No more easy money at AFM, panel says

Conference concludes players will be more financially sound

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The dumb money has been flushed from the system, and going forward, the surviving players in the independent film sector will take a much more sober, financially sound approach.

That was the dominant sentiment that emerged from the American Film Market's annual Finance Conference that might well have been dubbed "The Morning After."

"There was too much easy money out there," Morgan Rector, president of Comerica Bank's Entertainment Group, said. "We had kind of our own sub-prime bubble in the film business."

With the worldwide economy just beginning to recover from a global economic recession and its accompanying credit crunch, the industry figures who assembled for two panels devoted to the state of the independent film business at the Fairmont Miramar Hotel in Santa Monica on Friday struck a cautiously optimistic note. Of course, as attorney P. John Burke, who moderated the first session, noted, the panelists could take a more sanguine view since they were themselves among the survivors who have weathered the indy film glut with strategies in place to move forward.

"All in all, we actually view what's happening as a good thing for the business," said Relativity Media founder and CEO Ryan Kavanaugh. Bad times clear out investors who aren't serious, concurred Media Rights Capital co-chief CEO Modi Wiczyk, explaining, "They bungee in and they bungee out."

Lenders have become more conservative, Jason Sklar, vp of JPMorgan's Entertainment Industries Group, observed. And both he and the Salter Group's Roy Salter made the point that where there had been 35-45 banks interested in loan syndications just a couple of years ago, that number now is down to 10-12. As a result, even a power player like DreamWorks took longer than it originally planned to line up its bank financing.

While Sklar said, "Slate financing is a thing of the past for the time being," Rector predicted that banks will soon be under pressure to go out and start lending again.

Investment money is also beginning to come from emerging markets such as Asia and the Middle East. But Hollywood producers shouldn't expect to take the new sources of financing for a ride they way they treated previous waves of investors.

The new foreign money is "definitely smart money instead of dumb money," said Adam Leipzig, president of National Geographic Films, which is currently in business with Imagenation Abu Dhabi. "Investors are sophisticated, they understand the models, they are looking for partners with a track record and a brand that will make profits."

"Money will always come into the industry because people like being involved in the creative process," added Edward Borgerding, Abu Dhabi Media Co. CEO.

For an American indie producer, presales, tax incentives and subsidies remain the key to raising financing for a film. Seventy-five percent of a film's budget has to come from presales, tax rebates and other types of collateral, Kavanaugh said, adding that "the buyers are able to be much more selective, they are looking for product that makes financial sense."

"You still deal with the same model for presales," Hyde Park Entertainment CEO Ashok Amritraj seconded, but he also added that "foreign buyers are very keen on knowing how to market a movie."

Domestic distribution remains challenging, given the number of indie distributors that have shuttered in recent years.

"It's never been harder to secure distribution in the U.S. if you don't have it going in," Leipzig said.

Noting the importance of having distribution deals in place, Borgerding said, "Our partnerships are very focussed on distribution, getting distribution done the right way."

And while the home entertainment market remains volatile, the panelists were confident that within the next two years, as new methods of digital distribution take root, they will offset current losses in DVD revenues and possibly even grow the pie

Asked by the second panel's moderator, KPMG managing director Benson Berro, to predict what the industry will look like a year from now, CAA's Emanuel Nunez said to expect more consolidation among companies, but that stronger companies would emerge as a result.

Joked Armitraj, "I'm just preparing for the end of the world in 2012."

Describing them as "nice tailwinds," Morgan cited several positive factors: Exchange rates are currently working in the favor of American producers; there is now less product with which to compete; talent costs have come down; and there are more opportunities for tax advantages.