Private equity dollars flowing

Actors strike would dent indie film

The flood of private equity money that has rushed into the film industry in recent years may slow but will probably continue to flow -- and not dry up like previous sources of financing.

A writers strike would not have an immediate effect on the indie film scene, but an actors strike, if it should happen, would be more serious -- though it could open up opportunities for foreign productions to win U.S. distribution.

And the tax incentives and rebates that make filming in a number of U.S. locales more attractive should be approached with caution because all the legal work that sometimes surrounds them can make arranging film financing even more complicated and costly.

Those were a number of the propositions that the panelists agreed upon at the annual AFM Finance Conference held Friday at the Fairmont Miramar Hotel in Santa Monica.

But when it came to the question of whether the collapse of the subprime market would affect investments in the film sector, several participants differed.

In the morning's first panel on "Film Financing -- Year in Review," moderated by Steve Fayne of Akin Gump Strauss Hauer & Feld, Comerica Bank's Morgan Rector argued that the meltdown in subprime lending would cause investors to take a harder look at exotic investments in other areas.

But David Molner of Screen Capital International, which raises film financing, disagreed, saying: "August was our best month this year -- hedge funds stepped up allocations when there was nothing to do in real estate."

Roy Salter of the Salter Group, which offers financial advice and transactional support, said that with large financial institutions focusing on the subprime crisis, "it's become very difficult to get the attention of senior management credit administrators," resulting in a slowdown of the funding process. He noted, though, that "the amount of money available for an independent producer has never been better."

"I don't think it has slowed down the funding," Summit Entertainment COO Bob Hayward said, adding that a slowdown is "not necessarily a bad thing" since "there has been a few too many movies made."

Acknowledging a product glut, Molner noted that domestically this year, 15-20 movies opening on 800 screens or more have failed to crack the weekend top 10 listings.

But overall, the panelists were bullish because of untapped theatrical markets abroad and the promise of the still-developing broadband revolution.

"We are going to see an accelerated spending pattern on a very large scale," Salter said of consumers' entertainment habits. Hayward agreed that while films will face ever greater competition, broadband "will expand the market as long as we get on top of peer-to-peer."

"What you don't want to happen is for movies to become bite-size entertainment," Molner said of the challenge the Internet poses.

At the follow-up panel on Emerging Trends in Film Financing, moderated by KPMG's Benson Berro, panelists plunged into some of the nitty-gritty considerations that indie producers face when making financing and production decisions.

Nu Image CFO Trevor Short counseled that while new state incentives and rebates may look attractive, a new, untried state program can lead to problems. Rather than move his company's productions from state to state and country to country, Nu Image has established bases in Louisiana and Bulgaria where it is familiar with the local regulations and infrastructure.

Fred Milstein, president of completion guarantor CineFinance, said that 70% of the projects his firm sees use some form of tax incentive. But because of all the complexities involved, where a bond company used to spend most of its time looking at a project's budget and physical plans, now, he added, "we really spend more time ... working with the producers sorting out the financing."

Despite complaints from some that the presale market is drying up, Peace Arch Films president John Flock said that market hasn't disappeared, explaining, "There are places where you can't presell movies, but it moves around. The market is not dead."

"The banks have gotten more micro in figuring out how to slice the valuation of a picture at different times in the picture's life cycle," JPMorgan Securities' Christa Thomas said of the added scrutiny proposals now receive.

But while the poor performance of some films have given investors pause, Christa said she has yet to see any impact from the subprime credit crunch on film financing.

Axium International's Jeff Begun warned that closing complicated financing and tax agreements can be a lengthy process and that they don't always close when expected, which can force producers to postpone start dates at the last minute. "Please don't start you movie until you have the financing closed," he said to the assembled indie producers by way of practical advice.
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