Roundtable: Indie dealmaking

VIDEO: How vibrant is the independent film scene? How much does it depend on the major film festivals? THR's Stephen Galloway discussed those matters with five experts.

How vibrant is the independent film scene? How much does it depend on the major film festivals? How useful are the markets that accompany them?

On the eve of the Festival de Cannes and its attendant market, The Hollywood Reporter's Stephen Galloway discussed those matters with five experts: (clockwise from top left) Newsweek film critic David Ansen; Kirk D'Amico, president and CEO of Myriad Pictures, a production and sales company; Cassian Elwes, co-head of William Morris Independent; Mark Gill, CEO of finance and production company the Film Department; and Avi Lerner, co-chairman and CEO of Nu Image/Millennium Films.

THR: Let me throw out a statement: The independent film scene is as flourishing as it has ever been. True or false?

GILL: True, with a bullet in the wrong direction. There's more money in it, certainly, than there ever has been before. There's more studio interest than there has been before. But there are two parts of it that are falling apart: One is that the sort of movie that's really hoping to get into Sundance, of which there are 5,000 a year, can't seem to find distribution or a way to get to the audience. And the other is that all the money that's fueled a lot of this boom is about to go away.

THR: The movies that can't get into Sundance being the ultra-low-budget movies?

GILL: The under $7 million or $8 million movies. The market for those is extremely tough. Every now and again, there's a "Little Miss Sunshine" (2006) and everybody gets excited and thinks: "I could have that too."

ELWES: One out of thousands.

THR: And why is the money going away?

GILL: Well, welcome to America! Wall Street money is done -- there's not going to be any more of that.

THR: But does that really impact the independent scene?

GILL: There's a lot of money that's been sloshing around from Wall Street and all the high-net-worth individuals, and you'll start seeing them gradually fade out. It will be better than it was 10 years ago, but it won't be as good as it was last year.

THR: Can less money be a positive?

D'AMICO: It will be more market-driven, the buyers having to step up and replace some of that money.

ELWES: I actually think all of this is a good thing for the business, because less films are going to get made that should never have been made and the ones that will get made are the ones that actually do have a market. The biggest problem facing us is the distribution of these pictures in America. The DVD business is flattening out; the theatrical business is becoming increasingly difficult for independent films. As the studios release more tentpole pictures, it really squeezes the independent films out of the marketplace and forces independent distributors to spend more money to get recognition in the marketplace. And what we are seeing is, the numbers are going down for the acquisition prices and that again forces us to rethink the types of films that should be made.

LERNER: Generally, the film market is becoming more selective. In the '80s, we could make any movie and presell it; today, we have to really be careful on the premise of the movie and also cast and director. And even script.

GILL: Notice you said that last!

LERNER: What we have done, like most of the big independents, is we moved our target from the straight-to-DVD movie to more theatrical films. Today, with the exception of "event" movies, we are doing the same movies as the studios, just with less money.

THR: You recently bought a distribution arm, First Look Studios. Why?

LERNER: We need to make a movie that has a (domestic) theatrical release, because the (foreign) buyer, which in our model is about 70%-80% of the money we are receiving, will not buy a straight-to-DVD movie. People forget that we have to sell our movie, and we cannot make a mistake.

THR: David, how has this impacted the quality of what you see? Has it been a great time in film?

ANSEN: Not a great time, no. Last year, actually, was a good year, and it was a pretty good Sundance this year; but there is so much product out there -- there are weekends when there might be 17 movies opening in New York or Los Angeles, and the audience has no idea how to distinguish between the good and bad. It's getting harder and harder for us critics to point that out. I always felt critics meant a lot for foreign films and independent films. But I am not sure our influence is what it was.

THR: Kirk, how dependent are you on critics like David?

D'AMICO: For a certain kind of film, we're dependent initially on festivals. But then, what's the response coming out of the festival? At a festival, if we have a film that's available for domestic, oftentimes the buyers will know what the critics are thinking even before we do, because they are out there testing the waters, talking to the New York Times or Time magazine.

ELWES: Increasingly in the festivals, with the pictures we are trying to find distribution for, a lot of the distributors are waiting to go online that night to see what the reviewers are saying, because they don't want to look like complete morons when they pick up a movie and find out the next day that everybody hated it.

THR: Does that encourage you to put it in a festival?

ELWES: You have to. A small independent film made for $5 million
or less has to go into some type of festival because then the Good Housekeeping seal of approval has been stamped on the picture.

ANSEN: You could see very clearly in Sundance this year, the art house films -- the less commercial but critic-generated movies -- got picked up, the ones that got the good reviews, like "Momma's Man" or "Ballast," and it's entirely because of critical reaction.

ELWES: There was a stampede toward those pictures because the reviews were coming in and they were so great.

D'AMICO: With those little films, the critics act as a substitute for spending money on marketing.

THR: Mark, now that you have set up your company, are you making a
different type of film than you would have two or three years ago?

GILL: There's no question about it.

LERNER: It's his money! (Laughter.)

GILL: I happen to love a great range of films. But let's use (2001's) "In the Bedroom" as an example: That is a much more difficult proposition now than it was five years ago, and even then, the Thursday before it opened, (Gill's then-boss at Miramax) Bob Weinstein called me up and said, "Mark, you're costing me and my brother millions! What the f*** are you doing?!" I said, "Let's wait till Monday." And it worked. It was not an easy one even then, but it is a much harder one today. Even then, the movie did $35 million here but only $7 million overseas -- and the business is now two-thirds international, one-third domestic. So when you have a movie that has an inverse possibility of making money, that's harder. Second, the culture in all the Western countries has grown much less receptive to the dark, challenging film -- unless it's heralded like "No Country for Old Men." But that happens to two films a year.

ELWES: The zeitgeist we live in, the world we are living in, is so depressing that you want some escapism.

GILL: So one of the things we looked at as we were raising the money is, where is the market demand? And it occurred to us that, internationally, it is between about $10 million and $45 million. Once it gets over $45 million, the studio should do that. Also, the studios will tell you their return on movies that cost between $50 million and $100 million is 1%, and on the ones over $100 million, it's about 35%. That's a kill zone, there in the middle.

LERNER: I don't believe in the studio approach. They say, "Oh, the movie costs only $40 million -- we cannot buy it." I say, "OK, the movie will now cost you $80 million!" The executives don't understand. In their model, a movie that costs $25 million-$50 million doesn't work. Part of the survival of our company is that the movie the studio would do for $80 million, we can do for $50 million. That's exactly what our model is, because it is impossible to sell in the foreign market for more than a certain amount of money. Of the six major countries (the traditional major markets for U.S. films), one of them doesn't buy anymore (Japan). So there's only five major countries left: England, France, Spain, Italy and Germany.

ELWES: In our business of independent cinema, we are not necessarily banking on the boxoffice success of the film. We are thinking about what's the budget, what kind of soft money can we get, what are the foreign presales and domestic sale going to look like, then trying to make the picture for less than we ultimately think it is going to be sold for. But our business supports us making artier movies, if they can be made for the right price.

LERNER: But we try to make those movies for less money without hurting the production value.

D'AMICO: There's a real conundrum here: When we go to sell internationally, it is budget-based; but when you are selling into the U.S., it's a question literally of the demand at the first screening. Do I have two bidders or one or six? It has almost nothing to do with the budget.

THR: Is there a move away from art house cinema in general?

ANSEN: The whole society has changed. In the late 1960s, there was a culture and a counterculture, and that's disappeared. Plus, the youth market -- there are many other options than movies for them. So now you run into students that have never seen a movie with subtitles.

ELWES: I also want to bring up one thing that is so critical to all of our thinking, which is that the backbone of independent cinema is pay television, and pay television is pulling away from film. When you see the success of mini-series on HBO and Showtime, and the other things you can see on pay television, those companies are feeling like they don't necessarily have to buy all the films. You are really seeing a shift in the paradigm of the way films are being financed and released.

GILL: It's why we didn't start a distribution company -- because we could not crack the pay television market. Their theory is, "All right, we'll take the big studio movies. That's enough."

D'AMICO: The pie that's available for us to sell into is really tiny. As the studios push more and more, our survival is about our ability to compete against the studios.

THR: Has the demise of New Line helped?

ELWES: There's one less buyer.

THR: But there's also one less seller.

LERNER: But pay TV and free TV, it's all controlled by the studios. For an independent, it's nearly impossible to sell them a movie.

GILL: New Line's demise is a tragic thing. It's 600 jobs, the loss of a buyer, the loss of a distributor. There's nothing good about it. The silver lining is, if you are also selling to the international markets, they are now a lot hungrier because they need to fill that void.

THR: Going back, when you said you are making a different kind of film than you would have done -- in what way?

GILL: We realized increasingly the bulk of what we do has to be wide-release and has to fit cleanly within a genre -- whether that's drama or romantic comedy, action or thriller. You have to fit in that box nicely -- no "tweeners," thank you very much. And they all have to be high-concept, because it is getting harder and harder to get attention.

ANSEN: The marketplace basically is forcing you to think exactly like a big studio.

GILL: Conceptually, yes. But in terms of the quality, the idea is you have to have a far better script in order to get the actors to do it for less, because otherwise they'll take the studios' money.

THR: I was stunned to see how much the studios are spending even on their specialty releases, when the numbers were unveiled earlier this year by the MPAA.

GILL: They were thrown off by a few really big films. If you look at the median cost, it would be dramatically less, but it is still far more than it used to be. The cost of making movies has outstripped inflation. The cost is dramatically higher.

THR: How have the tax incentives provided by the U.S. states helped?

ELWES: When you had German tax money fueling the independent film business, 20% of the money could come from a German company. But that money had to be repaid. Now these states are offering incentives of 20-30% of a movie's budget, and that is essentially free money. It couldn't be a better time to make films in America.

THR: Avi, are you still shooting in places like Bulgaria or are you coming back here now?

LERNER: No, we definitely are in favor of shooting a certain kind of movie in Bulgaria. We are building the largest studio in Europe in order to shoot movies there. There is no question the currency exchange is unfavorable. But the labor -- when a driver in New York costs you $6,000 per week, compared to a driver in Romania that costs you 100 euros or 150 euros ...

D'AMICO: Bulgaria doesn't have subsidies, right?

LERNER: You don't need a subsidy when the average person costs you $200 per month.

THR: The economics of this is very global. Is that globalization impacting the art and
content of film?

GILL: Any film that wants to play outside of its home country needs to be in English, with a few exceptions. But there is also growing local-language production in every market
for $2 million-$10 million movies.

ELWES: It is much harder to sell films to Japan now, because there is such a vibrant local market.

THR: Beyond the local market, though, how is globalization affecting the films we see?

ANSEN: Just look at the movies that opened in April. You've got Wong Kar Wai making "My Blueberry Nights" (MGM) in English; you've got Hsiao-hsien Hou making a movie in French ("Flight of the Red Balloon," from IFC Films).

THR: How good are these films?

ANSEN: "My Blueberry Nights" is a good demonstration of someone who was lost in a locale. There's a danger you are going to lose what is distinctive about a culture.

THR: What should America do to preserve its own independent film culture?

ELWES: I would love to see the government help small distribution companies and subsidize them so that they can grow and allow the independent cinema to be vibrant in this country.

LERNER: They should make a law that the television networks have to buy a certain amount of movies from the independents. All the basic and pay television, 99% is from the studio -- it is like a cartel. Otherwise, at the end of the day, it will all be controlled by the studios.