Gary Baddeley On "What One Learns About Film Financing From Film Financing Conferences" Part 2

It seems Film Financing Conferences are not so much exclusively about film financing, but about the state of the industry and much of what factors in to it. Last week Gary Baddeley reported on attending one such conference, and today he continues to share what he learned. To me it is precisely this process (aka sharing knowledge) that will lift all our boats. It is this process that motivates this blog. We have a great deal to learn and unless we accept how dependent we are on each other to learn it ASAP, our options and opportunities will soon grow far more limited. Thankfully, today, Gary extends his generosity still further.

In Part 1 of my report for Hope For Film on the 11th Annual New York International Film & TV Summit, organized by BNA / ATLAS, I described the event as being loaded with exactly the kind of indie film royalty a striving young producer might want to meet, with the caveat that the conference might well be beyond their budgets. Nonetheless, for those who could afford it, there were some valuable pieces of wisdom dispensed.

The conference was pretty old school in its coverage of the business of film, although of course the advice on hand was up to the minute and invaluable if you are producing a film that is capable of international presales, equity and bank finance, and so forth. Day One left me thinking that the side of the business that I live in, and most of the people I know in independent film operate, was far removed from the heady climes of seven- figure finance that was discussed.

I started Day Two by attending a panel on labor issues in dealing with guilds and labor unions. It was dominated by Susan Lowry of the Screen Actors Guild, who is a great advocate for the guildʼs members and very forthright. For instance, she freely admitted that the collective bargaining agreements are behind the times and donʼt reflect the reality of film production and finance today. As such, SAG will work with producers ... but she will still insist on collection agreements that give the guilds a first position set aside of about 10% in the aggregate.

Tom Leo of Sheppard Mullin reminded us that a producer must track the gross receipts “waterfall” to make sure all obligations can be met at the right time. He identified Fintage House and Freeway Entertainment as the leading third party collection companies that will help with set asides and meeting the producersʼ obligations.

Lowry mentioned that in the absence of reliable foreign sales estimates by a sales agent, SAG will look at the published high and low figures by territory published by the Hollywood Reporter every six months to estimate foreign grosses. Typically SAG might allocate 10-15% to theatrical, 30-40% for home video and the rest to free and pay TV. Itʼs somewhat variable according to the genre, cast, and so forth of course.

The next panel focused on how to get a television series funded and sold to a network. As the only representative from a network, A&Eʼs Alex McDowell got a lot of airtime. Responding to the question of how to persuade a network such as hers to buy a pitch, she advised that if you havenʼt produced for a network before, you really have to nest your production company inside one that has done so. She suggested looking at the attendees of the Realscreen Summit in Washington, D.C. as a proxy for a favored production company list.

She also noted that since A&E Networks now owns Lifetime, we can expect the latter to be buying a lot of reality and unscripted shows ... so producers get your pitches ready, but with budget included - they wonʼt look at a pitch without it. The best way to get development execs to attend your pitch? Food - bring lunch for everyone!

John Morayniss managed not to say anything about his employer, Entertainment One, being an acquisition target whose stock has recently done a moon shot with Disney and Viacom amongst the potential buyers mentioned in the media. He did say that this is a fairly good time for producers of original programming, like eOne, especially with bidding wars for SVOD rights going on (he specifically cited eOneʼs recent experience with multiple bids from Love Film/Amazon, Sky and Netflix in the UK).

At lunch I had the opportunity to chat with art house film distributor extraordinaire Richard Lorber, whose name has been on the marquee of more companies than you can count on one hand, it seems, and is now the owner of Kino Lorber. Richard was on the post-prandial panel entitled “Latest Developments On Emerging Digital Distribution Plaforms,” along with veteran entertainment lawyer Steven Beer and New Videoʼs Erick Opeka.

Richard started things off by telling us that Kino Lorberʼs physical goods business (DVD and Blu-Ray) was up 40% last year, so donʼt bother telling him that physical goods is a dead business. As an aside, around about that moment I actually got some connectivity on my iPhone and noticed that my company had just received our first orders from Qwikster, which I happily tweeted about, recalling Ira Deutchmanʼs suggestion the day before that Netflix spinning off its physical goods business was going to drive people into theaters, to his delight. (Those Qwikster orders may be the last ones we receive now that Netflix appears to have learned the lesson of New Coke and killed Qwikster off before too many customers fled.)

It was suggested that Netflixʼs competitors can smell blood in the water and theyʼll aggressively go after Netflixʼs business, but Greenberg Traurigʼs Steven Beer reminded everyone that Netflix still represents about 60% of digital revenue. Erick Opeka reported that it was more like 50% for New Video. Continuing with the statistics, he said that New Video is responsible for about 17% of the movies on iTunes (about 2,000 movies). iTunes represents about 60-80% of New Videoʼs transactional (download to own) digital revenue, but things are shifting rapidly towards rental, where they are seeing about 55-60% annual growth.

The panel shifted somewhat towards a discussion of what they liked to call DIY distribution, which, as readers of my erstwhile officemate Nayan Padraiʼs guest blog on Hope For Film will know, should more accurately be called direct distribution. Steve Beer suggested that independent producers now have two marathons to run: making the film first, then marketing and building a community around the film.

Richard Lorberʼs comment: “DIY distribution too often turns into DWI distribution.”

Echoing Ira Deutchmanʼs comment the previous day about having your film on Netflix and iTunes being about as meaningful as having your name in the phone book, Erick Opeka made the point that where digital distributors can really add value is in their relationships with the gatekeepers of the home pages of the likes of Hulu and iTunes, as well as the programmers of the barker channels on cable VOD (“the most powerful people in digital media”). The uplift in performance for a movie featured in the barker is astonishing, so if you are considering direct distribution, remember that just landing on a platform is not really enough.

As to the future of digital distribution, Opeka expects that weʼll be seeing the leading IVOD outlets competing for exclusive rights to content. The panelists noted that currently distributors can sell their movies and TV shows on a non-exclusive basis to multiple outlets, but these may seem like the good old days before too long. The other trend he noted was the emergence of massively popular niche content outlets like Machinima.com, which is now the number one all-time entertainment channel on YouTube, serving something like a billion video views a month. Yes, I did get that right, I just checked: 897 million video views in August 2011.

Thatʼs hard to compete against. Thanks for reading...

- Gary Baddeley