Independents going over the top–overseas

For the struggling indie hustling the overseas handout, the era of hand-to-mouth existence may soon be over.

Such is the prediction for independent producers and distributors relying on foreign presales. And that prediction comes from none other than the indies themselves.

But all is not lost when it comes to foreign support so critical to the future of indie producers and distributors.

“The foreign reality for the U.S. independent is clear,” says Russell Schwartz, president of Gramercy Pictures. “There have to be deep pockets to stick it out until the company really has a chance to work. And by that, I mean a major investor or a co-owner that has a major stake in seeing the company work out over time, which Gramercy is fortunate to have.”

Gramercy is a startup co-venture between the Dutch-owned Polygram Filmed Entertainment and MCA/Universal. Its focus is to distribute smaller-budget pictures with a commercial twist that demand a smaller release of about 800 runs , much smaller than the typical Universal project. Gramercy serves as the distribution outlet for the films produced by Polygram’s subsidiaries, Propaganda, Working Title, A&M Films as well as Jodie Foster’s Egg Pictures.

Many in the industry believe that Gramercy is the pilot project for future indie distributors.

“We are lucky, because we are the example of bigger companies beginning to realize that there is a real need for this type of product,” notes Schwartz.

While Gramercy retains a unique status, that solo distinction may not last for long.

Sources say other studios are mulling over the idea of creating distribution outlets for alternative product. And the thought of bringing in a foreign partner is not that far fetched since many foreign films fall in the art house or alternative film arena.

Certainly Largo is one indie more than a little familiar with such support.

Largo is like many other indies living with the mandate of foreign financing. It is essentially the linchpin of Largo’s survival. The company gets financing under its deal with Japan’s JVC.

“As I see it, one of the problems for independents has typically been to squeeze as much out of foreign support as possible up front,” says Joe Cohen, Largo’s chief financial and chief operating officer. “And the problem with that is the independent production companies, in the end, sink or swim on the basis of having the occasional hits. Therefore, if I in effect, mortgage my upside I really restrict or limit my ability to take advantage of a big film at the back end.”

Like Gramercy’s Schwartz, Cohen feels that more and more indies hope to follow the model of “not taking massive guarantees for rights upfront.”

On the flipside, James Cameron’s Lightstorm — which had been anticipated as the model indie formula to follow in the ’90s — quickly became a troubled prototype to maintain.

Lightstorm, say its critics, was trying to build without enough solid foreign equity. The indie’s proposed projects were largely pieced together with upfront advances.

It is a plan Morgan Creek exex say they would never consider.

“Morgan Creek has always self-financed its pictures through internal capital resources. We have never pursued foreign presales,” says chairman and chief exec James G. Robinson.

While Robinson says this may work for Morgan Creek, he concedes that dodging the foreign presale doesn’t work for every independent, particularly in today’s recessionary market.

“If I were to compare today with 1979 or 1980, I’d say the single greatest change in the cost of making a movie has been the inflationary rate soaring beyond anybody’s wildest dreams in the last 13 years. The second greatest change is whathas happened in the rest of the world,” he says.”In all of the other territories, and I am talking about outside of North America, you’ve got a greater opportunity for profits on an average basis with foreign compared to the U.S. now. And that change is significant.”

An example?

“I could have made a movie in 1979, opened it in Bermuda for one showing and made back what I spent on the film,” says Robinson. “That could never happen today.”

Put another way: “In ’87 and ’88 this town didn’t realize people were only risking 20 cents on the dollar. Now it’s 70 cent on the dollar,” adds chief operating officer Gary Barber, who is also president of Morgan Creek International. “Now the money is not there. And, more and more people are turning back to the studios.”

Notes Robinson, “It’s simply because the entire world is in an economic slough. Japan, the source that everybody used to run to in the past couple of years, has been forced to really pull in and take care of its own.”

That easy pool of cash has dried up. So indies have to fish in other, sometimes unchartered, waters.

“The problem is today, you have to have a track record,” notes Barber. “And it all goes back to the folding up of many financial institutions and the end of the completion bond business, who generally would handle the risk of an unknown before. Since they practically don’texist, an indie’s longevity becomes even more important in finding a financial backer.”

And that doesn’t stop at the U.S. border.

Nor does the participation from U.S. studios.

“I find that nearly all of the studios are willing to do partnership deals, compared to the old days when they would just seek outside investors,” Robinson says.

Studios aside, indies are setting up their own unique forms of joint partnerships.

Take IRS Media. Its president, Paul Colichman, has set up pacts with domestic and foreign partners, including Beacon Group of Canada, that vary with different film packages. The indie generally produces six to eight pictures a year.

“The foreign tie is certainly critical to us,” says Colichman. “We don’t make a picture backed by domestic only. Foreign backing helps shape the focus and value of the picture because that’s where a lot of our profit and equity in the company comes from.

“For us,” Colichman continues, “every deal that comes down is unique since it’s generally on a picture-by-picture basis. Usually we’ll pair a couple of key partners and the financing can differ on films either by presales or an equity stake depending on the project.”

Trans Atlantic Entertainment is one of IRS’ domestic partners that handles distribution.

And like IRS, it knows the value of foreign support.

“I think it’s at the heart of the entire independent distribution system,” says Paul Rich, president of Trans Atlantic. “In many cases support from overseas can mean 60%-to-70% of a film’s total budget, so it’s critical.”

Adds Seth Willensen, marketing consultant to Trans Atlantic, “For-eign financing is even more important now than ever because you can’t finance a movie 100% out of the American market and most of the American distributors are relying on foreign pickups.”

Cinetel Films’ chief executive, Paul Hertzberg, says characterizing foreign support as critical is too soft. “It’s vital. When a project comes along we jump into foreign presales.”

While the traditional American indies sing the praise of foreign support, Capella Films — an American concern owned by a German media group — knows the value of the synergy that Gramercy speaks of.

“The way that we look at it, because independents are smaller every penny they spend is their money and is more connected to their material costs,” says prexy Ortwin Freyermuth. “So from that point of view, foreign support will always make sense.”

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