Will the indie sector keep on truckin'?

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It's enough to make the casual observer's head spin: In the last 12 months, new players have entered the independent film scene, veterans have gotten their hands on significant outside financing and partner companies have either parted ways or been acquired in a flurry of deals.

Specifically, new distributors like Summit Entertainment and Overture and well-funded production companies like Michael London's Groundswell Prods., Mark Gill's Film Department, Lakeshore Entertainment and Sidney Kimmel Entertainment have sprung up or expanded; companies like IFC Films, Magnolia Pictures and ThinkFilm announced plans to release bigger-budget projects; new international sales companies such as IM Global and GreeneStreet Films International are expanding; and producers are continuing to enjoy access to various forms of financing.

Exciting news, to be sure -- but many insiders are wondering if there can be too much of a good thing. Is the indie arena experiencing the same kind of bubble that artificially inflated first the dot-coms and, more recently, the housing market? Might things soon take a turn for the worse?

"The bubble is going to burst," says one executive at a top production company, mirroring the comments of a dozen or so financial experts and indie execs. "It's going to happen a year or two down the road."

Entertainment attorney Peter Dekom says that the current model of investment where risk is deferred across a slate of features is reminiscent of earlier financing schemes that backfired -- especially ones funded by major insurance companies. "In the early 1990s, some companies guaranteed that if a film slate was big enough, you would at least break even," he says. "In the end, pictures lost money and the insurance companies wouldn't pay. There was a massive amount of litigation."

In fact, there are signs of belt-tightening appearing among investors already. "Hedge funds and private equity investors are being more prudent by cutting costs and gross participation," says Stone Village Pictures president Scott Steindorff.

Still, Diane Stidham, principal of the indie film financing firm Newbridge Film Capital, points out that Wall Street's liquid cash needs to be invested somewhere, and with housing in decline, the movie business continues to be appealing. "If a firm has $800 billion behind it, a $100 million loss is just a blip on the balance sheet," she says. "Executives (at that firm) will get in more trouble if they don't invest. It's a strange time right now, and it won't end until someone loses a lot of money."

"It's a business run on estimates that are invariably wrong," offers ThinkFilm head of U.S. theatrical Mark Urman.

The problem is that the (relatively) easy access to financing is creating a glut of product, some of which will simply languish in a crowded marketplace. "Too many movies are being (greenlighted)," says Lionsgate president of theatrical films Tom Ortenberg. "That will likely come back to bite some people in the rear."

Not everyone in the indie arena is experiencing a case of the Cassandras, however. "It is a reality that we've got a huge amount of product," offers Cathy Schulman, who took over as president of the new Mandalay Independent in January and is in the process of building that company's slate. "In general and historically, the huge amount of product gets balanced by additional distribution venues, which are popping up all around us all the time."

Which is why someone like Overture's Danny Rosett believes now is the time to use Wall Street investment to open a mini-major.

"All these new production companies need distributors like oxygen," Rosett says, adding that his recent acquisition of the $60 million Robert De Niro-Al Pacino cop thriller "Righteous Kill" from Nu Image was unique. "Our business model is to stick to films under $30 million. We're not competing for tentpoles."

Summit CEO and co-chairman (along with Patrick Wachsberger) Rob Friedman echoes those same sentiments. "The movie business as a whole is fairly consistent on an annual basis and doesn't offer a lot of room for growth," Friedman says. "Hopefully, we'll get a bigger slice of the pie."

Robert Darwell of Sheppard Mullin Richter & Hampton says the more accurate description for companies like Summit, Overture or Lionsgate -- which took a mid-seven-figure minority stake in Roadside Attractions earlier this year after the indie parted ways with Samuel Goldwyn -- is not indie or mini-major but "alternative."

How the "alternatives" ultimately will coexist with the tiny independents, the studio specialty divisions and the majors remains to be seen.

Several execs at new production outfits and the "alternatives" cite one of the biggest hits of the summer, Universal Pictures' $30 million comedy "Knocked Up," as an example of the success they're looking to emulate. Writer-director Judd Apatow's R-rated sleeper has taken in around $150 million domestically and arguably made comedy the hippest genre in town, but it's pretty much the polar opposite of the sophisticated art house fare indie producers are truly passionate about.

Film Department founder Gill believes that as the studios cut back on the number of projects they're producing in-house, outside entities such as his need to step in and fill up their slates with star-driven genre films -- at reasonable prices, of course. The Film Department, he says, launched with a goal of producing six features annually with budgets in the $10 million-$35 million range, all independently financed. And both he and Odd Lot Entertainment co-founder Gigi Pritzger say there are more stars willing to work on indies that ever.

"Studios are making fewer movies, and there needs to be more third-party money just to stay even," Gill says.

Fortunately for Gill and the rest of the indie sector, there is more third-party money available -- not just from hedge funds but also from established media companies and individuals. For instance, Overture is a division of entertainment conglomerate Starz, which recently put its video label, Anchor Bay Entertainment, into the theatrical business for smaller releases. The ubiquitous Todd Wagner and Mark Cuban obviously own a whole parcel of ventures including Magnolia Pictures and the Landmark exhibition circuit. Rainbow Media controls IFC Films, which releases dozens of ultra-low-budget titles through its First Take program. Even ThinkFilm was sold to David Bergstein's Capco last October for around $25 million.

Undoubtedly, access to sizable reserves of cash carries with it certain benefits. ThinkFilm's newly flush financing is evidenced by a lineup that includes nine more releases this year, including a foray into youth-targeted comedy with "The Ten," featuring an ensemble cast that includes Jessica Alba, Paul Rudd and Justin Theroux and the space exploration documentary "In the Shadow of the Moon."

The new (and newly financially empowered) distributors touched off a feeding frenzy at this year's Cannes and Sundance Film Festivals. One of the biggest deals at Sundance was "Son of Rambow," which went to Paramount Vantage for $7 million-$7.5 million -- plus boxoffice bumps for worldwide rights. Vantage co-president John Lesher admits that it was a big chunk of change for a British coming-of-age comedy with no-name stars, but will pay off through Paramount Pictures International distribution.

Looking ahead, there's plenty of speculation about what might happen on the acquisitions horizon at the Toronto International Film Festival next month. With the competition for product driving up prices, there are sure to be cases of buyer's remorse and indies biting off more than they can chew. In fact, it seems to have happened already.

Last year at Toronto, the Weinstein Co. paid around $3.5 million each for the comedy docu "Vince Vaughn's Wild West Comedy Show: 30 Days & 30 Nights -- Hollywood to the Heartland" and the horror thriller "All the Boys Love Mandy Lane." "Wild West Comedy Show" was returned to sender over marketing disagreements and "Mandy Lane," which had been on the verge of being dumped in theaters with little promotion, was sold to yet another newly created distributor, Senator Entertainment U.S., which is planning a 2008 release. And less than a year after announcing they'd produce an annual slate of four to six films in the $4 million to $10 million range, IFC Films has decided to stick to small indies under $3 million.

On the other hand, some buyers are finding that even with the increased competition, they can still get a good deal. Fox Searchlight paid just under $1 million for North American rights to the $150,000 Irish musical "Once" at Sundance in January, and the critical darling had, as of press time, brought in a hefty $7 million theatrically. In what turned out to be another shrewd move, the distributor bought worldwide rights to the romantic comedy "Waitress" for around $4 million; the film had taken in nearly $18.7 million domestically at press time.

What those kinds of grosses seem to indicate is that the moviegoing public is more keenly interested in quality specialty fare if it's marketed the right way. Sony Pictures Classics topper Michael Barker, for one, says that he has noticed the size of the art house audience expanding in recent years, and his co-president, Tom Bernard, says that there should be room in the marketplace for veterans like SPC and the new players.

Bob Yari is hoping that's the case. The money-man-turned-producer-turned-distributor is ramping up his plans for Yari Film Group's releasing arm, which most recently went out with the Josh Hartnett-Samuel L. Jackson starrer "Resurrecting the Champ." "There's always new room in the movie business for the maverick who makes films that the studios aren't making at the right price," he says. "What's changing are the dates that an indie distributor can open a film domestically, and the ability to open a smart film on a small number of screens."    


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