Service deals becoming a hit at Sundance

Pacts see producers pay distribs upfront fee, b.o. percentage

PARK CITY -- A bidding war broke out at Sundance last weekend over the sci-fi entry "Splice," which stars Adrien Brody and Sarah Polley. But it wasn't the typical contest in which distributors vie to see who is willing to pay the most for rights to the hot movie of the moment.

Instead, the suitors were offering service deals, under which a movie's producers pay them an upfront fee and a percentage of boxoffice returns to get the film into theaters.

As a distribution strategy, the service deal was once considered a mark of shame, a last resort for films.

But as changes have swept the indie world, service deals have become an increasingly popular option, one way to ensure the prestige and visibility that only a theatrical release can provide. With so many specialty outfits having closed their doors, and other companies limiting offers to video rights, producers are more willing to share in the costs of releasing their pics.

Under the service model, producers pay distributors an upfront fee and a percentage of boxoffice -- in many cases, that also covers the distributor's outlays for marketing and distribution. The upside is that they retain rights and future profits on the movie; the downside is they take on much greater financial risk. And new variations on the model are cropping up all the time, sometimes with distribs buying only partial rights.

Freestyle Releasing has built a business out of offering service deals, and new outfits like Mark Urman's Paladin, built around the same model, are popping up.

Smaller companies like Emerging Pictures and Variance, aided by consultants such as mTuckman Media and Richard Abramowitz, also are in the game.

While they also employ traditional acquisition deals, Bob Berney and Bill Pohlad's new Apparition, the Weinstein Co., Newmarket Films, First Look Studios and Samuel Goldwyn Films were all in the race Tuesday to land a "Splice" theatrical agreement with some sort of service deal.

The winning bid could depend on such factors as the service fee charged and the market plans offered. Two companies could also partner: Purchasing video rights, Sony Pictures Worldwide Acquisitions Group has frequently joined forces with Goldwyn and has been developing a relationship with Apparition for service releases.

To help make such deals, a small number of third-party, private P&A investors, such as the Herrick Co., are quietly moving around Park City, hoping to partner with producers on theatrical releases. A P&A investor is expected to step in as part of the "Splice" deal, with CAA repping the filmmakers.

Freestyle president Susan Jackson said Sundance sales agents are increasingly more interested in helping their filmmakers secure release funding. She cited Cinetic Media's work with Freestyle on Richard Linklater's "Me and Orson Welles," and others may even provide some of the funds themselves.

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Banks have largely left the P&A lending game, or they demand such high-interest, big-collateral loans that most don't view them as a viable option. In some instances, sales agents are providing some of the funds themselves to ensure a release.

The service model is actually more common than many realize. When Harry Sloan took over MGM in 2004, he put a "for hire" sign on its distribution operation. A number of films in Lionsgate's recent lineup have come as a result of service deals, including Relativity's "Brothers," starring Tobey Maguire, according to a production exec on that film.

And even the major studios are sometimes involved. George Lucas, for example, wasn't interested in selling rights to his second "Star Wars" trilogy to the highest bidder; he just licensed them to Fox.

At Sundance the past few years, more and more distributors who normally opt for conventional rights buys are discussing service deals.

Last year, LD Entertainment provided P&A to help the producers of Chris Rock's doc "Good Hair" secure a service release through Roadside Attractions.

Other producers are building P&A funds into their budgets or going back to investors for more cash. First Independent Pictures head Gary Rubin said the producers of the 2007 Sundance entry "Dark Matter," starring Meryl Streep, put up their own P&A. The team behind last year's Sundance hit (and newly Oscar shortlisted) doc "The Cove" opted for a Roadside service deal with their own funds.

According to several distributors, here's how it works: A producer pays a theatrical distributor a fee or "floor" -- typically $50,000 to $500,000, depending on the scale of the project -- for publicity, marketing and the booking, servicing and collecting of boxoffice returns from theaters. All rentals go back to the producer in a designated account. Of that, typically 10%-15% of the rentals are paid to the distributor so he will have an incentive to push the film.

The producer might lose money on the theatrical release, but that can be offset if the resulting publicity from theatrical engagements results in greater returns from foreign sales, VOD, DVD, TV, digital and other ancillary outlets.

On bigger deals, in which a producer or a third-party P&A financier is involved and a hefty eight-figure P&A is provided, deals can take on a number of variations. At all levels, some distributors are even buying partial rights to a project.

Some, like Urman's Paladin, also help connect producers with ancillary deals. Urman said he can even help a film transition from a service deal to a traditional rights sale to a bigger distributor as it starts attracting attention in the marketplace.

At his new Apparition, Berney is making service deals part of his regular slate. He plans to do at least one service deal a year with SPWAG, with Sony buying a film or a co-acquisition. One such release, "The Boondock Saints II: All Saints Day," is his highest-grossing release to date.

"If it's the right film, you feel you can sell it and you approach it as a team. It's a completely viable plan given the state of the business," Berney said.

For Sundance producers with quality films who don't get that big offer from Fox Searchlight or Focus -- or get lowball offers from others -- service deals might be a bet worth taking.