The
Hollywood Economist
The numbers behind the industry.
The Achilles’ heel of the independent
movie business is American distribution. No matter how brilliant
an indie movie may be, and no matter how many awards its
wins at film festivals, it needs to get into theaters to
be seen. That feat is no longer easy for an indie movie.
The Big Six 6 studios– Disney, Paramount, Universal,
Warner Bros. Fox, and Sony– are also distribution
juggernauts. They dominate both American and foreign distribution
. Each of them employs a small army of salesmen, publicists,
media buyers, theater-relations liaisons, merchandising
specialists, and lawyers to get its movies and coming attractions
on the best screens in theaters, its stars on the top TV
shows, and its DVDs in the prime space at video stores.
Because of their enormous clout with theater chains, the
Big 6 can open their movies on 4,000 screens in the US and
thousands of additional screens overseas. They also have
long-standing merchandising deals with fast-food chains,
toy companies, and other mass retailers to assist these
global openings. Since their distribution machines have
enormous overhead, the Big 6 studios need to confine their
releases to potentially huge grossing movies. The size of
the gross is crucial– even if there is no net profit–
because studios, take a hefty cut of it off the top in the
form of a distribution fee– typically, on movies that
studios finance, it is 30 percent– which helps offset
the overhead. The requisite, however, often leaves producers
of smaller films out in the cold. Consider, for example.
the sad story told to me by one of the most successful indie
producer. In 2009, he brought to a major studio a project
that had a budget of a mere $20 million with a well-regarded
director and stars. After running the numbers, the studio
estimated that its potential box-office was $100 million,
which would yield it, just from the distribution fee and
the output deal with HBO, a 100% profit on its investment.
Yet, it flatly turned down the project because, as its executive
told the producer, “We don’t do films that do
not have a projected box-office of at least $150 million.”
The reason is that each studio has only a limited number
of slots for their releases, and they have to fill them
with so-called “high value” films with a potential
to generating hundreds of millions of dollars in revenue
to pay their overhead. Indie film, even if they return a
profitable on a relatively small investment, cannot be counted
on to do that job.
So how does an indie producer get an American distributor?
Unlike studio producers, indie producers rarely, if ever,
have a US distribution deal in advance of shooting. To raise
the money to shoot a film, they must either find an outside
investor or borrow it. As for the latter course, since the
1970s indie financing has used pre-sales agreements in foreign
territories as collateral to borrow from banks. After the
film is shot and edited, they then seek distribution either
through screenings or by taking it to film festivals–
a process that can take years. What made the gamble on finding
distribution feasible was that, at least up until 2008,
there were over a dozen so-called specialty distributors
handling indie films, including both studio-owned “indie”
companies, such as Miramax, Fox Searchlight, Fox Atomic
Films, Paramount Vantage, Warner Independent Film, Picturehouse,
New Line, Fine Line Features, Focus Features, and Sony Pictures
Classics, and truly independent companies, such as Lionsgate
Releasing, the Weinstein Company, and Summit Entertainment.
Even those these specialty distributors have an order-of-magnitude
less overhead than the majors, they still have to fund it.
Since cash flows from indie films is erratic , they depended
for a steady stream of revenue from “output deals”
with the three pay TV channels. HBO, Showtime, and (later)
Starz originally entered into these deals, offering to buy
the entire output of a studio/distributor, to get new titles
to attract subscribers to their pay channel. But as these
payments were pure profit, since they entailed no expenses,
they proved to vital for the smaller distributors. In 2008,
for example, New Line Cinema, received slightly over $80
million for 8 titles from HBO, which paid its annual overhead.
Bob Weinstein, the co-chairman of the Weinstein Company,
not only described them in 2008 as “the bedrock of
the business,” but said “not one company in
this business could survive and succeed without one.”
His words proved prophetic. When the pay-channels found
they needed fewer titles, and began cutting back on their
output deals, the bedrock crumbled into clay within a matter
of months. In May 2008, as top tier indie producers gathered
at the Cannes festival to seek distribution for their movies,
they witnessed to their horror, as one put it in an email,
“the landscape change before our eyes.” In short
order no fewer than six specialty distributors– New
Line Cinema, Fine Line Features, Picturehouse, Warner Independent
Films, Fox Atomic, and Paramount Vantage– closed while
a seventh, the Weinstein Company, announced it was sharply
cutting back on acquiring new titles because of cash-flow
problems. A few months later another domino fell, when Miramax,
which had been the linchpin of indie distribution for two
decades, announced it was closing its main office in New
York. Even the few players who remained moved to change
their acquisition strategy, with Lionsgate, investing more
heavily in exploitation films, such as Saw I, II, and III,
and Focus Features, seeking co-production deals with Asian
studios.
As indie distribution shrunk, financing through pre-sales
became vastly more difficult. In the past, foreign buyers
had been willing to make advance commitments for indie films
because they assumed that they would get the sort of distribution
in America that would provide publicity and credibility
for their own release. Without such a prospect, European
buyers were loathe to commit themselves to a pre-sales.
As the executive of a major French distributor wrote me
“ except for auteur directors, such as Woody Allen,
Wong Kar Wai, and Pedro Almodovar, we no longer make any
pre-sales deals.”
Even suffering such blows, the indie business is not dead,
at least not yet. Indie producers have always demonstrated
incredible resourcefulness in piecing together financing,
even if it comes in the form of exotic tax credits, government
subsidies, or indulgences from American egomaniacs, Arab
oil sheiks, or Asian tycoons entranced with a movie fantasy.
So even if the pre-sales game is moribund, they will likely
find other ways of raising money to make movies. But unless
they also devise a new model to distribute them in America,
no one will see them.
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