AFM 2011: Banks Getting Conservative at This Year's Film Market

American Film Market Santa Monica - H 2011

American Film Market Santa Monica - H 2011

Panelists addressed the current state of deal-making at the "Current Issues in the Production, Financing and Distribution of Independent Film" session.

There are less than a third as many banks trolling for business at this year’s AFM compared to five years ago, the silly money from hedge funds and dentists has dried up and those who are lending are being a lot more conservative. But for those with the right product, a name cast and some equity to inject, there are once again plenty of deals to be made.

“If you’ve got a good film and stars,” said Ashok Amritraj, CEO of Hyde Park Entertainment, “then the pre-sales market is strong as I’ve ever seen.”

“For the higher end of independent film,” Amritraj added a few minutes later, “it feels like the buyers are here with their check books.”

That was the positive news from the opening panel of the 2011 AFM Conference Series, called “Current Issues in the Production, Financing and Distribution of Independent Film” held on Friday in Santa Monica, moderated by Steve Fayne partner in the law firm Akin, Gump Strauss Hauer & Feld. .

“Money isn’t the problem,” agreed Doug Hansen, president of Endgame Entertainment. “It’s finding a quality project.”

That wasn’t good news to a SRO packed room of people, many of whom raised their hand when asked if they were independent producers. For those with small films without stars, especially if they aren’t exploitable genres, it remains difficult.

The panel, however, highlighted the bigger projects.

“If you have the right project there are still plenty of places you can bring it to,” piped in Robert Hayward, COO of Summit Entertainment.

After several difficult years there are fewer big independently made movies, but strong support available for those that can give the foreign sales company the genre, stars and story they need to make deals with the international buyers.

“I would rather see there is not as much good product because that means the good product that is here will be sold,” said Jared Underwood, senior vp, group manager entertainment for the Comerica Bank Entertainment Group. “I’m happy with the way things are.”

Before the global recession hit around 2008 there were at least 35 banks active in entertainment finance, said Underwood.

At this year’s film market there are about ten banks on hand, and no more than six to eight are actually making loans, added Underwood.

“We’ve been nervous, said Underwood. “We’re bankers. We’re always nervous.”

Hansen said that one area they are doing less in is bridge loans. While they still are “opportunistic” when deals come up, like the banks they are being more careful: “We do bridge loans but we don’t want to do pier loans, where when you get to the end, it drops off.”

One thing banks don’t want to lend against as much as in the past are film libraries, and when they do bank that as an asset, the values are much lower as a result of many companies who have seen library revenues droop.

“Those they do lend against they are taking a much more conservative view,” said Underwood. “They are all being taken back a bit.”

However Haywood said Summit would like to acquire more libraries of films to help provide a more stable base even with the lower valuations. He noted that there are opportunities with the growth of the Internet and digital VOD, Itunes and streaming services like Netflix and Amazon.

While digital is the buzz, there is renewed emphasis on theatrical releases, because of the falling value of the DVD market and uncertainty about the potential from electronic distribution.

Patrick Russo, who is a principal in The Salter Group, worried that those new digital buyers are creating values that may not be supportable over time. He compared it to the early 1990s when the growth of international TV had sellers making optimistic projections.

“There’s a question whether a bubble is being created today,” said Russo. “There is an enormous amount of activity we are seeing. Rights holders have more opportunity to exploit content than ever before. But it is unclear when the value from these new windows will end. It’s too early to tell.”

Those new rights raise questions about the value of existing rights that are still being sold. Hayward said when Summit recently negotiated a new deal with HBO, there was a lot of discussion about all these other windows. HBO, he added, “has gotten a lot tougher in negotiations” to make sure they aren’t behind all these other ways people can now see movies.

Hayward said he doesn’t believe the premium VOD window which has exhibitors nervous – where movies are available electronically 30 or 60 days after release – is going to be much of a factor. He said people would either see it in a theater or wait another month or two and buy it on VOD for a fraction of the price.

“Theatrical is still the launching pad for movies,” added Hayward “You don’t want to sabotage that.”

Russo said the studios must evolve with changing technology so that they don’t get hurt as the music business did by waiting too long to exploit new revenue opportunities. “If they don’t evolve with the consumer,” said Russo, “then the consumer will simply steal (the content) as happened to the music industry.”

Even so piracy is a concern, noted Hayward. He said for the upcoming Twilight sequels, Summit is spending over $500,000 to protect the materials it is sending out for what is projected to be a massive day and date release in about 80% of the world. He said in Malaysia, for instance, prints and digital versions of the movie that have to be dubbed or subtitled are being accompanied by a guard who travels with the materials..

The best laugh line of the panel came after Amritraj compliments Summit’s Hayward for being the only “guy to get an overage (additional payments) from Mongolia.”

“We couldn’t decide,” quipped Hayward, “whether to bank the check or frame it.”