What’s the difference between a studio and an indie? That’s easy, claims one industry wag: When an indie exec lies about a film’s budget, he always inflates the figure, whereas studio honchos invariably claim their films cost less to make than they actually did.

But while the majors are nervously spending $100 million or more on effects-laden blockbuster wannabees, their less well-heeled counterparts at AFM are facing budget angst of a different order, trying to decide where to best position themselves within the indie universe of films ranging from roughly $750,000 to $12 million.

Independent producers these days are caught in a financial squeeze: On the one hand the demise of the straight-to-video market worldwide and the poor state of affairs in a number of key foreign territories means buyers are tightfisted with their Yen and Deutchmarks, on the other hand, production costs, particularly the prices for name talent, are on the rise.

“My budgets have been going up because agents’ objectives are different than mine,” says one indie exec who produces films in the $2.5 million to $3.5 million range. “Their objective is to get the highest price for their client no matter what the business climate. It’s the same with the unions.”

“We’re appealing to our costumers to pay higher prices,” the source adds. “It has to happen in the long term or there isn’t a business at this level.”

While some indies say the weak market means production costs must be cut to stay profitable, most foreign sellers say the demand for name talent requires a shift upscale.

“Moving down in budget means lower production values, lower level casts and less time spent on the script,” says Jon Kramer, president of Promark Entertainment Group. “I don’t see how end users are going to be satisfied with that type of product.”

“I’m very interested in what (French TV network) TF1 plays in primetime. Are they more likely to give me a primetime play or these guys that are adjusting to the marketplace?” Kramer asks.

Instead of compromising on quality, Promark has been looking for other ways to cut production costs. The company now shoots most of its films Canada, sometimes working with Canadian content to take advantage of government incentives.

Veteran indie financier Lewis Horowitz agrees that buyers are demanding higher quality. “They’ve had their fill of buying a dream and receiving a nightmare,” Horowitz says, whose Imperial Bank-based Lewis Horowitz Organization specializes in lending against foreign presales. “They want to know the film is going to happen. They want to see some of it. That’s why gap financing has become so important.”

Indie films generally fall into three distinct budget ranges $1.7 million to $2.5 million, $3 million to $3.5 million and more recently $5 million to $7 million.

A number of foreign sellers recently have tried their hands at the so-called artsploitation genre. An indie auteur with an edgy or personal script can often attract a name cast willing to work for less than their studio quotes.

But one exec who recently put together a quirky thriller with a prestigious director and a strong cast says he wouldn’t do it again. The problem, according to the market vet, was that the resulting film was simply not a commercial movie.

“I could only sell it in the markets where I can’t sell action: Scandinavia and the U.K.” Meanwhile, key territories such as Japan and Korea went unsold.

“You really have to pay for talent,” says Talaat Captan, president of Green Communications. “They’re not giving a discount on their rates for commercial films and if you do low-budget films, they want a hell of a hefty back end.”

The specialized acquisition game is also dangerous, according to Trans Atlantic Entertainment topper Paul Rich. “The Sundances and Torontos of the world create this euphoria of buying so people are paying $1 million, $2 million and up, which is more than they can get back. These pictures don’t work that well overseas. Especially if they don’t get a theatrical release in the U.S.”

Most indie execs agree that a genre film with a bankable star, budgeted between $3 million and $4 million, is a relatively safe bet, although profit expectations are lower than in years past. “We have to have at least one or two of those at each market,” says George Shamieh, PM Entertainment president. “But you’re not looking to make a killing like you would have two years ago. Now you’re likely to get 25% to 30% on your money.”

“The $3 million or $4 million thriller is still viable,” agrees Rich, who says Trans Atlantic is leaning toward what he calls “non-exploitation, low-budget action movies, with or without cast.”

“The difference is the script and the way the movie is shot,” Rich explains. “As long as the action is not gratuitous and it lends itself to the story, then it’s OK. The B-movie, which went direct-to-video 10 years ago, is not what were talking about”

While a handful of larger indies are making a go at the $8 million to $12 million range, execs at most smaller companies see anything over $5 million as a huge risk.

The biggest challenge for indies remains competition from the majors, although some see the move of studios — notably Disney — away from lower budget programmers toward costly event pictures as a promising sign.

“With the flattening of video there’s been a downsizing in production at the studios,” Rich says. “Movies that were straight-to-video titles didn’t pay off as much as what they had hoped for. I think we’re going to see a slight or even dramatic increase in demand for video titles.”

But others are considerably less optimistic, claiming that major distributors are dumping overseas video rights to domestic box office flops at bargain basement prices.

“The majors go by market share, not by profitability,” one indie vet says. “They’re giving stuff away and it has destroyed the video market.”

The same foreign seller says he recently lost out on a sale to a TV buyer with whom he had been negotiating for months because a major distributor offered the buyer a package of 40 films, all theatrical disappointments, for a lower price.

“There’s no right or wrong, it just comes down to how good a deal you can make,” says Vicky Pike, VP of international sales at Crystal Sky. “You need to get a 50% return on your money. If for example you make a movie for $1 million, you would expect that properly marketed your entire sales should be $1.5 million. With $4 million you should make $6 million. Or else what the point?”

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