Typing Faster

February 8, 2010

The Death of Indies

Filed under: Features, Kvetch, Movies, the biz — petertypingfaster @ 10:53 am

It’s become pretty obvious that the indie film world is hurting. Acquisitions at festivals like Sundance are down. Independent producers are struggling to secure financing. Indie films are having even more trouble than normal securing distribution. Factor in the unprecedented success of big studio pictures like Avatar, and you can’t help but wonder if we’re bearing witness to the death of independent cinema.

And articles like this certainly don’t help.

Edward Jay Epstein takes an interesting look at just how indie films are put together, and how that business model’s falling apart. He starts with an anecdote:

Consider, for example. the sad story told to me by one of the most successful indie producers in New York. In 2009, he brought a major studio a $20 million project packaged with a hot director and two stars. After running the numbers, the studio estimated that its potential box-office in America at $100 million, which would yield it, just from its 30% distribution fee and a locked-in output deal with HBO, a 100% profit on its investment. But it turned down the project. One of the studio’s top executives told the producer, “We don’t do films that do not have a projected box-office of at least $150 million.”

A 100% return on its investment, and that’s not enough to whet a distributors appetite? If that’s not good enough then what is? Why wouldn’t they jump at an opportunity like this?

The reason for this rule is that a studio has only a limited number of slots for its releases at multiplexes and it has to fill them with projects, whether profitable or not, that generate maximum revenue, since the slice it takes off the top in the form of distribution fee pays the studio’s overhead (which includes the executive’s six-figure paycheck). This means worldwide grosses — almost 75 percent of Avatar ticket sales is from foreign audience — and indie films even if they are profitable, cannot be counted on to do that job.

While the lack of distribution in and of itself isn’t a death blow. The problem is that it doesn’t end there, the lack of distribution impacts the entire financing model the indie film world has used for thirty plus years.

Unlike a studio producer, an indie producer rarely, if ever, has a U.S. distribution deal in advance of shooting. To raise the money to shoot a film, he or she must either find an outside investor, an equity partner, or get a bank loan. What made loans possible, at least up until recently, were the availability of pre-sales agreements. These odd devices, which had been the backbone of indie financing since Dino de Laurentiis invented them in the 1970s, worked as follows: an indie produced would sell the distribution rights in foreign territories and then use the contracts as collateral to borrow from banks. Foreign buyers were willing to sign pre-sales deals because they assumed the film would get U.S. distribution since up until 2008 there was no shortage of smaller distributors specializing in indie films, including Miramax, Fox Searchlight, Fox Atomic Films, Paramount Vantage, Warner Independent Pictures, Picturehouse, New Line, Fine Line Features, Focus Features, Sony Pictures Classics, Lionsgate, the Weinstein Company, and Summit Entertainment.

Since the cash flows from indie films tends to be erratic, these smaller distributors had come to rely on advance output deals with three pay TV channels — HBO, Showtime, and Starz — to pay their overhead. In return, the pay channels got the exclusive rights to show their new movies. In 2008, for example, the $80 million that New Line Cinema received from HBO paid its annual overhead and development costs. Bob Weinstein, the co-chairman of the Weinstein Company, not only described output deals as “the bedrock of the business,” but said in 2008 “not one company in this business could survive and succeed without one.”

And guess what? Now output deals are drying up.

His words soon proved prophetic. When the pay-channels found they needed fewer movie titles to retain subscribers, and began cutting back on their output deals in 2008, the “bedrock” crumbled within a matter of months. By 2010, most of these indie distributors and mini-majors were effectively out of business including New Line Cinema, Fine Line Features, Picturehouse, Warner Independent, Fox Atomic, and Paramount Vantage. Miramax, the linchpin of indie distribution for nearly two decades, closed down its main office in New York, and its owner, Walt Disney, is currently trying to sell its name and library Harvey and Bob Weinstein, who founded Miramax and named it after their parents Miriam and Max reportedly want to buy back the name but, under pressure from their banks, no longer have the money to do so. Almost all remaining players have drastically changed their acquisition strategy. Sony Pictures Classics does not buy any film that costs over $2 million, Focus Features is putting its resources mainly in co-production deals in Asia, and Lionsgate is investing in horror sequels like Saw VII. With the prospect of American distribution rapidly fading, indie producers are now finding pre-sale financing almost impossible. “It’s a dead business model,” a former Miramax executive said.

If so how can Indie producers continue to make movies? They might be able to find wealthy individuals entranced enough with a movie fantasy to put up the money, but they still need to devise a new way in this digital age to distribute them to an audience willing to see something more than the movie versions of amusement park rides.

So where does the business go from here? That’s the question we’re all wondering. If you figure it out let me know…


1 Comment »

  1. The answer is working with a new distribution strategy. It is time for producers to take the reins and forge their own destiny. There are DVD distribution companies like mine that are not trying to use every form of expense to engorge their bottom line, but it takes a responsible, and innovative producer and director to move their film forward. It is time for the creative individuals to extend their focus beyond the making of a film and to their audience and how to get them to be patrons of the art they create.

    I propose the M&A model. Where the funding of a film goes beyond production and garners funds that are set aside for the marketing and advertising of a film upon its completion. Thus making the ROI for the investor built in by handling the major distribution expense up front and not being at the mercy of the old guard of distribution.

    Comment by Craig Minor — February 8, 2010 @ 4:38 pm

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