The Film Industry Is In A Pickle

Pickle Magazine, a film industry publication based in India about all things Bollywood and now, Hollywood, recently asked producer and sales agent, Ron Lavery to interview me and ten others for its American Film Market edition. After reading all eleven interviews, it’s clear that none of us agree on what the long term and short term effects will be on the film business given the latest seismic shocks (and those to come) to the overall global economy. Here’s my take:

Lavery: How do you think the current economic situation will effect AFM business this year?

Me: The entertainment business, like most businesses runs on credit. Although there appears to be a credit thaw . . . if the financial environment gets worse or even if it continues to improve at its current pace, the credit freeze will definitely affect AFM business this year. With limited access to the credit markets, buyers will be less inclined to close deals and will have limited buying power in the short term. Over the longer term though – and I’ve already witnessed it first hand – private equity will step in to do more traditional debt financing (albeit at a premium) if the banks are unable to do so.

Lavery: Do you foresee any mergers between distribution companies?

Me: Yes. Although mergers are already a part of the overall trend towards the consolidation of the business, the current economic climate will only accelerate this process.

Lavery : Are there any news ways of financing films on the horizon?

Me: Over the last decade and longer, people have been and continue to try to build a better film financing business model as the economics of the film business shift. This process will likely [continue to] shift at a tectonic pace especially if credit remains tight, the costs of production continue to rise and equity sources dry up. With the Internet as a potentially new distribution platform with untested sources of revenue based on either a subscription model (which won’t work) and advertising (which might work if the revenues become more meaningful), Internet exploitation windows may become a more significant revenue source for producers and distributors.

This is especially true now that that the technology exists to “geo-filter” the exploitation of films on the Internet on a territory by territory basis.

Electronic sell-through of video units of films may increase the value of minimum guarantees since the Internet will allow producers to have greater access to mass markets for their films during the video exploitation window. In some cases, producers may be able to directly distribute their films without an actual distributor just as artists have in the music business, thereby saving on costs by eliminating the middleman.

What is even more interesting is that short films are rising in commercial appeal.

Long relegated to film festivals, new distribution opportunities have developed on the Internet and on mobile phone and Ipod technologies for shorts. As a consequence, producing shorts are good for business since they have lower budgets and can now attract marquee talent who view internet exploitation as a cutting edge business opportunity that provides potentially great exposure with minimal effort.

Lavery: Will the economic crisis effect government subsidies and tax credits?

Me: With the drop in income here in the United States (and a corresponding drop in tax revenues), each locality is looking for new ways to attract revenues, jobs and new industry to each of the States but [they are also] forced to contend with a corresponding drop in tax revenues by virtue of providing the tax subsidy itself.

Meanwhile India, the Middle East, Eastern Europe and China will continue to be appealing places to produce films which might not provide tax credits per se but . . . increase the potential bang for the buck.

Lavery: Any thoughts on the enormous impact Indian film companies seem to be having on American film companies?

Me: While the current economic climate is adversely affecting the global economy, India is viewed by many in the entertainment business as a potential source of new financing as opposed to talent. The good news for Indian film companies is that if India is the source of financing, then there might be increased leverage to utilize Indian talent in American films.

The other factor is the increased reliance on foreign sales of American films which right now hovers around 60-65% of the budget of the typical mainstream American film. This in turn requires . . . increased reliance on foreign talent in an effort to increase the appeal to foreign audiences.

Lavery: Any thoughts on Indian financing opportunities like the recent Spielberg-DreamWorks deal?

Me: The Spielberg-Reliance deal is viewed by many as the high water mark of Indian investment in film. The good news is that other film funds do not and will not require market capitalization to this extent. I expect the formation of several Indian and Asian based funds with more modest capitalization ranging from US$35 million to US$80million in the near term provided economic conditions do not seriously deteriorate.

  • Interesting blog. I think that the film industry is going to become more creative and there will be more quality films due to private funding. There are many filmmakers who cannot leave the country to shoot oversees but they will find ways to create and be independent. We already saw a lot of inspiring and creative films that were created during the strike. I'm looking forward to more!

  • Oh, and your comment about short films: I wish that movie theatres would actually screen a different short every week before the feature presentation. I'm sure it would bring new customers, it would bring back repeats and it would help talent to be recognized. (Not only the obvious talent but all below the line talent as well) This would certainly help strengthen the economy and also help investors.

    If anybody out there has a movie theatre, I would love to partner with you in this endeavor! Yeah! 🙂

  • One thing that might have been understated is the transition of the film short from a calling card for new talent to a new conduit for mainstream and established talent – due to the internet and the widespread popularity of the short on youtube, funny or die, and platforms like the ipod and mobile phones.

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  • Interesting blog. I think that the film industry is going to become more creative and there will be more quality films due to private funding. There are many filmmakers who cannot leave the country to shoot oversees but they will find ways to create and be independent. We already saw a lot of inspiring and creative films that were created during the strike. I'm looking forward to more!

  • Oh, and your comment about short films: I wish that movie theatres would actually screen a different short every week before the feature presentation. I'm sure it would bring new customers, it would bring back repeats and it would help talent to be recognized. (Not only the obvious talent but all below the line talent as well) This would certainly help strengthen the economy and also help investors.

    If anybody out there has a movie theatre, I would love to partner with you in this endeavor! Yeah! 🙂

  • One thing that might have been understated is the transition of the film short from a calling card for new talent to a new conduit for mainstream and established talent – due to the internet and the widespread popularity of the short on youtube, funny or die, and platforms like the ipod and mobile phones.

  • Community involvement is a possible secret. If the industry gets a feel for what the current mainstream of the society is struggling with, the subject matter of the film produced will touch people directly and create a buzz, and generate revenue. That will attract investment.