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The upcoming Cannes virtual market, running June 22 to 26, will be the industry’s first major trade event to take place amid the new realities of pandemic. The unprecedented all-digital nature of the occasion will ensure that dealmakers’ personal health and safety is preserved, but the landscape they’ll be contending with remains riddled with unknowns.
“The film business has always been a gamble,” says attorney Lindsay Conner, chair of the entertainment group at Manatt, Phelps & Phillips, “but this year, because of Covid-19, the gamble is bigger than ever.”
The major studios and streaming platforms have the resources to mitigate much of the current environment’s uncertainty, analysts say, but the beleaguered indie film sector — where most of the big-ticket buying and selling action traditionally takes place at Cannes — has been left particularly exposed.
With a vaccine nowhere close to global readiness, reinsurance companies — the groups that insure insurance companies — are refusing to cover COVID-19-related risks, making production insurance and completion bonds impossible to secure. Without these instruments, institutional investors — never in the game of taking on undue risk — can be expected to balk at bankrolling new indie projects.
International production executives the world over are now calling for governments to step in, as the U.S. did after the 9/11 attacks, when legislation, called the Terrorism Risk Insurance ?Act (TRIA), was introduced. That bill required insurers to make terrorism coverage available to policyholders, which was instrumental in getting film production in New York City back on track.
In several countries, production groups are pushing for TRIA equivalents to cover risks from coronavirus or other future pandemics. German trade group the Production Alliance has called for a government-backed fund to cover losses incurred by companies forced to shut down or cancel shoots due to an outbreak. The major production hubs of Australia and New Zealand also appear “ahead of the curve” with both COVID-19 containment and industry support legislation, notes Christopher Spicer, a lawyer for Akin Gump.
Government insurance backstops down under, combined with rigorous on-set safety protocols, should eventually translate into insurable safe zones — in territories that also happen to have world-class production infrastructure and incentive schemes. But the implementation of a state-level response in any country is still months, rather than weeks, away.
“There has been a strong response from the government and we are hopeful,” says Martin Moskowicz, chairman of German mini-major Constantin Film, “but production companies need the support now: to mitigate the production risks associated with epidemic infection outbreak or, for example, if there is a second lockdown.”
The likelihood of a timely TRIA bill for COVID looks particularly discouraging in the U.S. Seven Republican senators, backed by the National Association of Insurance Commissioners, recently sent a letter to President Donald Trump saying there were “very skeptical that any such proposal would be able to provide the appropriate coverage at an appropriate price for our nation’s small businesses.” A central problem, insurers contend, is that the risk of coronavirus infection, or of a second COVID-19 outbreak, is considerably higher than that of a terrorist attack.
At the fast-approaching Cannes virtual markets producers, thus, will be forced to work out bespoke agreements with studios, networks and alternative financiers, seeking creative ways to split the risk in case of a coronavirus incident.
“Everything is in flux right now and there is no one-size-fits-all solution,” notes June Tan, a transactional attorney for Loeb and Loeb. “Equity financiers and non-bank lenders may have different risk appetites and may be looking for ways to negotiate a better deal,” she adds. Sellers and distributors will also be taking a hard look at windowing and whether revenue splits between theatrical and VOD need to be restructured.
At budgets below $10 million, alternative lenders — often the family offices of ultra high-net worth individuals — occasionally will be willing to share risk with producers with whom they have built trust. Other private equity investors may be lured to the table by an opportunity to set more attractive terms.
Star-driven, big-budget indie packages, already growing scarce at Cannes in recent years, will attract the usual interest among product-hungry international distributors, but wariness over the deep uncertainties surrounding such vehicles — like exactly how and when they can actually be fully financed and delivered — will also reign supreme.
“There are going to be optimistic gamblers betting on normalization, but they’re going to extract a price for taking that risk,” adds Stephen Saltzman, an attorney for Paul Hastings who often represents large foreign distributors in film finance agreements. “You may see distributors arguing for no deposit up front, no holdbacks against the U.S. release, no approvals over their theatrical release and marketing plans — and also to pay less than they usually would for the same film — all because there won’t be a bond in place.”
Adds Conner: “The blend of creative optimism and business realism that drives our industry requires compromise, and this year’s unprecedented virtual market will be a master class in compromise.”
The likes of Netflix, Amazon and Apple, meanwhile, if not already the kings of the Cannes market, will receive their formal coronation at the digital edition this year, as nearly every facet of the new landscape would appear to play to their advantage. “The fast-rising streamers have the money to fund or purchase films without worrying about theatrical distribution issues or the need to cobble together financing from a patchwork of territories,” Conner explains. “Production challenges may still affect them, but the impact of production issues is reduced because they don’t have to meet a release schedule to make quarterly numbers or sustain a distribution platform.”
From indie producers, expect a pitch mantra emphasizing smaller, tighter, safer production practices, since many of the new hygienic guidelines being introduced at backlots and soundstages to minimize COVID-19 infection — including reducing the size of crews and those on set at any one time — could have the knock-on effect of reducing liability. Fewer people available to be infected means fewer potential damage claims. The same goes for films that can be shot entirely on a soundstage or closed set. Internationally bankable stars, for their part, will probably be booked for far fewer days, in case the need for rescheduling arises.
“My focus, in the next three to four months, will be on shooting smaller films that can be predominantly contained, that way there isn’t the liability,” says Jeffrey Greenstein, President of Millennium Media, producer of Angel Has Fallen and The Expendables. “While we do that we’ll continue to prepare and build our franchise films to be ready to shoot them as soon as possible.”
Adds Spicer: “A lot of producers have taken advantage of their quarantine experience to ramp up their development work even more than usual. So my sense is that the big indie packages are still going to be discussed at virtual Cannes, they’re just going to take quite a bit longer to get over the finish line.”
A version of this story first appeared in the June 10 issue of The Hollywood Reporter magazine. Click here to subscribe.
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