Independent film producers looking for some good news about financing did not find it at an American Film Market seminar on Thursday.
“We’re heading for a bloodbath,” said Jorge Gallegos, an international banker and president of American Film Services. “There have been far too many lenders chasing too few borrowers who are worth lending to.
“I’m afraid that if you haven’t borrowed already, it’s going to get more difficult.”
Financing changes to come
Not all the participants at the seminar agreed with the doomsday scenario, but there was consensus that enormous changes are occurring in financing, production and distribution and that everyone is being affected.
“Unfortunately for most of the people in this room, we’re coming to the end of a cycle,” said investment banker Steve Bannon, managing director of Societe Generale Bannon, referring to a period beginning in the 1980s that saw countless independent producers embraced by generous bankers. Bannon predicted that individual projects would begin feeling the pinch as early as the Cannes Film Festival in May, and certainly by the summer or early fall.
“Returns just aren’t there”
“We could be seeing a major retraction from the banking community that could cause a liquidity crisis,” he said. “The private equity market hasn’t flocked lemming-like to the independent film business. The returns just aren’t there.”
According to Bannon, who is also vice chairman of Overseas Filmgroup and a former VP at Goldman Sachs & Co., the public equity market is “basically dead” in North America. “I think we burned through $2 billion in the mid-to-late ’80s that is basically worth zero,” he said. “There will be a fairly Darwinian environment for the next year as we push through this consolidation process.”
Always a market for quality
But Adam Platnick, president of Mandalay Entertainment, insisted that the high-quality end of the independent market will still find financing and markets, whereas the low end — he used more graphic language — will fade into deserved oblivion.
“I think it’s a great time for independent producers who can work with a studio,” said Platnick, former president of New Regency Prods. “The studios are all actively looking for risk-sharing.” He also said that it’s “easier to be an independent distributor now than it ever was,” primarily because Hollywood studios are making fewer pictures, enabling indie distribs to better place their product in world markets.
Star power not enough
At the same time, the fight for market share between indies and studios “increases the stakes for each release,” said Nigel Sinclair, co-chair and founding partner of investment bankers Intermedia. Instead of assuming a movie will be a hit based on star power alone, the story and other elements of the package are studied a lot more carefully before financing is approved, he said.
“I think the pre-sale market itself is really difficult in the traditional sense,” Sinclair said, although he was optimistic about the willingness of investment bankers in London to get back into showbiz. “So long as we don’t have any major disasters,” he said, “I think you’ll see quite a lot of money going into European companies at least.”
No lessons from “Titanic”
The business of making and selling movies is so unpredictable that it’s ridiculous to spell out formulas for success, let alone insure a film or slate of films against failure, as was suggested at the seminar. An intended blockbuster will not necessarily succeed, and an unassuming little movie with a cast of unknowns will not necessarily fail.
“The lessons from ‘Titanic’ are that there are no lessons from ‘Titanic,’ ” Sinclair said. “Same with ‘The Full Monty.’ It teaches you absolutely nothing, except that it’s a jolly good film and you should go see it.”
A few years ago, most independents “did not consider themselves in the development business,” Sinclair said, but that trend is changing as more companies assume more of their own chores with the expectation of higher returns.
And bankers are protecting themselves better by “learning how to say no and walk away” when an indie of dubious provenance comes to them for money, said Gallegos, the American Film Services president. “More and more, we’re working with companies like Mandalay who have capital, so there’s a cushion between you and disaster.”