The
Hollywood Economist
The
numbers behind the industry.
The
Indie Game
Movie
Stars come in Two Flavors: $20 Million and Free
The
genius of the indie film business lies in its use of Hollywood
stars. The same actors and actresses who quote Hollywood
studios $20 million per movie will work on indie films for
a small fraction of that fee. Often they accept “scale,”
as the Screen Actors Guild’s minimum wage of $788
a day is called, or “near scale” of about $10,000
a week plus overtime. Instead of requiring private jets,
luxury suites, and multimillion dollar perk packages as
they do in studio films, the stars will fly on commercial
flights, stay in inexpensive condos, and get the same per
diem as the rest of the cast. Instead of receiving a sizable
chunk of the gross receipts as they are accustomed to on
studio films, for indie films stars will accept “net
points” (even though they—or their agents—are
no doubt familiar with David Mamet’s famous observation
that in Hollywood, “There is no Net.”) “The
total cost of a star can be less than that of running the
office Xerox,” explained one knowledgeable producer.
The willingness of top stars—including Keanu Reeves,
Mel Gibson, Jim Carrey, Will Ferrell, Drew Barrymore, Al
Pacino, Angelina Jolie, Pierce Brosnan, Leonardo DiCaprio,
Charlize Theron, Tobey Maguire, Demi Moore, Sean Penn, and
Julia Roberts—to work for near scale in the parallel
universe of indie films allows indie producers to take advantage
of a star’s cache to finance the movies.
Ironically, in the era of the moguls, the Hollywood studios
gained a similar advantage over stars by locking all their
actors and actresses into long term contracts in which they
were paid a specified weekly salary regardless of the success
of their movies. Since the stars could not work for any
other studio, the studios who employed them could create
PR images and reap all the benefits of a star’s cache
for themselves. After the studio system collapsed in the
late 1940s, the stars, represented by powerful talent agencies,
quickly turned the tables on the studios. Now, no longer
under studio contract, the stars auctioned off their services
to the highest bidder from film to film. The studios still
paid for their films’ publicity, but the stars now
reaped the benefits of their cache via product endorsement,
licensing their images for games and toys, and a raft of
other celebritized enterprises. So, for example, while Warner
Bros, Sony, Fox, and Universal collectively invested over
a half billion dollars to hammer the super-hero image of
Arnold Schwarzenegger into the public’s mind in a
dozen different action movies, Schwarzenegger himself got
the rewards of his cache, which included a record-breaking
$29.25 million fee for Terminator 3, a personal licensing
empire, and the Governorship of California.
Despite the lure of enormous compensation from studios—which
now include perk packages and cuts of the gross receipts
that can easily exceed $30 million a film –stars find
occasional satisfaction in working for coolie wages in indie
productions, making a distinction between, as one top CAA
agent put it, “commerce and art.” Some stars
may find that roles in studio amusement-park movies (that
they share with live stuntmen and digital doubles) do not
provide the acting opportunities, award possibilities, prestige,
camaraderie, or even aura of coolness of indie productions.
Others may want to work with a particular director, such
as Woody Allen, Robert Altman, or David Mamet, or burnish
their fading image as an actor. They might also need to
fill a hole in their schedule—since, PR hype aside,
there is not an endless cornucopia of $20 million parts
in Hollywood. Also, when stars do “artistic”
films practically pro bono they do not lower their $20 million
quote.
Whatever the star’s motives, the indie producers get,
if not a free ride, a means of financing their movies through
a 3-step process called “presales.” Here is
how it works:
Step One. Since indie producers, unlike studio producers,
typically cannot get a distribution deal in America before
they finish the movie, they raise money by making “presales”
abroad. In such an arrangement, the indie producer turn
over all rights to exhibit the movie—as well sell
it on DVD and to TV—in a particular country in return
for a minimum guarantee of money once the film is completed
and delivered. The catch-22 here is that a foreign distributor
often will not commit to a presale contract if there is
no American distributor or unless the film has a recognizable
star (with a star he has at least a chance of selling the
DVD and TV rights). So indie producers must persuade or
seduce a star into joining the movie—and here is where
the genius comes in—for practically no money. With
a star in tow, he can often make enough presales to cover
most, if not all, of the budget.
Step 2. Since presales are no more than promissory notes,
the indie producer must borrow against them from banks to
pay for the movie. Before he can do that, he needs to guarantee
the banks that the movie, once begun, will get finished
and delivered to foreign distributors. So he needs a completion
bond, which guarantees the banks that it will pay all cost
overruns necessary to finish the movie and if the production
is abandoned, it will pay all the money lost on the venture,
which means that one way or another the bank will get back
its money. Two companies, Film Finance, Inc and International
Film Guarantors, provide almost all the completion bonds
for independent productions. (Studios that internally finance
their own movies do not need completion bonds.) Before either
company will sell a producer a completion bond, he has to
meet its requisites, which include buying full insurance
for the star (so if he is injured or quits the completion
bond coverer gets all the money back from the insurer) and
turning over to the completion bond company the ultimate
control of the budget (including the right, if anything
goes wrong, to take over the production and bring in its
own director to complete it.) He also has to pay the company
about 2 percent of the budget.
Step 3. With the completion bond in hand, and the presales
contracts as collateral, the producer then borrows the money
from a bank or other financier. Since the completion bond
companies are themselves backed by giant insurers, such
as Lloyds of London and Fireman’s Fund, the banks
take only a very limited risk in making such loans. John
W. Miller, the head of J.P. Morgan Securities’ movie
financing unit, which last year had $7.5 billion in movie
loans outstanding, told me that he does not even “reads
the scripts” of the indie films he finances. “My
bet is on the solvency of the distributors.” When
these presales contracts are with established international
distributors, such as Sony Pictures, United International
Pictures, Canal Plus, Tojo Films, or Buena Vista International,
that risk is, he said “negligible.”
Even after scaling all these hurdles, securing the money
and making the movie, the indie producer faces one further
challenge: getting the movie into American multiplexes.
Unlike the studios, which have their own distribution arms
and often set a tentative opening date even before filming
is complete, indie producers typically cannot arrange American
distribution until after they have shot and edited the movie.
For many indie producers, finding a distributor requires
going from film festival to film festival, an odyssey that
often proves unfruitful. More than 2,000 indie films were
submitted to the Sundance Film Festival last year, for example,
of which about one percent were accepted. But if an indie
movie has a Hollywood star it can improve its chances, especially
in those festivals, such as Cannes, Berlin, Venice, and
Toronto, that depend on celebrity stars for publicity. The
presence of a star not only often fasttracks the film into
these festivals, but even more important, as one highly-successful
indie producer explains, “it gives the acquisition
executives there more of an incentive to give the film a
chance with distribution, because they figure that even
if the film is a hard sell, they can always promote the
star. Selling the film ultimately is what it’s all
about.” So the Hollywood star as homo ludens, or at
least seeking some kind of non-monetary gratification, winds
up as the crucial element in a business model that now sustains
a large part of independent films—and, for that, we
can all be grateful.
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