Supported by Greenhaven Road Capital, finding value off the beaten path.
Former Chairman of Legendary Films, Thomas Tull spoke with Shane Parrish.
A key insight to Rory Sutherland’s book Alchemy that we keep coming back to is doing more with less through psychological suggestion rather than physical improvement. One form of that is a see-it-to-believe-it moment. Tull experienced one at Hamilton College, which: “Had a profound impact on how to think, how to communicate, and that you could have efficacy in the world. If I had to distill the education down, it was looking at other people and the fact that you could have an impact on the world. It wasn’t just get up, do my job, and be slotted into my life.”
Hamilton taught him agency.
After college, Tull owned and operated an auto repair shop as well as some laundromats where he installed washing machines with dynamic pricing. Through those experiences Tull learned:
“If there’s any thematic to my business career, it’s that I’m not good with coming up with a new thing…what I’ve done okay at is looking at an industry or business model and saying, ‘Okay, where are points where you could improve this?’.”
Invent or optimize? Lay track or make the trains run on time? These questions depend on the phases of business and personal fit. Tull optimizes.
After a stint in venture capital, Tull started Legendary Entertainment in the early 2000s. We’ve noted here that some businesses like movies, wine, and restaurants tend to be terrible options because they pay in profit and prestige. Easier, though not easy, businesses are being Taleb’s Dentist or Charlie’s Plumber.
To succeed in making movies, wine, or food takes timing (luck).
When Thomas started Legendary, “a lot of big-box retailers were using (DVDs) as a loss-leader and the discs had great margins.” Combine that with “premium, grade-A, global, intellectual property.” Movies lacked capital and Tull saw an opportunity.
“I really had conviction because I looked at the economics and thought, if you can build it in a different way (partnering for distribution) and if you could have the right structure and draft off global infrastructure you could build a nice business.”
Tull’s first director was Christopher Nolan (more luck) and Legendary went on to make We Are Marshall, The Hangover, and Straight Outta Compton. The secret to these successes was to “Stand as close as you can to absolute talent.”
Tull also talks about the movie economics and how Legendary is closer to Disney than Blumhouse. If Jason Blum is the Warren Buffett of movie-making (don’t lose money) then Tull is like Disney. The scope of resources makes “each film is like a startup company.”
During this time Tull noticed how movie marketing changed. “It used to be that if you made a good movie, got good test scores, and got a good trailer, you’d be fine.”
But it was after seeing that The Hangover spent seven million dollars on newspaper advertising that Tull though, “that’s probably not an efficient use of capital.” Working with Eric Schmidt, chairman at Google, Tull bought a boutique analytics company founded by Matt Marolda.
“I wanted to insert ourselves into the decision point. If it’s clear to me that you’re not psychographically into this movie, I don’t want to bother you.”
This change was a “pretty material impact on our business.” This change is spreading from films to rides to films.
In 2016, Legendary Entertainment was acquired by the Wanda Group and Tull started Tulco Holdings. Tull looks to invest in companies with enough ‘there there’. That means aligning the stakeholders. For private equity like Brent Beshore it means one thing. For venture capitalists, it means another. Here’s how Andy Weissman put it:
“If you take money from a venture capitalist, the way the economics of the VC world work, are an investor like me needs to make 10 or 100 x on our money, which means we need these companies to be really large businesses for us to return money to our investors. If they’re not, those returns make less sense to us. When the time to take venture money is when you think your incentives are completely aligned with that. You have to believe it’s a big business. You are comfortable taking big risks, including existential risks around managing that business.”
Thanks for reading.