to them,” said back end, meaning a piece of the entertainment attorney Chad Fitzgerald, a modified adjusted gross receipts, partner at Kinsella Weitzman Iser Kump in order to get a bump from & Aldisert in Santa Monica. “It depends on streaming.” how the studio accounts for that money.” He further explained that a There’s one thing that those who do get new show’s deal size on a stream- money from their show’s resurrection should ing service is determined by not do, advises Merrill Lynch’s Prunier: go the program’s success when it on a shopping spree. first aired as well as how many “You have to treat it as sacred money,” she episodes were made. said. “When you get additional money you’re “I would say generally the not counting on from work you did a long, Netflixes of the world are not long time ago, the best thing to do with that paying a per-episode fee, but it’s money, if you’re not financially complete, certainly tied to the amount of is to take control of your future earnings by time that they can give to their adding to it.” subscribers,” Marks said. But opaque studio account- Piece of pie ing practices often make it Unionized actors get residuals or rerun tough to calculate a ballpark payments when their old TV episodes air figure for how much an artist in syndication or are distributed on DVD, with ownership might profit, according to Richard Marks, a partner at he added. For instance, those RINGO H.W. CHIU/LABJ Beverly Hills entertainment law firm Point payments are typically not Beefed-Up Income: Wealth manager Danielle Prunier at Merrill Lynch’s office in Century City. Media. While those can be lucrative, Marks doled out until a studio or net- added that the Screen Actors Guild and the work recoups expenses such as overhead or “This particular industry is volatile, it’s the money and invest wisely. American Federation of Television and production costs. unpredictable, and when you have an oppor- Martha Henderson, who heads the en- Radio Artists has yet to hammer out terms But once it does, the stream of money tunity to work and earn money, it’s so im- tertainment division at downtown L.A.’s City to compensate them for streaming. back to the talent can be impressive. portant to save more than you need because National Bank, said she would also advise Terms related to digital distribution were “It’s a significant new source of reve- you don’t know when the next opportunity a client to treat this new revenue stream con- one of the primary issues leading to the nue,” said Merrill Lynch’s Prunier, citing an will be,” she said. servatively, as would many of the managers Writers Guild of America strike that began unnamed client who created a TV show that’s It’s not like other professions, such as a with whom she interacts. Her bank works in 2007. been in syndication and is now generating lawyer or doctor, where it’s feasible to work with more than three-quarters of all business In general, it’s the writers and showrun- income from Netflix. into their 70s or 80s, she added. managers in California. ners who created a program, as well as the “An actor really depends upon the right “They really want to invest this in bonds big-name actors and lead performers who Save vs. spend role out there for them and sometimes has to or something that’s going to be there for them contributed to a show’s success, that tend to When her clients do get that extra money, take a role that doesn’t pay, but to improve in the future,” she said. “Use it as an oppor- get a share of the profits. Prunier said she’s been telling them to save status as an artist,” said Prunier, who’s been tunity to invest money for long-term financial “The actors on ‘Friends’ likely had no or invest it. telling clients to pretend they never received health, not to go buy a car.” Footwear: Shoemaker Customizes Business Plan disruptive to do so. That helps drive down costs. In fact, technology is another big reason become the norm. What’s more, custom-made Continued from page 5 Fox said she thinks the high manufacturing custom apparel and shoemakers can keep apparel and shoes avoid the costs that result cost is the reason her two biggest competitors costs down. By transmitting digital images from production overruns. partnership with Seattle department store – Milk and Honey and Upper Street London – from a body scan directly into manufacturing “Traditional retailers are having a tough chain Nordstrom, which now has an equity might have closed down. machines, it bypasses the need for tailors and time,” he said. “Other than our samples, every- stake in Shoes of Prey, to create a shop-in- Jamal Motlagh, co-founder and chief pattern makers and such. thing is made based on an order and we take shop experience at five Nordstrom locations, executive of Acustom Apparel in New York, Body scanners have already been used by cash up front – unlike a traditional fashion including at Fashion Island in Newport said finding a way to make its custom men’s many manufactures and major brands, includ- brand that has to make all their product well Beach. garments also posed a big problem. The label ing Acustom, to customize products. in advance of knowing demand and hope they Fox said it was a whole new challenge to recently opened a West Hollywood shop, Motlagh added that as technology im- sell it or discount it if they don’t. We don’t create an offline experience, but one that’s sharing a Melrose Avenue space with custom proves, custom clothing will increasingly have those same economics.” paid off so far. footwear maker Left Shoe “When you’re online and you look at a Co. of Helsinki. customer’s journey, you can architect every “For our casual pants single bit of that,” she said. “When you’re like denim and chinos, it offline, you can architect it but then you have was almost impossible to to train your sales staff really well (and) you find an existing manufac- have to anticipate so many needs.” turer that could do what we wanted,” Motlagh said. Scaling up “Most of them wanted to But meeting customer demand is not easy charge a sample fee, which when a company must build one item at a time is usually the retail cost of – and it can be difficult to find a manufacturer the product you’re trying willing to do it. Most prefer producing in bulk to sell.” as it’s more efficient and profitable. Acustom, such as Shoes But Shoes of Prey found a way around that of Prey, decided to set up by building its own manufacturing facility in a small factory within an China in September 2014. existing denim plant in “There’s just no one in the world that China to make its casual knows how to make one pair of shoes at a pants. The company pays time,” Fox said. “Manufacturers aren’t inter- a flat monthly rent, so its ested in making one at time of anything be- costs are the same whether cause they don’t know how to do it efficiently. it fulfills 20 orders or 200. So growing the business to the point where Fashion Business’s we could build our own factory and create our Harder said customization own supply was really exciting because that requires organization and solved the problem immediately.” technology, such as 3-D Most manufacturers are set up to make one body scanners, to help RINGO H.W. CHIU/LABJ item repetitively. Since her captive factory is or- meet demand and reduce Arch Appeal: Jodie Fox at Santa Monica’s Shoes of Prey, which lets customers design their own ganized to make products one at a time, it’s not production costs. footwear through its website.