Indie Producers & Distributors

Indie Finance Roundtable

Is the sky really falling?

With independent films struggling to find audiences and specialty divisions dropping like flies, The Hollywood Reporter recruited five experts to peer into their crystal balls: Mark Gill ran Warner Independent and now heads indie production startup the Film Department; Steve Golin founded management-production powerhouse Anonymous Content; Joe Neurauter's Occupant Films produces Sundance darlings like "The Wackness"; Endgame Entertainment's Jim Stern has made movies as diverse as "I'm Not There" and "Harold and Kumar Go to White Castle" (and even directed the 2006 political docu "So Goes the Nation"); and film finance attorney John Burke of Akin Gump has put together several billion dollars worth of deals in the past decade.

In a freewheeling conversation with THR's Steven Zeitchik and Matthew Belloni, they expressed a mix of realism, optimism and uncertainty.

Hollywood Reporter: Why is the distribution side of the business shifting so quickly?

Mark Gill: The underlying problem is that there are too many films in the market -- 603 last year. We used to get around 400 films, and that was probably 100 too many. So we're probably double what the films are that need to be in the marketplace. What's going to happen is some companies will not succeed and will leave the business. You've seen a third of it, in terms of companies. There's still two-thirds to go.

John Burke: Well, we've had 500 or 600 films every year for the last five or 10 years. And yet if you go back three or four years ago, they weren't having the trouble they're having now getting the screens.

Gill: I think it was roughly 400 four years ago; it's escalated. The problem also, of course, is that audiences have more things they'd like to do other than go to the movies. And the big movies suck way more air out of the room.

THR: It's not just that there's a larger pool overall but that fewer movies break out. The indie world now is like a sweepstakes, where a handful of movies take the big pot and the rest fight for scraps.

Joe Neurauter: There will always be an audience for the classic art house movie, but it's really difficult for movies that are independently made, are trying to cross over and require a certain P&A commitment.

THR: You can also get into the problem of too much P&A, or at least the wrong kind.

Neurauter: Our first movie was a horror movie called "All the Boys Love Mandy Lane" (2006). We had a relatively high P&A commitment contractually. The movie should not have been released on 2,000 screens, but they couldn't figure out a different way to release it. It's not an art house movie; it's a small genre film. And you can't platform a genre film. So we were stuck.

THR: Isn't part of the problem that the ambition sometimes exceeds the reality? Every distributor wants "Juno" now. And they can't all be "Juno."

Jim Stern: But it's not always the distributor's fault. There are issues about number of screens and P&A spend, but there are also issues about timing. We seem to constantly go through fallow periods during a season, when there's nothing to see and no one's taken the plunge of counterprogramming -- until finally someone does. And then everyone does it the following year.

THR: That's also related to another trend: the calendar moving up and becoming compressed.

Gill: If you're an Academy member, you've already gotten several things saying, "I want your address." And it's July. That never used to happen. It used to be that the really serious movies would wait until November to come out, and that's not true anymore.

THR: But didn't we also see last year where prestige movies were opening in September and would be gone instantly? The window for a fall picture is so small now.

Gill: There's no room to last if you're not great anymore. It used to be good was good enough. Now, good will be punished. You've got to be very good or great.

Stern: It reminds me of an old Broadway adage: "There are two kinds of word of mouth: One sells tickets; one doesn't. 'I love it' does not sell tickets; 'You'll love it' does." What I think is a bit frightening for people who make smaller films is that word of mouth is potentially no longer viable because word of mouth is about things staying in theaters; it is about people saying, "You know what, you should see that movie."

Neurauter: And that's a real problem, because for the specialized movie, there's no real urge to go see a movie like that on opening weekend. Opening weekend is only created by the big studios when they spend a lot of money. (Fox) Searchlight essentially does it in a similar way. For a lot of other smaller movies, that's not possible.

Steve Golin: That's why if you're making a drama, it's gotta be great.

THR: Steve, you worked on "Babel," a good example of one of those dramas. It's a difficult movie and yet you were able to get some legs in a season when it's hard to do that.

Burke: But I think that's measuring success through boxoffice. You're not necessarily looking at whether the film was successful from a profit standpoint. That particular film, they spent a lot of money -- that's a known fact. It was a very expensive release.

Gill: But it also got through because it was a really good movie. Had that movie been just OK, it would've been killed.

Golin: Yes. But if that movie had not been such a bleak drama, it would have done three times more business with the reviews that it got. It was tough subject matter, it was a long movie, there were children in jeopardy. There were a lot of people who couldn't bring themselves to see that movie in the theater. When you're working on a genre movie, your margin of error is just a little bit better. With the kind of movies we're talking about, your margin of error is pretty slim.

THR: If the margin for error is so small, why do you all want to keep making these types of movies?

Neurauter: I don't think a lot of us want to keep making them. (Laughter.) No, of course everyone wants to continue to make good movies. But every one of us also tries to make more commercial movies to make up for that.

Stern: That's absolutely right. But that being said, I also think there are different ways to look at what is profitable and what is not profitable. I did a film last year called "I'm Not There," which was six characters playing Bob Dylan. It did not do a lick of business. It's a great film, got great reviews, but I think more critics saw it than people. But it was, from our perspective, a profitable film. There are ways to mitigate risk so that you don't climb out on a ledge if your film doesn't perform at the boxoffice.

Neurauter: You've been able to derive a profit from a movie that many (foreign) distributors who prebought the movie probably have not, and I think that's part of the problem you're seeing now. It's becoming harder and harder to sell those movies internationally. The numbers and the MG's (amounts paid up front for a title) are going down because a lot of those movies, unfortunately, don't perform.

Golin: It's like an insurance policy: You're presenting a risk and mitigating that risk among a bunch of different distributors, and you were clever and fortunate that you came out OK on it, but some people individually were hurt. The insurance theory is what we do. We're trying to pool the risk.



THR: But that has to come home to roost, doesn't it? You can only pool risk for so long without distributors or territories dropping out entirely.

Gill: Here's what I see happening right now: The top three or four dozen movies that were always in the market every year -- many of them were from New Line, actually -- are movies foreign distributors still want. The problem is they don't want all the rest of it anymore. It's not, "We'll pay half," it's, "How would zero be for you?" All the movies with the midlevel star, the midlevel budget, the OK director, the OK script: zero. That's what's astonishing about it.

Stern: I think that's what's also difficult about these kinds of movies -- "I'm Not There," "The Wackness," other films -- that they depend on big stars working for no money.

Neurauter: And the definition of what is an element has changed. I think a lot of the B-names you could sell a couple years ago are not salable anymore internationally. But the demands from the representatives of this B-level talent are still pretty high.

Stern: Of course. That's their job! (Laughter.)

Neurauter: Right, but I think there has to be the understanding that less money has to be paid for a lot of actors.

THR: Those high salaries are compounded by the fact that for the last year it's been really hard to get a valuable domestic deal at a film festival. How do you all see the state of the finished-film market?

Golin: It's scarier now than it's ever been.

Gill: We're past the era where we'll see the craziness like we saw a couple years ago. There's just not the money in the market; there isn't as much competition (among buyers) in the market.

Stern: I have two films at Toronto that do not have domestic (distribution). I think they're both high-quality films and they should be sold. Beyond that, I try to not have a lot of expectations.

THR: For the last several years, there's been a lot of what some call easy money in the film world. That's changing now, but no one can decide whether it's good or bad for the business. Which do you think it is?

Golin: There's a lot of dumb money in the marketplace. And for those of us that have been around for a long time, there's always been cycles of dumb money. This guy will come in and they have some project that hasn't gotten made for 20 years for a damn good reason, and then someone will put the money up.

Burke: I don't think it's fair to actually say it was dumb money. It was very smart and very sophisticated. People who have money have a lot of opportunities right now in a lot of different areas that have nothing to do with film. And they're gravitating to businesses that are perhaps more reliable or less volatile than film. I think that the studios are at least beginning to show that they're willing to come to the table and negotiate a much more sensible deal. The money's getting a lot smarter in that regard.

Stern: I'm a contrarian to this. I don't believe anybody makes money in businesses they don't really understand. I think that for years, and throughout all the different cycles that have come in, that if you don't understand the club, and you are just pressed against the window pane looking at all the nice candy, you're not going to actually feed at the trough. Of course it's smart money -- it's highly educated money -- but it's not part-of-the-club money, and I don't think that's ever going to change.

THR: Plus, there's the cost of obtaining that money given what's going on in the economy as a whole.

Burke: You've got a credit market that's been in crisis since last August. As the financing gets more expensive, it puts a lot of pressure on what the producers are trying to do: trying to get a film made for a price.

Stern: I think this is the beginning of a bad cycle, and I don't think it's going to be a short-term thing. But I think there's been a very, very long cycle of good money, so it's all part of the grand tapestry.

THR: Mark, do you think your deal for the Film Department could have gotten done today?

Gill: No way. The ability to expand an existing company? Maybe. The ability to do a startup is out of the question. Our bankers told us if we closed three weeks later we wouldn't have closed.

THR: One of the ways to counteract the difficulties in financing is to make movies for less. Is that a viable option?

Gill: I've done the statistical regression on this. And there are always exceptions to it, "Juno" being the grand one. But generally speaking, for the movies under $10 million, the odds are about 10 times as hard to succeed. What's also interesting is that once you get above that threshold, you start to get some other things that work in your favor, like you can pay enough for a movie star to get out of bed. You can employ people like the folks in this room, and they'll help produce the movie better. You can afford to pay a real director.

Stern: I don't believe in those generalities because I think it depends on who's making the film, who's in the film.

Golin: When I decide to get involved with a movie -- decide there's an audience for it, that it's something I'm passionate about -- I'm willing to spend between two and 10 years working on it. (But) then I want to make it as cheap as I can make it.

Neurauter: It's hard to make a movie for less than $8 million that looks great and will attract the people who will pay you top dollar for it.

Gill: Famously, "Crash" was made for $8 million -- good for them. "Juno" was made for $7 million -- good for them. "Little Miss Sunshine" was made for $6 million -- good for them. It's not impossible at all. It's just that so many of the movies that are being made for less than $10 million, usually it's, well, we got the budget down to $3 million, so it's now a good bargain. It actually turns out, weirdly enough, the less you spend the longer your odds.

Stern: Ours is the only profession where anybody ever asks how much something cost to get made. How much did it cost to make your car? Who knows? Who cares?

Golin: I never worked on a movie where I can honestly say, if I had more money, the movie would be better.

THR: We've identified a number of causes for concern about the indie business. If we're sitting here a year from now, are we better off than we are today?

Gill: I sincerely believe it will be better because there will be less clutter, less noise, less stupid money in the business -- though I'm sure we'll find a new vein of that to tap somewhere.

Neurauter: I think if you can be a supplier for the studios and the specialty divisions, it will be better. If you're going for the more independent-minded movies, I think it's gonna be tougher.

Stern: I agree with Joe. For the smaller films, it's gonna get tougher. For the larger independent films, it's going to be a better time next year. There's going to be less clutter. But I do believe that, for the next 18-24 months, we're going to have to ride the wave a little bit.

Golin: The labor unrest is a great opportunity for the independents. There's a big opportunity here for us to attract filmmakers and actors that we normally wouldn't have as good access to.

Burke: The credit market should begin to clear in a year. One thing I think we all need to keep our eyes on, though, is the rush of eyeballs away from screens to do other things, and what that's going to do to impact our business.

THR: And that's more fundamental than cyclical, as we've seen in some other quarters of the entertainment industry.

Gill: As nervous as we all are, we're just ecstatic that we're not in the music or television business. It's a lot better here than it is there.
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