During the long flights recently, Simon's Boeing 767 served as his airborne office. As the private jet departed Melbourne and neared Kyiv, Ukraine, Simon was still in a video conference with Danny Morris, the head of New World Pictures in Los Angeles, discussing the unexpected box office success of Austin Powers 3.
With the film's booming success, some Hollywood media outlets had unearthed what they called a significant "misstep" by Simon in negotiating the compensation for the Austin Powers 3 creative team.
According to the profit-sharing agreements signed with the three main creatives, based on a $200 million domestic box office and additional revenue from other channels, Daenerys Entertainment would owe the trio up to $50 million in profit-sharing bonuses. This amount already exceeds the $40 million production budget.
In comparison, Mike Myers had initially requested a Hollywood standard top salary of $15 million and a 10% share of global box office net profits. The other two main creatives asked for about half of Myers' fixed pay. Even with bonuses, total payouts under their initial demands wouldn't have exceeded $35 million.
Now, factoring in base salaries, Daenerys Entertainment would pay the three creatives a combined total of $70 million.
That's double the original amount.
Mike Myers alone is expected to receive $33 million in total compensation.
Clearly a miscalculation, right?
However, Simon was not swayed by such criticisms.
The $50 million profit share for the trio, which represents 30% of net profits, means that Daenerys Entertainment would still take home more than $160 million in pure profits from the project.
The bulk remains in Simon's hands.
This is a profit-sharing model Simon is comfortable with, much more favorable than the Lethal Weapon series, where Warner Brothers essentially worked to enrich Mel Gibson and others.
Moreover, compared to the nearly $500 million in total profits that the Austin Powers trilogy has generated for Daenerys Entertainment, this $70 million payout is a small price to pay—a generous bonus to wrap up the series. Simon is far from being overly indulgent with stars, unlike other studios. In fact, he is quite strict. No matter how famous, no star can pull stunts or make unreasonable demands with Daenerys Entertainment.
That said, strictness doesn't mean stinginess. Simon is not the type of boss who expects hard work without fair compensation.
When he finalized the profit-sharing deal, Simon had carefully considered several factors.
First, the 30% cap is the highest share Simon is willing to concede, whether it's for box office, total revenue, or other distribution models.
Second, the profit-sharing model incentivizes the creatives to be more invested in the film's success.
This is the most important point.
Take, for example, the Transformers series. Michael Bay's later failures weren't due to his loss of touch as a blockbuster director, but because Paramount Studios had been too accommodating. Bay didn't need to take on any real risk, yet he still earned enormous paychecks. After making five films, he grew tired of the franchise and started phoning it in.
As a result, Paramount's ambitious plans for a Transformers cinematic universe fell apart when Bay botched Transformers 5. The next year's Bumblebee was also lukewarm, still overshadowed by the failure of the fifth film.
Simon was genuinely surprised that Mike Myers had managed to make Austin Powers even more successful, similar to how Austin Powers movies consistently became more popular with each release in the original timeline.
However, when Danny Morris suggested a fourth installment, Simon rejected the idea outright.
It all came down to risk and cost.
Although the third film was projected to gross $200 million domestically, yielding $160 million in pure profit, that's $30 million less than what the second film generated, which had a domestic gross of only $140 million.
The difference lay in rising costs and the creative team's bonuses.
If they moved forward with a fourth film, Simon couldn't justify increasing the production budget by another $10 million under the current rules. Additionally, marketing costs would rise, and the trio wouldn't accept the same compensation terms as the third film. Even if the fourth installment matched the third film's box office, Daenerys Entertainment's profit margin would shrink dramatically.
As for surpassing the third film's success, Simon had no such expectations.
Every genre has its own ceiling. Phenomenons like The Hangover happen once in decades.
If Daenerys Entertainment hadn't entered the scene, Jim Carrey would have soon become the first actor in Hollywood history to secure a $20 million salary, leading to the infamous "20/20" model—$20 million salary plus 20% of global box office profits.
Now, Simon had successfully capped Hollywood's top salaries at $15 million.
For profit-sharing, though there's no strict 15% ceiling, Simon insists that actors must share the financial risk with Daenerys Entertainment. No more receiving both top salaries and hefty profit shares.
With Simon's firm stance, Danny Morris dropped the idea of a fourth film.
Morris then mentioned that Mike Myers already had a new script idea—an Austin Powers-style parody of the James Bond series. Simon immediately recognized it as Austin Powers: International Man of Mystery.
However, Myers had been cool toward New World Pictures' overtures. He wanted to produce the project himself, starring and writing as well. His offer was a $15 million base salary plus 15% of global box office profits.
This 15% wasn't a share of net profits from all channels, as in the Austin Powers deal.
Instead, it would be a cut directly from global box office earnings.
Given Austin Powers 3's success, net profit sharing would have netted Myers more money. But a box office percentage guarantees Myers a substantial payday, regardless of the film's overall financial performance, since the share comes directly from the box office, bypassing production costs.
While it's not exactly taken from the total global box office, it's still 15% of the studio's cut, meaning Myers wouldn't shoulder any risk and would receive his share much sooner than he would from profit-sharing, which tends to take years to materialize.
Based on the Austin Powers trilogy's performance, Myers was justified in demanding such terms.
But Simon wasn't willing to agree.
A $15 million base salary for Myers would mean a production cost of around $40 million for the first Austin Powers. Even if the franchise performed as well as Simon remembered, the studio's profit margin would be tight.
So he passed on the project.
New World Pictures had no shortage of projects now.
After reconciling with Jim Carrey, they were already preparing Ace Ventura 2. This was the third of Carrey's five-film contract with Daenerys Entertainment. Additionally, after Rumble in the Bronx premiered in February, Simon had tossed out the idea for a Rush Hour series starring Jackie Chan, which New World Pictures was now developing. On top of that, there was the rapidly expanding Conjuring cinematic universe.
These blockbusters alone would keep New World Pictures busy well into the 2000s.
Moreover, the costs and risks involved in these projects were much lower than what Mike Myers was demanding for his Austin Powers franchise.
After concluding his video conference with Danny Morris, Simon's Boeing 767 was approaching its destination.
A stewardess knocked on the door of the office cabin, reminding Simon that they would be landing in ten minutes and delivering another document.
It was the finalized acquisition agreement led by Chen Qing's team with Sigma Designs.
The day Simon left New York, Chen Qing had pulled an all-nighter to present a complete acquisition plan. Since Simon saw the VCD industry as a quick cash grab, Chen Qing adjusted her strategy, opting for a controlling stake in Sigma Designs rather than a full acquisition. By maintaining Sigma's publicly traded status, it would be easier to cash out in a few years.
Additionally, even without full ownership, the Westeros system could still maximize its interests by controlling China's VCD industry.
A partial acquisition would also reduce costs.
Sigma Designs was no fool. As the sole supplier of video decoder chips for VCD players, the company had seen firsthand the explosive growth of the Chinese market in the first quarter of 1995. VCD shipments had skyrocketed from under 20,000 units for all of 1994 to over 100,000 units in just the first quarter of 1995.
As a result, Sigma's price-to-earnings ratio was already very high, and with the tech boom in full swing, its stock price had been steadily rising.
Acquiring such a company was no small feat.
By early April, Sigma Designs had a market value of $120 million. Simon initially thought that $200 million would be enough to secure the company, as this represented a 76x price-to-earnings ratio. Traditionally, any offer exceeding 50x would be considered exorbitant. However, given the bullish outlook on the Chinese market, Chen Qing's team estimated that a hostile takeover could cost more than $300 million.
At that price, the acquisition would indeed be unwise.
With that kind of money, the Westeros system could easily collaborate with other electronics manufacturers, like Sony or Philips, for a fraction of the cost, perhaps only $30 million. Within a year, they could have their own technology ready.
By then, China's VCD market would be booming.
However, this approach would make it harder for the Westeros system to solidify its foothold in the industry and exert maximum control.
After receiving Simon's approval, Chen Qing immediately set her team in motion.
Despite Sigma Designs' relatively modest size, Chen Qing's team managed to acquire 5% of its stock within a week, using an offshore fund that appeared
unrelated to the Westeros system. When this fund reported its holdings to the SEC after surpassing 5%, neither Wall Street nor Sigma Designs paid much attention.
Then, over the next two weeks, Chen Qing's team fiercely and aggressively bought up Sigma stock on the secondary market.
In just two weeks, Sigma's stock price surged by 69%, with its market value surpassing $200 million. By the time everyone caught on, Chen Qing had quietly acquired over 21% of Sigma's shares for $31 million.
Then, they revealed their hand.
And they did so aggressively.
Chen Qing's team simultaneously approached several major shareholders of Sigma, offering to buy portions of their stakes.
The key targets were Sequoia Capital and Texas Instruments.
Sigma Designs had originally been incubated by semiconductor giant Texas Instruments, with Sequoia Capital later participating in multiple rounds of pre-IPO financing. Together, these firms had invested more than $20 million in Sigma.
Sigma's IPO in March 1994 saw 23% of its shares go public. However, with the expiration of the lock-up period and ongoing selling by various shareholders, over 30% of Sigma's shares were now in circulation. Chen Qing's team had aggressively acquired much of this float, while others couldn't resist the temptation to cash out.
By the time they revealed their intentions, Sigma's shareholder structure looked like this: Sequoia Capital held 33%, Texas Instruments had 19%, Chen Qing's team controlled 21%, and another venture capital firm owned 11%. The remaining 16% was divided between management and the public float.
Chen Qing's message was clear.
She made no effort to hide Westeros' backing or their optimistic outlook on China's VCD industry. She presented a simple business proposition to the major shareholders.
Two options.
First, Sequoia, Texas Instruments, and the other venture capital firm could sell half of their shares to the Westeros system at the current price, relinquishing control of Sigma. The Westeros system would then lead the charge in developing China's VCD industry, with all parties sharing control of the market.
Second, Chen Qing's team could take their money and business plan to Sony or Philips, turning them into direct competitors. Sigma might have some advantages, but against established giants like Sony, which already controlled the DVD standard, those advantages would pale in comparison. The gap between VCD and DVD was almost insurmountable.
After three days of negotiations, the Sigma shareholders opted to compromise. Sequoia Capital, Texas Instruments, and the other venture firm agreed to sell 32% of their shares to Chen Qing's team for $63 million. Additionally, Chen Qing's team would provide Sigma with a $20 million low-interest loan to fund future plans.
With 53% of Sigma now under their control, Sequoia's founder Don Valentine stepped down as Sigma's chairman, handing the role to Chen Qing's nominee, Emmanuel Brandt.
In the final ten minutes before landing, Simon buckled his seatbelt and quickly reviewed the final acquisition plan sent from San Francisco.
By the time they landed in Kyiv, it was evening.
With the time difference, it was just past 8 a.m. on the U.S. West Coast, and the workday was beginning.
Knowing that Chen Qing's team was awaiting his confirmation, Simon boarded a car bound for Rivne and instructed his assistant to notify the San Francisco office by phone.
The plan was approved.
He could already imagine that by the time the U.S. markets opened, with the signing of the agreement and further details emerging, Sigma Designs—a once-obscure small company—would become the talk of North American financial markets over the next few days. Meanwhile, on the East Coast, Sigma's stock price would likely climb even higher as the remaining hours of trading ticked away.
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