Berlin Film Festival: The Gathering Storm

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BERLIN -- As the first market on the calendar, Berlin's EFM is always a bellwether for the coming year. This time around, coming off a season where the industry buzz words were "credit crunch," "default" and "bankruptcy," performance at the European Film Market could mean the difference between success and failure for many small -- and a few big -- players.

The signs were already clear at November's AFM. While a few -- the Summits, Mandates, Lakeshores and I.M. Globals --monopolized the action, a majority found fewer buyers with tighter purse strings.

Things were particularly rough for companies trying to secure a U.S. domestic pick up. The collapse of three minimajors -- Picturehouse, Paramount Vantage and Warner Independent -- in one year rocked the specialty film business. Add to that a global liquidity squeeze, and you see why most expect this to be a chilly Berlin.

"Things are going to get worse before they get better," forecasts financier Ben Waisbren, president and CEO of Continental Entertainment Capital. "The AFM was all doom and gloom. The presale market has essentially dried up. Distributors aren't willing to give minimum guarantees based on packaging. They want to see the movie."

Presales have traditionally been the driver in Berlin. Witness last year's bidding war for Mandate's big ticket item: Martin Scosese's Leonardo DiCaprio/Mark Ruffalo starrer "Shutter Island." A drop-off in that business could seriously damage the EFM.

So far, there's no evidence of a complete collapse in presales. The EFM says there has even been an increase in booking for promo-reel screenings this year.

But there are clouds on the horizon. While attendance numbers look relatively steady for this year's EFM, there's been a thinning of the buyers' ranks. Toho-Towa, for example, the foreign film distribution subsidiary of entertainment conglomerate Toho, has decided not to send anyone to Berlin this year.

"We've been a little quiet with acquisitions recently. We're just going to concentrate on Cannes and AFM this year," says Yusuke Horiuchi from Toho-Towa's international division.

"We are going to be very, very careful in our acquisition policy," adds Helge Sasse, CEO of German distributor Senator Film. "I don't know if we'll buy anything."

While the recession has yet to impact theatrical revenue -- both domestic and worldwide boxoffice revenue continues to chug along nicely -- television advertising has been clobbered, and broadcasters facing the prospect of an extended downturn are cutting back on their acquisition budgets.

"The (German) networks are hardly buying any independent films. The focus is all of the studio product," Sasse says. "This undercuts a whole business model because if we can't afford to do a prebuy, how are these films going to get made?"

Adding to the problem is the glut of finished product in the market already -- a result of the cheap credit and hedge fund-fueled boom of the past few years. Despite the current economic crisis, some 680 titles will compete for buyers' attention in Berlin this year.

"This is the rat that has to go through the snake," says Waisbren. "More films chasing fewer buyers means lower prices, especially during an economic downturn."

That's a calculation that seems to have been made by most sales outfits heading to the EFM. Felice Bee, director of international sales at Beijing-based Huayi Bros., says that while Huayi will bring along director Feng Xiaogang's romantic comedy "If You Are the One," she isn't expecting to have to beat off buyers.

"The number of registered buyers is down, and we know that Japanese films, and those from most other Asian countries, are not a top priority, so most (are) likely to be overlooked by buyers who are cutting back on the number of titles they acquire," says Kiwamu Sato, head of International Sales at Shochiku.

But that's not everyone's experience.



Exclusive Film Distribution, the new U.K. sales and finance label which unites L.A.'s Spitfire Films and London-based Hammer Films, is confident going into the market.

Guy East of Spitfire says Exclusive plans to spend "more money than ever" on development during the credit crunch. "The banks are nervous but if you can provide a sensible business plan to a banker, they want to do business," he says.

"You will have to have the key elements of good script, good talent and a good director attached to be attractive to the market and the banks," adds Hammer Films head Peter Naish.

All this points to a Berlin of big winners and bigger losers. If your company has the capital and, more importantly, the hot film everyone's chasing, you'll be able to write your own ticket. If you've got one of the dozens of hedge fund-financed white elephants out there, be prepared to lower your expectations.

"There are a lot more films out there that no one wants, and the prices for them are plunging," says Dirk Schweizer, head of acquisitions for European TV giant RTL. "Then there are the few titles everyone wants, and so you all fight over them, sending the price higher and higher. Fewer and fewer films are taking a larger and larger share of the total."

Already there are signs sellers are hedging their bets.

"We've noticed a much greater price consciousness in the way people are booking their screenings this year," says Beki Probst, who will celebrate her 20th anniversary this year as director of the EFM. "They are booking maybe one screening where they would have before tried to book two or three."

While there is a lot of uncertainty going into this year's Berlin market, by August the owners of some of the snazziest stands might be booking for Chapter 11.

But every downturn has an upside. Some sellers see a silver lining in the plans by most majors to trim their slates and focus on big tentpoles instead of competing with the indies in the mid-range titles. That opens more space for a "Twilight"-style success story or a crossover foreign title to successfully counter-program.

Another potential positive is, ironically, the credit crunch itself, which should make it harder for producers to secure financing. If fewer films get funding, the glut in the market -- the rat in the snake -- will go away and prices should go back up.

"There were just too many films at every market (last year)," says Rohit Sharma, the president of international sales for Mumbai-based iDream Productions. "This will settle things down, with less new product available."

The big question on everyone's mind as they pack for Berlin will be how long will that take? Bigger players with solid financing should be able to ride out the storm. Smaller boats could capsize.

"Once the market starts, we will see what happens," adds Probst. "It's a big question mark. But it's a new year. People have their new projects. Everyone is hopeful. And in the end, everyone knows that business has to go on somehow. People need films."

Stuart Kemp in London, Jonathan Landreth in Beijing, Nyay Bhushan in Delhi, Karen Chu in Hong Kong and Gavin Blair in Tokyo contributed to this report.
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