Industry currents make for strong AFM dealmaking

Product-hungry distributors, a plummeting dollar, a looming strike -- some serious factors could create the right climate for major dealmaking at this year's American Film Market.

With foreign "indigenous" production booming and piracy rampant, one might think that the American Film Market would be sailing through choppy waters. Nothing could be further from the truth. The Santa Monica-based market, which runs Oct. 31-Nov. 7, is bracing for an onslaught of business. A slew of new domestic distributors, a plunging dollar and the galvanizing effect of a potential strike are creating a perfect storm of opportunity for sales agents who are heading to the market in greater numbers than ever before.

Indeed, attendance has never been higher -- AFM now spills over from its longtime headquarters at the Loews Santa Monica Beach Hotel into the neighboring Le Merigot, according to Jonathan Wolf, executive vp of AFM's parent organization, the Independent Film & Television Alliance.

"There will be a lot of international sales done," predicts Hal Sadoff, who heads ICM's independent and international division. "There's the devaluation of the dollar. It's 20% cheaper for European buyers to buy films than it was two years ago, and then there is going to be new product that hasn't hit the marketplace as people gear up for this pre-strike environment."

Not to say that there aren't some issues facing executives. The spike in local production in major territories around the globe is a concern for anyone trying to sell movies to major Asian nations like Japan and Korea, and the continued
cooling of the world DVD market has reduced ancillary revenue streams.

But for the most part, insiders are rallying around the market as the last real place to transact any business in advance of the seemingly inevitable strike that threatens to halt production for some time. That fear of a strike by Hollywood's writers is sending indie executives into action, much in the same way that it has execs at the majors scrambling. All the leading independents have been racing to stockpile films in order to cushion themselves against a period of prolonged inactivity, and foreign distributors are racing to snap up rights to those projects.

"This is pretty much it," says Kim Fox, senior vp international sales for QED International, explaining that this AFM is the last big market before new movies have to be greenlighted or put on hold. "Everything needs to be in principal (photography) by March 1, so this is the last marketplace where you have an opportunity to sell. Berlin in mid-February (the next market) doesn't give you enough time to sell and close your distribution agreements and your loans.

"We are scrambling to find product in shape enough so it can start shooting in six months," Fox adds, "and that's about getting a viable cast, when everyone's slots are closing up pretty quickly."

Even skeptics like Avi Lerner, co-chairman of Nu Image and First Look, who wave away the strike threat are well aware that the race to book talent is currently inflating the asking price of name actors. "Every agent, every manager, is pushing his actor to take a job before the strike," Lerner says.

"A lot of the top stars right now are booked through the strike or asking astronomical amounts," echoes Eric Christenson, president of sales and distribution for Initial Entertainment Group. "There are not many stars that aren't booked, and the ones that do have openings are asking a lot of money upfront. The inflation has been noticeable."

Of course, if no strike occurs, many sales companies will find themselves with an excess of product on their hands, and buyers similarly might find themselves with no cash reserves to spend on product come February in Berlin, leaving many of the films that are hurriedly being put into production without theatrical distribution. "There are going to be a lot of films offered to the marketplace, and that means it won't be enough for a film to be good -- it has to be great in some way in order to get sold," says Myriad Pictures president Kirk D'Amico.

Despite all the talk these days about the ways alternative distribution strategies are impacting the world of independent film, theatrical distribution remains the holy grail for every movie, no matter how slim its budget. And after years in which deals at the major markets were stymied by the dearth of domestic distribution outlets, sellers now find themselves with a wealth of options -- a fact that is bolstering the sense of optimism so many AFM attendees feel heading into the market.

A newly reconstituted MGM and United Artists, a revitalized First Look, the brand-new Summit Entertainment, a deep-pocketed Overture Films and a burgeoning Weinstein Co. all will be looking to pick up quality material at AFM. Also, specialty outlets like Bob Berney's Picturehouse and Jeff Sackman's ThinkFilm will be doing some window-shopping, especially ThinkFilm, which has been bolstered by an infusion of cash from financier David Bergstein.

"That's good news for companies like ours," says Shebnem Askin, president of 2929 International. "We have more options in terms of domestic distribution. It gives us more companies to sell to.

"It showed in Cannes with 'We Own the Night' because we had a lot of suitors," Askin continues. "We had seven domestic companies making an offer, and they are more competitive when there are more buyers. That pushes the price up by at least 30%. It has made the U.S. a much more robust market, when before it was the riskiest market."

In the case of "We Own the Night," the Joaquin Phoenix starrer directed by James Gray, Askin eventually sold the movie to Sony for domestic release in an eight-figure deal. But the bidding war "Night" generated might be something of an anomaly. Not all the major players are convinced that the new domestic outlets will have an enormous impact, and many were stunned at how little business was conducted during September's Toronto International Film Festival.

"Ultimately, it was the commerciality of the films presented in Toronto that limited the scope of their worldwide sales," says David Dinerstein, president of worldwide marketing and distribution for Lakeshore Entertainment. "(The domestic distributors) have a business plan that they are sticking to, and they are not going too far out of the box. That doesn't mean they don't have to fill a slate, but they have to fill it with the right kind of product."

Adds Cassian Elwes, who heads William Morris Independent: "We all had these high hopes, but the reality is, the way that they finance these new companies is based on wide-release strategies, and most independent films aren't wide-release. In Toronto, the big buyer wasn't even one of the new companies -- it was ThinkFilm. They bought 'Battle in Seattle' and Helen Hunt's film ('Then She Found Me'). They have more money, and they saw more opportunity for themselves because none of these big new companies was making an offer."

Patrick Wachsberger -- who spearheaded the creation of Summit's domestic distribution division when it was launched this year under his leadership and that of former Paramount vice chairman Robert Friedman -- says he won't overpay, even at this early stage when Summit needs product for its domestic pipeline. Wachsberger seems perplexed at the notion that there has been any kind of explosion in distribution at all. Rather, he argues, companies like his were formed to fill a gap.

"You call that an explosion?" he asks. "I don't see it as an explosion because of the consolidation of the other studios," like DreamWorks and Paramount.

At the same time, Wachsberger says, as a seller of films, he believes there remains an enormous appetite for quality film, especially as the studios increasingly hold onto all rights rather than partnering with foreign distributors. "Remember that with all the flow of money (from hedge funds and the like), the studios have been able to keep the worldwide rights for their movies. The days when studios were looking for foreign partners are gone, at least for the moment."

Gone too are the days when such movies could screen abroad without much competition. One of the most worrisome developments to many American sales agents has been the growth of foreign-language or "indigenous" filmmaking to rival their own.

"More than 50% of the IFTA companies are based overseas," notes market veteran Rob Aft, president of Compliance Consulting. "It is still the American Film Market, but it is very much featuring high-quality, potentially world-class, commercially viable movies being produced in Spain and Korea and Mexico. Where occasionally you'd have got an art film that would do well, now Spain is making $30 million-$40 million pictures."

Recognizing this, some American players are moving away from purely American films and are themselves entering the indigenous market. Gary Hamilton's Arclight Films, for one, is financing local productions in China and has even set up a sister company, Eastern Light, to make Asian films. "We want to focus on local co-productions in areas like China and Singapore," he says.

Kacy Andrews, CEO of Bigfoot Entertainment, says she is coming to the market with a movie shot in both Mandarin and English, the thriller "Irreversi," betting that such truly international efforts will be the wave of the future.

That ability to adapt will be critical if the indie sector hopes to flourish amid the radical changes currently taking place in the business today. The fact that the DVD market is declining by roughly 2%-3% annually is just one example of the way technology is informing the future, according to Doug Schwalbe, executive vp sales and co-production for Classic Media, which owns and manages the rights to such classic characters as Lassie.

"It is declining, but the question is, what kind of product is it declining for?" Schwalbe asks. "And where is the audience going? Are they going to digital media, to video games? Are they time-shifting regular network TV shows on their DVRs? We are trying to figure that out."

More worrying still is slippage in movie attendance, Lerner says. "If you look at attendance around the world, it is going down," he notes. "Either the movies are not good enough or (audiences) have got alternatives. At one point, you could go to a live theater or a concert or a movie. That was it. But today there are games, TV shows, the Internet, DVDs. People are going less and less to see movies."

Obviously, exhibitors and distributors are determined to do anything in their power to stem audience erosion, and so many say that the best way to bring moviegoers back into the fold is to acquire and release the highest caliber of product. "Whether it is the possibility of piracy, whether it is the possibility of other forms of entertainment or whether is the lack of quality in certain films, they will all have an effect on the marketplace," says Dinerstein. "Having said that, we are continuing to see good films command audiences. You can name a bunch of films that performed far better than their local distributors expected. If the film is right, the audience is there."