Conservative outlook colors this year's event

HOLLYWOOD — There is a distinct aura of caution hanging over this year’s American Film Market. After last year’s boom time, when German IPO cash was flooding the halls of the Loews Santa Monica Hotel, and sales companies were reaping the benefits of overbidding and fierce competition for product, the 2001 mood is distinctly different.

True, the venerable film mart has seen and survived the straight-to-video market boom and bust, the heyday and dog days of gap financing, the expansion and retraction of the Internet, and the growth and decline of the made-for-TV movie market.

But this year, buyers and sellers attending the 21st AFM, which runs Feb. 21-28, are having to face the reality that the German market has finally leveled out, and many indie sales companies are fighting to survive with the challenges of the international marketplace becoming more complex than ever, and the potential threat of actor and writer strikes.

“The independent film community is at a very sensitive stage right now,” says Artisan Entertainment CEO Amir Malin. “Irrespective of big films coming into the marketplace with name directors and cast, if the international marketplace cannot deliver certain budget parameters for a film then the budgets will have to be reduced and the conservatism of buyers to pay high prices will cause disruptions in the marketplace.”

The recent layoffs at New Line Cinema and Fine Line Features, two of the indie suppliers’ most important buyers, have already had a sobering effect on the niche marketplace.

And it is not just the buyers who are feeling the pinch. The international sales arena is similarly consolidating in the face of market vulnerability. The studios’ increasing licensing of product to the international marketplace and, in some cases, the need to hold onto more international rights to their pics has sucked up cash that used to go to smaller indie films and distributors.

As a result, the international sales arena has seen the emergence of a few big dominant players who have evolved into effective microstudios, capable of delivering financing and talent to the major studios in split-rights deals. Consider:

  • Intermedia, which recently merged with Intl. Media Fund-backed Pacifica Entertainment, has become a powerhouse of product, setting up the Harrison Ford-Liam Neeson starrer “K-19: The Widowmaker” domestically with New Regency and Fox; financing “Basic Instinct 2,” to be directed by John McTiernan, and starring Sharon Stone and Bruce Greenwood; and boarding such other titles as Columbia Pictures’ “Adaptation,” starring Nicolas Cage and Meryl Streep, and directed by Spike Jonze; and Universal’s Kevin Spacey starrer “K-Pax.”

  • Graham King’s Initial Entertainment Group, which is backing titles including Martin Scorsese’s “Gangs of New York,” gained much of its clout from a deal with film rights licenser Splendid Mediem which took a 49% minority stake in IEG in September. Upcoming projects include “Ali,” the Will Smith starrer for which IEG renegotiated with Columbia to lower its risk in foreign after estimates showed lower than expected returns late last year.

  • Patrick Wachsberger’s Summit Entertainment recently partnered in Col-based Escape Artists, a production, financing and distribution venture of veteran producers Steve Tisch, Jason Blumenthal and Todd Black. Escape Artists, which will operate in addition to Summit Entertainment’s existing business, is striving for the reach of a mini-studio and the flexibility of an indie maverick. And though the company draws its $250 million in pic financing from Union Bank and Chris Ball and Will Tyrer’s Newmarket Group, equally important is that its five partners have raised and secured the company’s own development and pre-production money.

  • MM Media Capital Partners, a long-term financier of the indie sector, expanded into a vertically integrated film finance, sales and distribution company this year, marking its first foray into the foreign sales business with a new division headed by former Lakeshore Intl. prexy Peter Rogers.

Older companies absorbed

Along with the rise of high-end companies such as Summit, Intermedia and IEG, the market has also witnessed the decline of a number of other longtime players. For example, United Artists Intl., the indie division of MGM/UA, topped veteran sellers Wendy Palmer and Fiona Mitchell, closed its doors Nov.1, 2000. Also, London-based J&M Entertainment, one of the stalwarts of the indie sales business and one of the companies that invented the game as a founding member of the American Film Marketing Assn. was sold to IN-Motion, a little-known German media group for $18.5 million, and merged with Kirk D’Amico’s L.A.-based Myriad Pictures.

Myriad has emerged, much like Winchester Entertainment, as a supplier of high-end product. At AFM, it will be selling such high-profile projects as Chen Kaige’s “Killing Me Softly,” starring Heather Graham, and produced by Tom Pollock and Ivan Reitman’s Montecito Pictures, and the Al Pacino, Kim Basinger and Tea Leoni co-starrer “People I Know,” helmed by Dan Algrant.

The international sales arena is also beginning to feel the new realities of the German marketplace due to declining stocks on the Neuer Markt and the stumbling euro.

“The time (when) German buyers were willing to pay more than normal for product has gone,” says Splendid Medien’s CEO, Andreas Klein. “The Germans are going back to being careful about the kind of money they spend to acquire film rights. Though this hurts the international sales companies, they also have to under-stand that the time to get such aggressive prices out of the German market is over.”

Helkon Intl. Pictures head Christian Halsey Solomon is expecting Germany’s media sector to face major consolidation this year.

“There is no question that the Neuer Markt is going to re-evaluate. There are way too many companies,” he says. “The big question is which ones will survive, and will the first one that goes bust draw others down with it.”

However, the changes in the German marketplace are not necessarily a bad thing, some argue. With the heyday over, long-term sellers will once again see realistic acquisitions and production prices for product as international buyers are less willing to pay over the odds.

“I know a lot of sales companies are disappointed that the German thing is leveling off, but to be honest it was driving the acquisitions and production costs of movies up because there was all this money around and it was harder and harder to do business,” explains Lions Gate Intl. prexy Joe Drake. “The leveling-out of the German marketplace will hopefully mean a rationalization in the marketplace which will make it easier to acquire product for distributors and for indie companies to finance productions.”

Most vulnerable in today’s climate are the international sales companies that have no relationship with a U.S. distributor since it is increasingly difficult to launch a film internationally without it. Of the several thousand low-budget films shot in the U.S. each year, fewer than 5% find domestic distribution, and without a substantial U.S. release, foreign distribs are increasingly loath to touch a film.

The threat of potential strikes by the Writers Guild of America and the Screen Actors Guild are also a concern for the indie sector, though less so than for their studio counterparts.

The strike may even have a positive effect on the sector, some argue, allowing non-Motion Picture Assn. members to enter into interim agreements with WGA and SAG to allow them to make films in a strike period. Strike or no strike, the reality of the next 12 months will be more consolidation and the inevitable emergence of companies who will step in to pick up some of the slack.

Whatever the changes, the old adage remains true believes Prophecy Entertainment’s president of international distribution, Melanie Kilgour: provide a good script with a cast that has theatrical legs at a reasonable price and there is still demand for product at AFM.

“There is still a need from the indie distributors throughout the world for product to compete with the major distributors. Though that demand has moved towards bigger-budgeted mainstream films, territories are still actively buying,” concurs Eric Christenson, executive veep of sales and distribution for Myriad Pictures.

With that demand, some territories will rise and others will fall as is the cyclical nature of the international arena. Last year’s AFM, for instance, saw a significant rise in Asian buyers. This year, Japanese players are expected to be a strong presence, due in part to pending stock flotations for two of the countries largest distribs, Gaga and Nippon Herald.

As ever, a vital part of the mart mix will be the players who service buyers with lower-budgeted niche product. Veteran sales agent Scott Vandiver and Phil Botana, formerly of Brimstone Entertainment, will launch a new company at AFM. The two have joined forces with Richard Houghton and Kirk Friedman of San Diego-based Galaxy Entertainment to form Intl. Film Group, with $30 million in financing to produce four to six films a year. The company will debut at AFM with, among other titles, creature thriller “Beneath Loch Ness,” starring Patrick Bergin and Lysette Anthony.

Also returning in a new guise is former PM Entertainment topper George Shamieh, who will debut his new shingle American Cinema Intl., screening “Elite,” with Jurgen Prochnow, at the market.

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