Indie sector will test waters at AFM

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Just as word was spreading at last month's Pusan market that this should be a terrific American Film Market, the world was hit by a financial tsunami. Now market veterans are trying to sort their way through the flotsam and jetsam left behind.

On the positive side, there will be no shortage of new product when the AFM kicks off Nov. 5 at Loews Santa Monica Beach Hotel.

"The AFM is a lagging indicator of what is going on in the world's economic state," says Jonathan Wolf, the market's managing director. "That is because, if you look at the finished films brought to the AFM, the decisions about risk and liquidity availability were based upon the world's state of affairs 12-24 months ago, when these films were funded and greenlighted. So those who took the risk were doing so based on a set of assumptions back then. These are the films we are seeing today -- and that is why we are screening almost an identical number of films to last year -- around 513, compared to 522 a year ago."

Equally positive, insiders say there is still money coming into independent film, and that the arena of the entertainment business that's been the hardest hit -- hedge fund financing -- will have a far greater impact on the studio world than on that of the indies who gather at the AFM.

"The economy has taken away all of the hedge funds and private equity funds -- there are no new ones coming into the marketplace," says Hal Sadoff, who heads ICM's independent movie division. "What's happening is affecting the independent film business, but not in as dramatic a way as the studio business. Private money is still there; it's not as available, but the investors investing in the movie business are still going to do that."

"I'm not saying this is a great time for the independent business," he adds. "But for the right films, if they are structured properly, the financing is still there."

So those are the optimists. Now for the pessimists.

The turmoil that whacked the world's economy in early October is likely to have a direct impact on the current AFM in at least two major ways, insiders say.

First -- and the less important of the two -- it has inverted the currency balance that recently has favored American sales agents.

For the past few years, the weak dollar has allowed them to sell their product at bargain-basement rates, especially to European buyers who saw the euro rise 40% against the dollar in just three years. But a curious byproduct of the economic crunch has been the dollar's rise against many other currencies. This means that the same buyers will have to pay an awful lot more for the same product.

"Most currencies, bizarrely, have dropped against the dollar," notes David Garrett, president of Summit International. "The pound has gone from 1.96 to 1.75 (dollars per pound) in just a few weeks. That's gone down by at least 10%. And most significant currencies have gone down (against the dollar) -- but we are still selling in dollars."

He continues, "For a long time, (the currency exchange rate) was in our favor because the dollar was weak. You could argue that, to some extent, the balance has simply been redressed a little and that we are back to where we were. But to those who haven't bought ahead and done their cash-flow projections for the next 12 months, it will have a serious impact on their (budget). A lot of people are going to be even more cautious about the purchases they make."

That caution might be further amplified when a second, far more important factor kicks in: the availability of credit.

The independent film world has always operated thanks to banks underwriting loans, both to make the films themselves and to purchase them. But today, many of these banks are tightening up their lending. The same credit crunch that is affecting mom-and-pop businesses throughout the country is affecting the glamorous world of film, too.

"The AFM is going to be a very telling marketplace," says Cassian Elwes, co-head of William Morris Independent. "Is it business as usual or belt-tightening? Every buyer, every seller, runs their business on credit. And if the credit is not available, how are they going to pay when they are supposed to? That is the dilemma facing the sellers -- when are the buyers going to pay?"

The buyers themselves, who typically make offers to purchase territorial rights with the help of bank guarantees, will now have to face the reality that other banks won't necessarily trust their competitors' guarantees.

"Are the banks in America, who lend the money to the producers, going to lend in the same way, and what rate will they lend at?" Elwes wonders.

Banks could either say they won't lend at all, or they might only agree to lend a small percentage -- say 50% -- of what a deal is meant to be worth.

"Let's say you sell the rights (to a movie) to France for $5 million," Elwes explains. "Will the bank lend you $5 million, or will it just lend $3 million? That affects your budget and your financing plan. Nobody can read the tea leaves, but bankers are the most conservative people of all."

And if the banks don't lend the money, there will be no more films bought, there will be no more films made -- there will be no indie film business left to speak of.

"It's that insane," one insider notes. "It is going to have an impact on every aspect of the business, from the immediate issues of being paid and financing movies, all the way through to the money in people's pockets and their decision about whether to see a movie or not."

This scenario, of course, is one extreme end of a broad spectrum of possible outcomes for the indie film biz. As is often the case when the world is rocked by crisis, day-to-day business can appear to continue pretty much in the way it always has.

"There are always dips," says Stephanie Denton, president of worldwide distribution for Bold Films, "and this is a huge one. But I don't see it being a negative for us. I don't want to be overly confident, but the key right now is making the right movies."
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