Indies Look to Electronic Delivery for Survival
The good news for indie and international movie sellers is that there are fewer movies in the global marketplace, ticket sales are up worldwide and emerging electronic platforms promise improved profit margins.
The bad news is that it is increasingly difficult to share in the upside, with home video sales rapidly declining, pay TV paying less, domestic distribution hard to come by, presales difficult to do and sources of financing tougher to find than ever.
"What we independents face is how to replace the declining markets," said Harvey Weinstein, co-chairman of the Weinstein Co. "We are going to have to take technology and drive our sales of content."
That was the message Friday during an AFM panel discussion set up by Eric Briggs and Patrick Russo of the Salter Group, who used statistics and charts to paint a portrait of a marketplace in which more people are watching movies than ever -- but not in the same ways as before.
Biggs said that between 2001-09, the global box office rose 7.5% while the number of major studio movies released fell 6% and the volume of indie pics slipped 14%.
"There were fewer movies but more dollars," said Biggs, who tempered that good news by adding that at the same time, "home video is down sharply," and not just in the U.S. The ancillary market plunge has been even sharper in parts of Asia and elsewhere.
Russo blames the global recession that started in 2008 for an overall decline in consumer spending. He said domestic DVD sales have plunged 21% in the past couple of years.
However, electronic delivery of movies has risen from $3.5 billion to $6 billion in the past five years, and sales through alternative delivery platforms are up. "Electronic delivery appears to be redirecting consumer choices, behavior and spending," Russo said.
"We really have to embrace electronic delivery of movies," said panelist Gary Barber, co-chair of Spyglass and soon to the head of MGM with his partner, Roger Birnbaum.
Moderator P. John Burke of the law firm Akin, Gump, Strauss, Hauer & Feld had said at the start of the discussion that Barber would not be able to comment on MGM for legal reasons. Barber stuck to that except to say if things work out as expected, following the studio's filing for Chapter 11 bankruptcy protection this week, he and Birnbaum could be holding the Lion's leash by mid-December.
Barber sounded passionate about the need to preserve the moviegoing habit by improving the experience, taking advantage of new technologies including 3D and educating consumers about the value of seeing movies on the big screen.
The disappearance of many Indie domestic distributors also has hurt the indies because it makes it harder to launch their movies, which is crucial to sales outside North America.
"It's analogous to a paratrooper," Barber said. "If you don't open, you're dead."
Weinstein, after complaining bitterly that American TV networks aren't buying movies any more, said that the future of the indie sector probably depends on selling a lot more movies on the iPad, on mobile phones and though other emerging media like Google TV, Apple TV and Netflix that offer new opportunities.
Weinstein said it also is crucial that the market for U.S. movies develop in Russia, China and especially India, where people love to go to the movies, and not just to see American movies.
"There's currently almost no business in a country with a billion people," Weinstein said.
Panelist Joseph Cohen, an industry veteran who now runs American Entertainment Investors, said while electronic platforms hold promise, they aren't going to be a quick fix for indies.
"Even if revenue from video on demand increases dramatically, that still won't enable you to finance a film," he told the crowded ballroom at the Fairmont Miramar Hotel.
Cohen said it is hard to show investors the level of return they demand based on electronic sales in advance; and in any case, there are fewer bankers working the sector than before. He said it is unclear where new equity will come from, but he doubts it will be Wall Street. Even if it funds movies, that money will be for slates from big companies, not one or a few movies from underfunded indies.
That also is the problem with alternatives to pay TV like Netflix, which are only going to do multipicture deals and mostly with larger players that have stronger track records.
"The good news is there might be new investors coming in," Cohen said, "but it might be from Mumbai."
Most likely, he said, investment will come from strategic investors like foreign TV networks and theatrical distributors who want to ensure a flow of product at a time the number of available movies has declined.