Fiscal shakeout reshaping indie model

Producers adjust to shrinking markets

Finding coin for independent films has never been a task for the faint of heart, and now that the free-spending, hedge-fund-fueled days of rampant speculation and mammoth expectations are gone, that’s not necessarily a bad thing.

In place are hefty amounts of private equity from high-net-worth individuals who continue to enter the market; statewide tax incentives that continue to provide investors with a tangible reason to write checks; and higher-budgeted commercial properties — once thought to be the sole provenance of studios — that are now available to the right people or entities.

“There are fewer distributors, and less money is being tossed around, and that creates fewer films, no question about it,” says James D. Stern, CEO of financing/production outfit Endgame Entertainment. “But fewer films creates an advantage for the people who are able to make films.”

Stern has been in that position and has already seen three Endgame films hit screens this year — “Every Little Step,” “The Brothers Bloom” and “Easy Virtue” — and he has another three in post.

“To keep making movies,” he adds, “everyone is going to have to adjust their expectations, their quotes — everything. We all have to be making very, very smart decisions, but if we do that, we can certainly make as much money as we always have.”

After a brutal 2008, packagers at the major agencies are adapting to a marketplace without the easy credit that was once provided by big banks and cash-rich hedge funds.

“The equity didn’t disappear from independent film — what disappeared was debt financing,” says CAA’s senior packaging agent, Roeg Sutherland. “The great thing about the model right now is that you have these high-net-worth people who are still taking out significant equity risk.”

While the arrival of Apparition has provided financiers with something to smile about after the exit of a raft of buyers who previously sought independent product, it’s certainly not enough to give would-be investors faith in the American theatrical market. The shortage of distribs has resulted in significant reductions in budgets. Most will only put up a tiny down payment against a film’s projected domestic theatrical gross — while commitments from distribs for prints and-advertising are scarce. As a result, financiers have been reducing budgets by an estimated 15%-25%.

Along with cutting costs on the production end, investors, producers and packagers have been much more selective in terms of material, a far cry from a few years ago, when dozens of hedge-fund-backed pics saturated the market.

“From our perspective, there’s certainly financing available, but over the last couple of years, we’ve had to take a harder look at the content we’re presenting to our investors,” says Echo Lake’s Andy Spaulding, who’ll be premiering the Demi Moore/David Duchovny drama “The Joneses” at Toronto. “We have really found it tough to put together financing for the more challenging films we had been known for in the past. Dramas are difficult, especially at higher budget levels, but more commercially driven films are still selling. Cast has always been important, and remains very important, but there is much more focus now on the concept and the marketability of that concept.”

Meanwhile, gap financing from banks could be making a comeback.

“I think when DreamWorks closed their financing deal, a lot of banks showed some renewed interest in the film business,” says Isaac Palmer, managing director of MESA, an investment bank specializing in entertainment and media. “There was the idea that if DreamWorks couldn’t get (the deal) done, then what deal could? Now the banks are breathing easier, and if you go down the list of the banks that participated in that deal, there’s one new entrant: Sun Trust. After a period where lots of banks have exited the market, it’s a good sign that someone is coming in.”

MESA is currently finalizing a multi-picture financing deal with a high-profile production company.

So will independent film ever return to the days when dozens of high-seven-figure sales were routine occurrences at Park City, Toronto and Cannes? Probably not, and that’s not necessarily a dark harbinger for the industry’s long -term health.

“Over the next year, I think we’ll get back to where we were before the Wall Street invasion, comparable to about four to five years ago, with a better integration of distribution, cost of production and above-the-line salaries,” says WME packaging head Graham Taylor. “Everyone will be coming to the table as a partner in the overall success of a film, and not as a gambler with wildly unrealistic expectations.”

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