New players bode well for Cannes sellers

5:00 AM PST 05/08/2007 by Stephen Galloway, AP

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For the last several years, buyers and sellers have expressed plenty of cautious optimism heading into the market at Cannes -- and for good reason. Independent cinema is thriving, local fare from territories around the globe is attracting more attention, and the industry seemingly has weathered any number of political and economic storms. Year after year, however, at the market's conclusion, the pace of deal-making has turned out to be more sluggish than predictions had suggested, leaving some insiders feeling rather deflated.

But with a number of deep-pocketed American players descending on the French Riviera this week, ready to buy product to fill their distribution pipelines, the optimism that executives are once again expressing might, in fact, be warranted. MGM will be on the lookout for product to flesh out its already muscular slate, as will Chris McGurk's new Starz theatrical unit, Overture Films, which recently received a tidy $225 million in production and distribution funding from JPMorgan to help the company reach its goal of releasing eight or more titles annually.

And there's the newly supersized Summit Entertainment, the recently unveiled studio venture from former Paramount Pictures vice chairman Robert Friedman and Summit Entertainment president and CEO Patrick Wachsberger, which is set to produce, acquire, market and domestically distribute films using more than $1 billion in funding from Merrill Lynch and other investors.

Taken together, these entities -- coupled with boasts from the likes of Cannes veterans such as the Weinstein Co.'s Harvey Weinstein, who has three films screening as part of the festival's Official Selection and who has promised a return to form at the concurrent market -- virtually guarantee that business will be brisk as long as quality product is there.

"We now have many more distribution options, with Overture doing eight to 12 movies a year, with independent companies like Bob Yari's setting up in distribution and with MGM having more slots," says Hal Sadoff, head of ICM's international and independent film division. "There are many more outlets for independent films, and that is very important. It sets a benchmark and increases the value."

Adds film distribution and sales executive Richard Guardian, president of Lightning Entertainment: "Generally speaking, I would imagine that it is going to be a pretty decent market. Last year was a good year overall for the film industry -- the public started going back to the cinema, and that means hopefully there is going to be an appetite for acquisitions."

Guardian cautions, however, that "the marketplace is as unpredictable as it has ever been. I have been doing this for longer than I care to admit, and the last two years, people have gone into the markets expecting things to go gangbusters and come away disappointed."

If the pace of deal-making at January's Sundance Film Festival and February's Berlin International Film Festival market are any indication, few people will leave Cannes disappointed.

"There were $50 million-plus worth of sales done (at Sundance), a place that doesn't really even consider itself a market," says David Dinerstein, president of worldwide marketing and distribution for Lakeshore Entertainment. "That bodes well for Cannes."

As far as the nuts-and-bolts economics are concerned, sellers' prospects are bolstered by the weak dollar, which is now running more than 30% lower than its high trading point against the euro in the early part of the decade. That means that European buyers in particular are enjoying greater spending

power, even if U.S. independents such as Mandate Pictures and Myriad Pictures are having to pay more to make films and are facing greater difficulty finding cost-effective overseas locations to host productions.

Of course, the independents can find some solace in the unprecedented sums of money pouring into the coffers from Wall Street, hedge funds and similar sources.

"You have a lot more private-equity money available, a lot more senior debt available," QED International CEO Bill Block says. "You have a far better understanding of film as an asset class and as a real return-on-investment vehicle that should be part of a portfolio."

Dinerstein says that companies with the right professional pedigree -- he names Overture and Sidney Kimmel Entertainment -- are uniquely suited to make studio-caliber projects at a fraction of the cost, giving investors plenty to smile about. "The value is there," he says.

So is the demand. Insiders say that buyers are eager to acquire promising films and have the money to pay for them, though every territory's appetite is different.

"Germany has strengthened," Guardian says. "Australia is also looking good, and the U.K. is strong, for the right product."

Other nations, including some of the Latin American countries and Russia, are flush with cash. "What is flourishing is Russia," Block says. "You've got a culture that loves movies and has a burgeoning consumer class that has more leisure time for entertainment."

By contrast, he says, India and China -- two potentially vast markets -- are essentially meaningless to sellers, who also have been hit by cutbacks in sales to other Asian markets such as Japan and Korea, where distributors are enjoying real success with locally produced fare.

"Over 50% of the movies released there (last year) were local movies, so that has killed the market for the American movies," says Nu Image/Millennium Films co-chairman and CEO Avi Lerner.

Myriad president and CEO Kirk D'Amico, however, says that it is a little too early to predict the widespread decline of U.S. cinema in other parts of the world.

"You have a fairly big share of films being produced in Japan by the Japanese," he says. "But in other territories -- Germany, France, Spain -- the local productions have not fared as well recently as the big blockbuster studio films. Everybody was holding their breath, thinking, 'Is this going to be the start of another erosion for the bigger American films? Are these local productions going to erode the marketplace?' But it hasn't happened across the board. It does erode it, but you are seeing some of that market share taken back."

More troublesome is the ongoing piracy epidemic, which impacts the independents just as greatly as it does the studios. "The DVD marketplace has been eviscerated in many territories," Block says.

Nor is it just piracy that is hurting the independents. Many also have felt the sting of studio competition, as the majors realize that local production and international distribution of non-American titles constitute rare growth opportunities. "The studios have become a lot more aggressive in terms of the rights they are acquiring internationally," Dinerstein notes. "Whether it is Fox or Paramount or Universal, five years ago there was a trend to offset risks by selling international rights, and now the major studios are trying to hold on to the international rights and even buy international rights (to other films). That makes it more competitive."

The competition for good films is only likely to increase over the next two years as Paramount's and Universal's newly created international distribution entities, Paramount Pictures International and Universal Pictures International, swing into action. Both are gearing up to spend hundreds of millions of dollars on local production over the next few years, and each company plans to fill its new pipeline by investing heavily in acquisitions.

Add to that mix the new studiolike companies that will be visiting the market -- either for the first time or with hefty new buying power and a bevy of executives -- and the competition for theatrically viable, quality titles with some sort of star power becomes even greater.

To ensure that it makes a splash at its first Cannes market, Overture is making the trip with all of its top-echelon executives, including COO Danny Rosett, executive vps production and acquisitions Sean Furst and Robert Kessel and president of worldwide marketing, distribution and new media Peter Adee.

"We'll all be there, and we are looking to buy," reports Overture CEO McGurk, who notes that the company will have offices in Cannes' Hotel Martinez. "We're looking for movies under $25 million or $30 million across all genres; we'll buy as many great pictures as we can. We're looking forward to it because this is the first time where we've all been together at a major festival. We hope to significantly advance our plans for international sales and distribution for our pictures, and we will be meeting with international distributors and will continue our discussions in that whole arena."

Overture has not yet established its own sales division, however. "We are evaluating all of our options, from doing it in-house or going through a major studio," McGurk says. "That is the last distribution element we need to put in place. We hope to advance that initiative while we are in Cannes."

By contrast, Summit, which has a well-established sales division, will be looking for some major acquisitions.

"I'm specifically going to be there looking for domestic-oriented films that will obviously fit our national release strategy," Summit co-chairman and CEO Friedman says. "I want to release movies that go out on a day-and-date national basis. We are not in the specialized business at this point. From an acquisitions perspective, we are looking to get four (films) a year. Our primary target is domestic rights for the U.S. and Canada, but if certain international rights are available, we would go for that as well."

In the near future, Friedman expects to make eight productions a year, but at this point, he says he has a pipeline to fill. "I have a machine to distribute films that is up and running -- so I want them tomorrow," he says.

And that is music to most sellers' ears.

"The more buyers that are out there, the better," offers Brian O'Shea, executive vp worldwide distribution for Odd Lot International.
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