AFM: Indie Financing in the 'Dark Ages' of the Recession

Richard Gere - Actor - Arbitrage - P 2012

A panel on finance at the American Film Market says the movie business has rebounded but things are never going to be the same, thanks to digital.

Santa Monica – The title of the opening finance panel at the American Film Market on Friday might well have been, “The movie business after the Dark Ages.”

In this case The Dark Ages is a reference by Nigel Sinclair, co-chairman and CEO of Exclusive Media, to the era after the great recession that began in 2008.

It was in 2008 says Sinclair that “the bottom fell out of the way we did business.” He said for a period of more than two years buyers weren’t buying, banks weren’t lending, investors were scarce, bonding companies weren’t bonding, U.S. studios weren’t acquiring independent movies for distribution and local distributors faced an economic squeeze in their home country.

Then beginning with the Cannes film festival in 2010 it “gradually turned around to where we are today.”

Where we are today said Sinclair and the other panelists is a world where there are presales again, but only for better movies with name casts; where there is financing, but the financiers are much more sophisticated and demanding.

“The last couple of years things are robust,” says panelist Graham Taylor, head of the global finance and distribution group for William Morris Endeavor. “But you have to be much more precise about how you put (your movie) together.”

That means having a strong script, some seductive elements (stars, a known director) and a well thought out financing strategy that includes all the elements, including the cost of money, completion bonds and the flexibility to withstand delays in production.

Before the recession, buyers might bite just based on a star or director being attached to a project but that is no longer consistently the case.

“Now distributors and buyers are incredibly sophisticated,” adds Taylor, “and the strength of the script is just as important.”

That impacted both domestic and international distribution. Where pre-recession genre films and other marginal movies could find theatrical distribution in the U.S. and other major territories, it got a lot harder.

“Marginal theatrical titles had the bottom fall out under them,” says panelist Tom Ortenberg, CEO of Open Roads Films (whose owners include two large U.S. exhibitors). “If your film isn’t worthy of a theatrical release, there’s relatively no floor at all.”

What he means is that pre-2008, certain kind of genre films or movies with a well-known star would almost automatically attract some box office, but that is no longer the case.

Ortenberg says in part that is a result of changing tastes by audiences, who have many more leisure and viewing choices today. That is driven by what he refers to as the “digital disruption,” the advent of online and mobile distribution which makes all kinds of content much more easily available than in the past.

And it is still growing in importance. “Broadband expansion is a tidal wave that will overwhelm our industry,” predicts Sinclair.

That is a change that is already having implications for everything from what movies get financed to how long they stay in theaters before moving to electronic distribution.

The panelists were unanimous in predicting that the windows of distribution will continue to be squeezed down to a shorter and shorter period between a big screen release and the same movie on small screens.

Ortenberg noted that at one time there was a window of 180 days or longer from theatrical release to home video. Then that dropped to 120 days and now it is 90 days. For some releases it is already down to 30 days, but those are movies that exhibitors will not accept as yet.

Those movies have a “stigma,” says Ortenberg, that limits them to no more than about 250 (North American) theaters. “They can never break out and become a hit with the current policies in the industry.”

Taylor used the example of the movie Arbitrage, which stars Richard Gere, an independently financed film that got a “day and date” release in theaters, meaning it was also almost immediately available on video on demand, and a month later on all kinds of electronic and physical home video platforms.

Taylor says it did well for what it cost and the expectations, but by going “day and date” there was a limit to just how well it could do. Since major movie circuits would not play it, because of the short release windows, it moved to its afterlife in home entertainment shortly after release.

When that happens, Taylor says, people always say in hindsight it should have gotten a traditional release so that it could have played wider and longer in theaters. However, he doesn’t agree. “We would have had to quadruple spending on (marketing) to out in the traditional method,” says Taylor, “and I’m not sure we would have done any better (in terms of financial return).”

It does speak to the expanding choices there are for distribution, which is also creating new models for everyone from financiers to studios to high profile talent.

There used to be only two viable models when it came to top actors, says Graham. Either they were paid their full salary by a studio or producer, or they worked for a fraction of their usual quote in order to get an artistic or art house type movie made.

“Today those lines are blurred,” says Graham. “Talent is really much more amenable to us than they were even two years ago or five years ago. This has leveled the playing field.”

However when these stars take more risk, they also expect to share in the upside more substantially. That is fine with Sinclair, who in a former life was an attorney for many of the top stars. “Any artist who helps get the movie made is seriously contributing to the budget,” says Sinclair. “He deserves a share of what I call ‘enterprise profits,” a terms I started and now have people using on me.”

Sinclair says those who put up this kind of “enterprise” financing to get a movie made deserve as much consideration if it is a success as those putting up actual cash. “They laugh when we laugh,” says Sinclair, “and they cry when we cry.”

The moderator was moderated by P. John Burke, who is a partner in the law firm Akin Gump Strauss Hauer & Feld, which was a sponsor of the event.