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Ryan Kavanaugh sees plenty of new financing opportunities for independents and a tough summer ahead for major studios who are depending on expensive action movies to win over audiences.
“My prediction is that there is going to be a major blood bath,” said the Relativity Media CEO during the opening panel of the American Film Market finance conference on Friday. “There’s an oversaturation of big superhero movies and they are becoming just more of the same. I think this summer is going to be bad for big studios whose movies pile on top of each other. The audience is going to get sick of it.”
Producer Mark Canton added that the studios are making either very large movies — with budgets over $150 million per movie — or very small concept movies, like horror pictures. To pay for these big movies they are bringing in more slate deals where outside financiers share the cost and the risk.
“But you still have the same concerns,” said Canton. “If Ryan is even half right, there is going to be a lot of spanking happening.”
Although Relativity has a different business model, Kavanaugh said if his prediction comes true it will be bad for the entire industry because it could scare off some of the new money flowing in from digital and international sources.
“I see studios piling on more and more giant tentpoles,” said Kavanaugh, “with billions in [prints and advertising] and billions in production. I don’t see a slowdown of it. I see a speed-up. It’s scary for the industry. If it happens, and I think it may happen, you could see them lose $400 million, $500 million, and there’s going to be a ripple right through the middle of our industry.”
At the same time, Kavanaugh, Canton and fellow panelist Steve Ransohoff, co-president of Film Finances, a completion bond company, agreed there has never been more sources of money for independently made movies or more ways to distribute them.
That is because of the proliferation of online and digital financing and distribution including Netflix, Amazon, Hulu, Microsoft Xbox and many others, both in the U.S. and increasingly around the world.
Ransohoff said when his company started in 1950 it was doing 11 movies a year, and this year it will do 250, and more next year. What has happened is that instead of a single studio financing these pictures, they have multiple deals for theatrical, ancillary and digital market distribution.
“It’s become a lot more complicated to get films done,” said Ransohoff. “But there’s a lot more distribution and a lot more capital floating around. Most films today find some means of distribution — even if it is not theatrical — which give people better ways to raise capital.”
Relativity made its pay TV deal through Netflix, said Kavanaugh. It has 30 slots a year it can use to tap that source of funds, which on a big picture runs to over $5 million. He added they were able to make a very good deal with Netflix at the time because the majors were not willing to choose them over HBO, Showtime and Starz. But that has now changed.
“Now they all do Netflix deals,” said Kavanaugh, predicting that when their current pact ends in 2018 the terms, windows and deal points will all have changed again.
One reason they haven’t all moved in that direction, according to Kavanaugh, is that most majors are still locked into older ancillary market deals tied to DVD releases that limit when they can play movies on streaming services and online.
“The dirty little secret,” said Kavanaugh, “is the studios have problems with DVDs. Their pay TV deals preclude them from showing movies during the windows the [new streaming and digital players] want to show them. They are getting significantly reduced on what they are making because of these restrictions.”
Kavanaugh said that Relativity has output deals outside the U.S. in almost every country, so that they cover a lot of their costs before a movie even opens. He says that when they first made those deals, they were able to cover as much as 50 percent to 70 percent of their budgets.
Now as the deals are renewed, added Kavanuagh, they are seeing that rise significantly. “We’re now over 100 percent in many cases,” he said. “We have seen growth in Europe, the Middle East — massive growth. We’re seeing it 10 times as much from the Middle East in the last three years. And we see increases in Turkey, South Korea.”
Moderator P. John Burke, partner in the law firm Akin Gump, said what they’re seeing is a big drop in deals for movies in the $20 million to $50 million budget range. Studios are only making big movies, and seeking equally big returns — and those movies better lend themselves to franchises.
For independents that can create high-quality movies or TV, with star names and good directors, the market is booming said the panelists.
“The big change in the last 12 months is we’ve had an influx where the demand far exceeds the supply of good product,” said Kavanaugh. “That’s because avenues of digital distribution — Netflix, Hulu, telecoms, online distribution — are all looking for unique product that sets them apart from all their competitors. They’re all competing and they all have hundreds of millions or billion-dollar checkbooks.”
“Content is always going to be king,” added Kavanaugh, “and this is a good time to be a content owner.”
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