The rising value of overseas markets for filmed entertainment, the wayward dollar, a constricted home economy – and perhaps spring fever – is stirring the imagination of creative dealmakers in the filmmaking community.

Specifically, producers and foreign sales companies are finding new opportunities to tap into money sources overseas. The trend was underlined by last week’s disclosure in Daily Variety that TF1, France’s leading television network, has taken a 25% co-producing partnership with Universal Pictures in Martin Scorsese’s $50 million “Casino.” (See story, page 9).

Bankers say the expanding overseas box office is making it possible for them to loan money for projects based on the promise of foreign distribution, even though such deals may not be in place. That bank money then becomes self-fulfilling, generating territorial sales, which in turn give producers greater financial clout in setting the domestic side of the deal with a major studio.

The downside? Deals divvying distribution rights to films between various media and multiple partners in a crazy-quilt of foreign territories are difficult to stitch together and may ultimately mean less, not more, creative freedom for the filmmakers. Meanwhile, the window of opportunity for splitting rights with studios may be closing.

That’s in part because overseas film earnings are growing at twice the annual growth rate of the domestic market, according to a new report by Goldman Sachs. One gusher is foreign videocassette revenues: U.S. companies collected 48% more in video cassette coin last year than in 1990 according to the Motion Picture Association of America.

“We had been of a mind to sell more rights,” says Edward Shugrue, president of international distribution at Columbia-TriStar, “but under current management the view here is that international is the growth market on this planet.”

John Miller, head of Chemical Bank’s entertainment division, says an indication of the strength of foreign markets is that over the past year, he has been able to involve his bank in loans to producers against unsold territories. “We’ve gotten the banks to accept that money coming out of foreign is considered strong and viable and the value should be considered on borrowing basis,” says Miller, noting his bank has done this on at least four deals involving $20 million to $30 million-budgeted pictures.

“Traditional conservative lenders never got involved in gap financing,” he adds. “This is really the first time.”

Other banks that have moved into gap financing in the past year, directly or indirectly, are Bank of America, Banque Paribas and Imperial Bank. The Lewis Horowitz Organization, a division of Imperial and one of the largest lenders to indie filmmakers, has also begun providing gap financing to lower-budgeted pictures. “Banks are becoming more creative and deal-oriented,” says Imperial Bank exec Morgan Rector.

“The day is not too far off,” says producer Andre Morgan of Ruddy Morgan Films, “when you will be able to finance a major motion picture entirely through foreign revenue streams without looking to a major studio as a key part of the deal.”

When posed with the concept, one prominent banker would only say, “We’re exploring the idea.”

The increased opportunity for producers to sew up foreign rights to films has added heat to an already hot competition for rights to the limited supply of commercially viable films.

Part of the tension arises from major studios looking to fill their international distribution pipelines and jealously seeking to hoard all rights for themselves. Says entertainment attorney Peter Dekom, “Today, if you sell off 50% of the movie to foreign you have drastically reduced your ability to get a domestic deal.”

Not if you have what they want, counters Michael Ryan, cochairman of J& M Entertainment, the London-based film financing and sales company. “If a producer is sensible and wants to maximize his position, he’ll go to the studios with a foreign partner already in place.”

Says Bill Mechanic, chief operating officer at 20th Century Fox, “We’re a buyer, not a seller of rights. International is a big part of the business we’re building.” Mechanic says it would take “a rare situation” to make an exception, adding that the studio has passed on a number of pictures because all rights were not available.

One rare situation was James Cameron’s “True Lies,” distribbed outside the U.S. by Universal. MCA motion picture group chairman Tom Pollock referred to his studio’s success with the film – grossing more than $115 million in U’s licensed territories – when he told members of the financial community at the recent Variety-Wertheim Schroder conference in New York, “We believe strongly in the international marketplace. We don’t sell off foreign rights. We buy them.”

That Universal is willing to trade some foreign revenue in return for spreading risk is borne out by the “Casino” deal with TF1, which employs a complex formula to divide TV, homevideo and theatrical distribution among the players.

In fact, when presented with a film they want, studios will take what’s on the plate. In the case of “French Kiss,” starring Meg Ryan, Mechanic says Fox picked up only U.S. rights to the picture “because of our overall relationship with Meg Ryan and we wanted to be in business with (director) Larry Kasdan.”

Mechanic says the upcoming “Braveheart” was picked up by Fox for foreign distribution only because Mel Gibson was attached as helmer and star and Fox needed foreign product for summer release since it had “Die Hard With a Vengeance” in the U.S. and Japan only.

Patrick Wachsberger of Summit Entertainment says studios historically want to control worldwide rights. But studios will let go of foreign rights based on two criteria: the film’s budget and the film’s perceived value as an overseas commodity.

One view has it that Paramount sold the foreign rights to the Paul Newman-starrer “Nobody’s Fool” wisely because the folksy drama’s overseas performance could not be predicted.

From the point of view of Capella, which put up half of the film’s budget, it was a good deal. Says Capella topper Bill Moraskie, “We covered our investment with minimum guarantees and we’re hoping for significant overages.”

That may happen in Japan, where Paul Newman has suddenly popped up in ads and commercials for Rolex watches. Says one foreign sales expert, “We’re in the business of hoping studios make a mistake.”

In a reverse situation, Columbia-TriStar last year picked up U.S. and South American rights to Luc Besson’s “The Professional” for $5 million. The film earned more than $20 million in the U.S., as well as $4 million in South America to date.

Encouraged, the Sony-owned studio will pony up $25 million for domestic rights to Besson’s “Zaltman Bleros,” a $65 million sci-fi epic produced by Gaumont. In effect, the French company Gaumont has sold off “foreign rights” to the U.S. studio.

The combination of pre-sales and equity investment is what Gary Levinsohn, head of Classico Entertainment, has put together on behalf of producers Dawn Steel, Chuck Roven and Robert Cavallo. Their company, Atlas Entertainment, draws on backing from a group of European investors, including TF1, for certain movies.

Levinsohn’s approach is based on his belief that now is a particularly opportune time for creative dealmaking. “Some studios are giving away participation in copyright ownership as a result of macro-economics,” he observes. “Right now there is a window because of foreign currency issues, foreign ownership of studios, a profusion of labels at studios and debt from acquisition.”

By arranging for American producers to tap into pools of overseas financing, Levinsohn feels he is serving the appetites various mini-labels at studios, as well as “a desire and need on the part of foreign investors to come in as equity partners.”

“I think (foreign concerns) are investing in a producer because he can deliver studio mainstream product. And I think the studios have recognized the need, and are prepared to form real partnerships.”

It may be easier for foreign investors to maintain a relationship with a producer than to try to negotiate the often byzantine executive structures of the studios. Peter Elson, head of international sales a Largo Entertainment, sees this kind of financial arrangement as a new trend. “Some of the most significant international buyers from key territories are purchasing a picture using a formula wherein they pay a larger sum, which represents a price for the picture’s rights in their territory as well as an equity investment.”

But Wachsberger views the current spate of split rights deals as an evanescent trend, with studios such as Paramount moving out of fiscal straits over the next few years and getting into exhibition and broadcasting. “If independents want to take advantage of split-rights deals with the studios,” says Wachsberger, “they should do it now.”

Meanwhile, the dollar is off 20% against the yen and 15% off the deutschmark from a year ago.

Overseas admissions for this summer’s blockbusters could give studios a huge payday when translated from local currencies into dollars. The effect on foreign sales for indie product is not yet apparent.

Says Elson at Largo, “We haven’t experienced negotiations where a buyer suddenly suggests ‘We can accept your requested higher price because exchange rates make that amount of dollars easier for us to bear today.’ But that kind of thought must be occurring as the dance between buyers and sellers proceeds.”

“If I was a Japanese or German distributor and I had contracts pending with somebody,” says Richard Gardian, VP of worldwide distribution at Overseas Film Group, “I’d pay off now and take delivery.”

Adam Dawtrey in London contributed to this report.

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