UPDATE:ï¿½POSEIDONï¿½ SINKS VIRTUAL CEO... HOLLYWOOD'S $4 BIL GAMBLE TEETERS (WSJ, LAT, VAR, FBLA)

By Stephen Saito

Benjamin Waisbren, the CEO of Virtual Studios, the Stark Investments hedge fund-backed financier behind Warner Brosï¿½ ï¿½V for Vendettaï¿½ and ï¿½Poseidonï¿½ is stepping down, telling the company last week during a meeting that he would do so, though he told the Wall Street Journal that he will remain ï¿½active in the film industry.ï¿½

The move comes after ï¿½Poseidonï¿½ tanked at the box office, one of six films that Virtual has co-financed with Warner Bros. from a $528 million fund. It could be the first step of caution among private equity investors who've poured $4 billion into the industry in the past two years. Hollywood WireTap warned of fallout last week, when 'Poseidon' looked troubled. And it's probably not over.

The other films in Virtual's slate are George Clooneyï¿½s ï¿½The Good German,ï¿½ the Zack Snyder helmed ï¿½300,ï¿½ Leonardo DiCaprioï¿½s ï¿½The Blood Diamondï¿½ and Brad Pittï¿½s ï¿½The Assassination of Jesse James.ï¿½ The company currently has roughly $880 million in capital commitments across Hollywood to producers such as Initial Entertainment Group and Franceï¿½s Wild Bunch, according to the Journal. Waisbren denied that the box office underperformance of ï¿½Poseidonï¿½ or ï¿½V for Vendettaï¿½ was the reason he left. He told the Journal:

"The investment is a portfolio, not a single picture," he said, "and in that portfolio, there are going to be losers." If an investor can't weather a disappointing movie, he added, "you shouldn't be in the volatile movie business."

Meanwhile, the Los Angeles Timesï¿½ John Horn may not have gotten a return phone call from Waisbren as the Journal did, but he does write about the growing dependence of Hollywood on private equity firms that has been creating mixed results at the box office, especially with regard to Warner, whose business plan has been radically changed by the presence of private equity backed finaciers like Virtual and Legendary Pictures. He writes:

Warners is hardly the only studio relying on private equity financing. Last week, Relativity Media said it had raised $700 million to co-finance 19 films at Sony and Universal. Dune Capital Management has a $350-million investment at 20th Century Fox. Legendary Pictures, founded by private equity manager Thomas Tull, is backing Warners' "Superman Returns," "The Lady in the Water" and "The Ant Bully."

Hollywood also has attracted high net worth individuals, including EBay's Jeff Skoll and real estate's Bob Yari. Those and other financiers were behind four of the five best-picture nominees in this year's Oscars.

In addition to yielding the prestige of an Oscar, these outside investment deals can sometimes deliver a blockbuster. Legendary partnered with Warners on last year's "Batman Begins," which grossed more than $200 million in domestic theaters.

But for every "Batman Begins" there's at least one "Poseidon." These investments shouldn't be made naively, says Amir Malin, the former head of Artisan Entertainment and a managing principal of Qualia Capital, a private investment fund that has made a number of Hollywood deals. "Those promoters who argue that this business can be reduced to a 'widget type' business are not dealing with reality," Malin says. "It's important to look at all the up-to-date data with respect to filmed entertainment on a worldwide basis. It's important to understand the marketplace both on a macro and micro level. It's important to have had operational experience. But, at the end of the day, it is a wonderful business of vagaries. Investors have to understand that."

UPDATE: Fishobowl L.A. is reporting that Warner Bros. has coined the demise of "Poseidon" as "total concept rejection" by the audience. Site adds that there are rumors M. Night Shyamalan is so displeased with the marketing of "Lady in the Water" that he's taking over the reins of the trailer campaign.