Saturday, September 06, 2008

Rethinking Indie Financing...from

I am going to slice the article from Variety below because it's worth seeing in its entirety. Thanks go to Dade Hayes and Sharon Swart:

(My comments in red)

Rethinking independent film financing

New money, distributors can't help runaway budgets

By Dade Hayes

People use different words to describe the turmoil in the indie and specialty world depending on how hard they've been hit.

Whether this is a correction, a shakeout or a cyclical downturn, everybody agrees it is time to rethink many of the assumptions of indie finance. No longer can the tide of new money and new distributors compensate for runaway budgets and best-case-scenario revenue models.

What has happened is that the "indie guys" became just like the institutions they originally eschewed. They made small, quirky, very niche films for a very limited audience, thinking that throwing money at it would bring them a hit. They forgot where they came from.

While institutional and hedge fund coin has been pulled back and some studios (notably Paramount and Warner Bros.) have also retreated, ample capital still exists. But credit markets remain tight, and the record level of liquidity and lending power of a couple years ago has dried up considerably.

"As mezzanine and debt markets go up, the cost of making movies goes up," says Jim Stern, head of Endgame, the company whose portfolio includes Todd Haynes' "I'm Not There" and Rian Johnson's "The Brothers Bloom."

Absolutely and utterly wrong. The cost of making movies HASN'T gone up. The cost of making movies THE STUDIO WAY (read "old") way has gone up as has the fees for actors. The actual physical cost of making a movie from start to finish has gone down dramatically thanks to digital evolution.

The ballooning of overall P&A spending in the specialty arena, especially on the titles viewed as Oscar bait, has upped the ante for everyone. For instance, the collective tab for marketing "There Will Be Blood" and "No Country for Old Men" approached $100 million.

That's the cost of success. But piling up in even greater numbers are the meltdowns that often result from the unholy combination of free-flowing private equity coin chasing ambitious projects whose subjects are tough to market. Such was the case with pics like Participant's "The Kite Runner" and "In the Valley of Elah," funded by Samuels Media.

In the "good old days" these movies would only be booked in niche venues and costs kept to a minimum. This was the birth of the "art house circuit." This ensured that a movie was screened theatrically, qualified for Oscar consideration and Union restrictions while keeping profit as the main goal. $100 M for just the ad campaigns? Sheesh.

And they justify that ad cost by saying, "We have to spend that much in order to make our money back. The movie cost too much to make."

Does anyone else see the epic fail here?

One solution, of course, is fewer movies -- and a reduction in the logjam that sees six to 10 specialty pics cannibalize each other on a single weekend. Fox Searchlight and Focus Features, among other specialty labels, are decreasing annual output.

Or perhaps you know, take a lesson from history and make movies as cheaply as possible so that your yardstick to profit isn't so long? Or maybe releasing films on DVD and online THE SAME DAY they hit theaters so you only have one marketing campaign that covers three tiers of revenue?

Stateside slates are getting leaner, and product that must sell worldwide has to hit more marketing quadrants as well. "The films are going to look more commercial," says Bob Yari, whose YFG imprint both distributes domestically and sells pics overseas. "We're going to do fewer of the tweeners that are harder to market."

Foreign sales remain a key hedge, but as the international biz has grown more sophisticated, buyers aren't just looking for any kind of film. Overseas territories have increased local production, leaving less room for anything but major studio releases or product that looks like studio fare.

Or take another lesson from history (AIP, Roger Corman- I'm looking at you guys) and do co-productions in other countries and split the costs and rights? Genre productions?

Brian O'Shea, who heads up foreign sales for financier-producer Odd Lot ("The Spirit"), notes that American indie films are having a tougher time around the world. "People are looking for movies that break out," he says. "You have to have the elements in place that make (foreign buyers) believe they will have a breakout success."

Small budget, big look, accessibility ("the hook") ... do these things mean nothing to indie producers anymore?

Then again, those film financiers soldiering on despite the roadblocks have widely divergent agendas for deploying their resources, which also makes it difficult to completely rationalize the process.

As Stern puts it: "More people have made money earlier in life, and a lot of those people want to do something other than pure philanthropy. Some have a mission and want to make a statement" through film.

Oh. My. God. Get. The. Fuck. Out. Now. (pretentious) Idiots.

"They're not in it to lose money, but they're not in it really to make money either," says Hal Sadoff, head of ICM's international and indie film department, about the high-net-worth investors who've entered the pic biz, Stern and Yari included. "They make money in other businesses. Yes, they want to protect their downside. But they're not getting deterred from this business."

No matter what the motive, it is crucial to get everyone's expectations in line, says Nathan Kahane, prexy at Mandate Pictures, which backed pics such as "Juno" and "The Grudge."

He also posits that financiers are less at fault than distributors and marketers for the current downturn.

"I don't believe market fundamentals have changed one iota," he says. "Consumer demand has not changed. There just were not very good distributors in the marketplace."

Nor indie producers. No wonder the indie world is in "flux" - they've forgotten everything they were supposed to learn after they made their first film!

Indie distribution executives - take a lesson from VW: Think small.

It will only help you when you plunge headlong into the internet. Keep the cost of everything low. Remember where you came from. Get the most bang for your buck. Stay small and nimble - able to respond to market changes if necessary or weather an economic storm by having a loyal audience eager for your work.

Do what YOU do best. Don't try to be the other guy.

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