Why Securing U.S. Distribution is Still a Tough Sell
As the 31st American Film Market gets underway in Santa Monica, Jonathan Wolf -- who serves as both executive vp of the Independent Film & Television Alliance and AFM managing director -- is bracing for a busy business scene. Fortifying himself with a handful of almonds, he spoke with Hollywood Reporter film editor Gregg Kilday about how the equilibrium has been restored to the international film business, why the face-to-face meetings at AFM trump the virtual world, and why securing U.S. distribution is still a tough sell.
The Hollywood Reporter: What do you think the mood is going to be like at this year's AFM?
Jonathan Wolf: Among buyers and sellers, I think it's going to be upbeat.
THR: What makes you say that?
Wolf: Let me give you one minute of history. Three years ago, 2007, the opening day issue of the Hollywood Reporter had a picture of me and a picture of a life preserver. Basically, I said there were too many companies selling films, there were too many films being produced, it was driving down prices. It was like having too many people in a life raft. If people either didn't jump or were pushed, the whole ship would sink. As it turned out, no one disagreed with me, but the industry never actually pushed anyone out of the life raft, and no one ever jumped. It took the subprime mortgage crisis in the United States to bring sanity to the level of global film production. What had happened up until about 2008 was that presales had collapsed. Not because consumers weren't going to films, and not because buyers were all of a sudden having difficult times. There were people were going to films in droves. Presales collapsed, because buyers didn't have to prebuy. There was so much finished film in the marketplace, they could skip the risk of a production they prebrought and only take the risk of their own judgment as to what would work in the marketplace [by buying finished films]. In fact, for a while, the pricing curve in the market inverted. The price of finished film was actually cheaper, being offered in most territories, than film in preproduction. You see this in real estate sometimes. In Florida, too many condos and sometimes the price of a condo being sold is less than the price of what it would cost to build it. So the fact that this irrational exuberance of production came to an end, and the level of production is, in our view, in line with the marketplace demand means that the buyers are going to be back in the marketplace prebuying because its what they need to do to guarantee a steady product flow for their pipelines. We saw this in Cannes, and we expect for it to continue here even more.
THR: And that's generally a good thing?
Wolf: It has multiple positive benefits. The first is, those who rely on presales as their method of financing are now going to find that the presale financing model has come back to them. When a buyer prebuys, he is also giving you that sense of marketplace acceptance. There's that phrase: films that shouldn't have been made. That means different things to different people. To those here, at least, that means a film that gets made solely on its ability to be financed, not on any marketplace acceptance. By more films being prebought, more of those films are being given an advance O.K. in terms of marketplace acceptance, and therefore there is a greater likelihood that the investor is going to come out better than the investor would have three years ago when there was no advance marketplace acceptance and a glut of films. I think this is a good time to be an investor in film, a good time to be distributor in film because the pricing has firmed. The only people for whom this is a difficult time is those who work on the production side, whether they are set designers or actors or grips. The middle part of decade was a renaissance, period, and people made career decisions about where they were going to move to, because of cities with tax incentives. But the production levels are now back to where they were in 2004, and there are many people out there who changed their lives based on the bubble. And that's sad, but true. lf your livelihood is based on the production process, the business is terrible. If it's based on investment and distribution, it's getting very healthy.
THR: So how many films will be for sale at AFM?
Wolf: We're going to screen a little over 400 films, I don't know the exact number yet, which is about same number we were screening in 2004. In 2007, we screened 530 films, and the marketplace couldn't absorb it. We are back to the levels, both in terms of the number of sales companies in the market, the number of films we are screening, the levels we were at in 2004.
THR: Will that also be reflected in attendance figures?
Wolf: We break our attendance into two groups: buyers and what we call industry attendees -- everyone from producers and writers and film commissioners to bankers and lawyers. Two different badges, two different tracks. The buyers are tracking about even with last year. The industry attendees, shockingly to us, are tracking 20 to 25% ahead of last year, which is a big number. I think it's due to two things. Since it's getting tougher to make films, those who make films feel they have to work harder and coming to the AFM is a terrific way to connect. One of the things that is new to the market is we started a social network site called MyAFM. It's open only to those who have this industry credential. It opened in early October. The purpose of MyAFM is to make the AFM experience more valuable. When you go to any trade show, it's all about face-to-face contact. If you haven't done any homework, you walk in the front door, it's difficult to connect. Our goal was to help those attending the show to meet and connect weeks and weeks in advance. Find the people they want to connect with, set up schedules in advance and create a lot more value. The attendees have taken to this like a fish to water, dived in, set up their profiles, searching to find people with the demographic of what their looking for -- writers looking for producers, producers looking for financiers. It's a micro version of a Facebook, but it's not meant for the social side at all. It's strictly business-oriented. And we think it's helped the growth in attendees as well.
THR: There are those who say in this age of email and Skype, why is it still necessary to travel to a market. How do you answer them?
Wolf: If you're a director, you're taking on a film and you have a vision for that film, you want to present that vision face-to-face. How many films have ever been pitched successfully over the phone or through email? Preselling is essentially pitching. The process of preselling is no different than a writer with an unfinanced script trying to find someone to make it. Talking about the texture of a film, the vision of a film is best done face-to-face. And there's a second part to this, and the sellers recognize it. Events create an auction environment. When you just put something out on the web, and say here it is, take a look at it when you get to it, you've said there is no urgency. Trade shows, in any industry but especially film markets, create a sense of urgency. As a seller, it gets me two things. An auction environment can only drive up prices, but it also gives the seller the ability to read the marketplace. I hear about people taking films to a festival -- and I don't want to pick only any one festival, but I'll cite Toronto as an example -- screening a film in Toronto and then trying to do some deals at the AFM. They screen in Toronto and look around and from Germany, there happens to be one buyer. The buyer looks around and thinks I have no competitors here. That means the seller can't read the German marketplace because he's going to get no other offers. So the German buyer makes a lowball offer. So does the seller take the one deal that there is or wait because he can't read the marketplace? The seller who doesn't take the film goes to AFM two months later and says -- screened in Toronto, rights still available. So the reason you come to markets is to create that auction environment, to create the demand and to accurately read the marketplace.
THR: In the U.S., we've seen distributors fall by the wayside, and also a few new distributors step in to take their place. Factoring what's happening in the rest of the world, how's it likely to affect the number of buyers you'll see this year?
Wolf: It's hard for me to comment in detail because I'm not in the trenches. We saw buyers last year from about 80 companies come to the AFM for the first time. This year, we'll see buyers from about 60 companies come for the first time. So somewhere around 6-7% of our buyers will be first-time companies. That would be an average churn. This is a volatile industry. Companies evolve, they merge. That evolution is normal. If anything, the companies we're seeing today are a bit stronger than if we look at the average company three years ago, whose sources of financing might have been more tenuous.
THR: Among the domestic distributors, there did seem to be a return to deal-making in Toronto, but the buyers still set the terms of a lot of the deals.
Wolf: On the U.S. side, there's a still a shortage of buyers, and there's still a glut of film. Take a territory like Hong Kong. There are probably 30 to 40 films made each year, less than one a week. So every film is going to get a theatrical release, every film is going to get on their version of network television as a first run. And its probably got some sort of cultural subsidy or support attached to it. And its above-the-line costs are completely different than the American model. When it looks to the export marketplace, it only needs 20% of its revenue, because it's getting 60, 70, 80% in country. You look at the U.S., and it's the inverse of that. Independent films are looking, on average, for 70% of their revenue outside their home country. Setting that aside for the moment, if you're in Hong Kong, you have the opportunity to see maybe every other week, a national film. If you are in the U.S., there are 10 feature films produced every week. If you're the Hong Kong producer, it's not difficult getting domestic distribution. When you're a U.S. producer, you've got 10 competitors every week trying to get theatrical releases and not all of them do. It still means the level of production in the U.S. targeting the theatrical marketplace -- I want to be very specific about that, I'm not talking about non-theatrical -- is still higher than the marketplace can absorb. It has been for a long time. It's nothing new. It really speaks to the tenacity of the starving artist, who is the producer and his ability to get his film made.