The road to independents

Here’s a fact: the traditional model of independent finance and distribution - financiers bearing the production risk, distributors sharing distribution risk with broadcasters, and banks/funds supplying the cash to keep the financial machinery in motion - has been stretched to breaking point over the past 12 months.

“Ultimately this will result in a more streamlined and sophisticated sales industry and that may not be a bad thing for the industry as a whole”

Following three successive markets where the majority of sellers witnessed a downturn in business, many of us on the front line are convinced that what we are experiencing is not, as some optimistic onlookers would see it, a glitch or correction in the market, but a fundamental shift in the way the independent film sales and financing business is being conducted, and will be conducted in the future.

So what’s changed? Across the established release platforms, some market trends have been exacerbated by the economic climate, changes in consumer behaviour and the inevitable consequences of competition from other forms of entertainment. But peer through the consequential gloom of falling prices, cautious buyers and fewer movies being made, and there are several game-changing shifts in the business.

In many territories, the principal complaint from theatrical distributors has been the overcrowding of the exhibition space. In countries such as France and Japan, with local production levels at an all-time high, each release must compete with up to a dozen new films each week.

This has put pressure on independent distributors to acquire more ‘standout’ films, which often require wider, more expensive releases. This saturation of films has also made the traditional reviews-driven specialty titles, a big chunk of the independent film sector, more difficult to release as they rely on scarcity in order to capture the necessary media attention.

Bottom line: indie theatrical distributors are releasing fewer movies and are basing more of their choices on risk management than taste.

In the DVD arena, the inevitable softening demand has forced those companies seeking to protect turnover and stock prices to stimulate sales by lowering the price point. Once the majors had adopted such a course of action, the independents had little choice but to follow. With product that could for the large part only achieve lower volumes, the impact on independents has been disproportionately worse.

The net effect has been that while the steady decline in DVD rental has begun to stabilise, the decline in DVD revenue has reached a consistent downward curve, which at an average of almost 10% per year could see some markets erode in a similar way to the Spanish home entertainment sector, arguably now the weakest in continental Europe.

On a more fundamental level, the collapse of high-street retailers in major markets, such as Woolworths and Zavvi in the UK and wholesale distributors such as EUK and TMI (Germany), has had a direct and immediate effect on the number of DVDs sold as shoppers are offered only a limited selection of titles through supermarkets.

VoD is widely expected to be the new delivery method that will replace this revenue. However, despite a steady growth in the number of VoD providers, current sales have failed to meet expectations with some figures suggesting only 10% of revenue targets are being achieved.

Clearly it will be several years before VoD revenues begin to fill the shoes of DVD. Bottom line: home entertainment simply isn¹t the safety net for independent distribution that it once was and distributors can no longer rely on the DVD to shore up a theatrical p&a loss before taking a film into profit.

By becoming a significant and reliable end user for feature films, television has over the years enabled distributors to cover some of the risk of pre-buys while exploiting the primary and secondary release windows. The recent change, however, in the manner and level at which television has been acquiring film rights has arguably brought about more downward pressure on the independent model than any of the factors already discussed.

To be fair to the broadcasters, they have been forced to react to the decline in ratings that films are delivering when programmed against formatted reality shows and scripted series. The economic downturn has also impacted on the revenues of the commercial broadcasters and therefore their ability to acquire product.

Bottom line: uncertain as to when they can sell to television and for how much, distributors in the major European markets are, more than ever, looking for broadcasters to support their individual acquisitions. As a result we, as sellers, now find ourselves simultaneously marketing projects aggressively to the likes of ProSieben and ZDF, in the same way as we do to any of the all-rights buyers.

It’s a cumbersome, more restrictive but currently unavoidable way of doing business. None of the above amounts to a death knell for the international film sales market. But those who wish to succeed in this climate and embrace the next business cycle will have to become ever more responsive to the shifts in all platforms and markets, often on a territory by territory basis.

Projects will have to be more carefully selected and scrutinised, domestic distribution deals will need to be firmly in place or guaranteed contractually, and new partners in a number of new guises will be sought, from rights brokers, to exhibitors and broadcasters.

Whereas in recent years film markets had granted access to an almost unlimited number of vendors seeking to auction their products, the business that will drive the independent sector will involve fewer players, working in closer, more transparent relationships to mitigate and share risk.

The role of the sales agent is becoming more complex and the bar to entry has been raised several notches. Ultimately this will result in a more streamlined and sophisticated sales industry and that may not be a bad thing for the industry as a whole, despite what the harbingers of doom might suggest.

Top Independent US films available internationally, 2008
Film US distributor International sales agent Domestic gross
Int’l gross to date

Sources: Screen International, Nielsen/EDI, boxofficemojo