Mart begins with worries over pricing, pipelines

It’s the foreign sales equivalent of a standoff: Buyers complain there’s nothing to buy, and sellers say they can’t make sales. Something’s got to give.

As the American Film Market gets under way this week, industryites say prices already have come down — by 10%-15% since last year, according to one sales agent. But signs are they still have further to fall, as the number of viable buyers dwindles.

The overseas indie distribution sector is only just starting to show signs of potential consolidation.

“It’s only been a year, this economic crisis, and it takes at least 18 months to two years for the effects to really filter through,” says Zygi Kamasa, chief exec of Lionsgate UK. “In the medium term, over the next three years, some companies are going out of business, everyone’s going to have to release fewer movies, prices are definitely coming down, and budgets will have to come down to accommodate that.”

Yet the shortage of new theatrical projects with guaranteed U.S. distribution means that foreign distribs find themselves torn between their caution about prebuying in an uncertain economy and their anxiety about having nothing to release in late 2010 and into 2011.

“We saw 50% fewer scripts at Toronto than a year ago,” says Xavier Marchand, president of worldwide distribution at Alliance Films, which owns Momentum in the U.K. and Aurum in Spain.

This tension will be the underlying drama of the coming American Film Market. “I suppose this AFM is going to be the first time buyers

are really going to have to look at product for 2011,” says Peter Naish, head of sales at Exclusive Film Distribution. It’s likely to create hot spots of dealmaking in an otherwise chilly marketplace, but that’s also when fatal mistakes can be made.

“In the next 12 months there will be a scrambling to fill pipelines, and that’s what will cause all the problems,” predicts Kamasa. “People have high overheads, they are struggling to find anything to buy. If they start thinking, ‘I’ve got to have something to release next November or December, this project’s OK even though it hasn’t got U.S. distribution, I’ll take it,’ because they have to meet revenue and profit targets — then when those movies don’t work, a year later a profitable company will turn into a loss-making one.”

“Release slates are a bit empty,” admits Mirjam Wertheim, who reps distribs in 10 territories. “My clients are getting a bit antsy. But their caution is still stronger. As one of my clients says, ‘I never lost money on a movie I didn’t buy.’ Asking prices have come down a little bit. We’ve seen some drastic reductions for films that are unsold. The budgets should come down more, because nobody’s making as much money anymore.”

Stewart Till, the former Polygram and UIP topper who’s still negotiating to buy Icon, advises buyers to sit tight. “No independent distributor ever went bust because of overhead but because they bought the wrong films or spent too much on P&A.”

More immediately, distribs have to worry about the impact of expensive deals made before the market crash. Those buyers who 18 months ago bid top dollar to secure films such as “Fame” and “Whip It” are watching the lackluster U.S. box office returns of those films with alarm.

“With ‘Fame,’ Lakeshore took advantage of a frenzy — a lot of distributors overpaid,” observes a rival seller. “Some are going to lose their shirts. I resent that, when sellers push distributors too hard, rather than getting what they need and a good backend.”

“It’s not entirely Lakeshore’s fault,” counters Wertheim. “Buyers were frantic for ‘Fame’ at Cannes 2008. Anyway, it’s doing well in the U.K., so it might work better in places like Holland and Scandinavia too.”

Then again, when do buyers talk about prices being too low? And what seller ever had a good word to say about their competition?

Summit is one of the rare suppliers operating on steady ground. It’s delivered the smash “Twilight” franchise, plus “Knowing,” to bolster the balance sheets of its foreign buyers. Distribs that bought “Slumdog Millionaire” from Pathe are happy, too.

Summit has the advantage of controlling its own U.S. distribution, so buyers can be assured that these projects will get that all-important Stateside release. But the shakeout of the American distribution sector for independent films is having a wider ripple effect on the foreign sales market.

As Kamasa points out, “There are very few sales companies now that can really put together proper theatrical movies with a U.S. release. If a film isn’t released wide in the U.S., it really devalues the foreign rights. You’re not getting the exposure you’d get from that $20 million P&A spend. With all the stuff online, it makes a massive difference.”

Wertheim adds: “In the past, if the right film came without a U.S. deal, I could take a chance that the American buyers would eventually go for it. But now I have to say to my clients, I’m not sure. To prebuy projects costing more than $10 million, we have to ask for a U.S. guarantee.”

But, Exclusive’s Naish asks: “Maybe the old model of waiting for the U.S. release and using that press coverage to launch in the rest of the world isn’t there for independent distributors anymore.”

Naish, whose company is making Peter Weir’s $40 million “The Way Back” without a U.S. distrib in place, suggests that the bigger Euro indies could think about banding together on individual movies to coordinate a day-and-date, multi-territory campaign, regardless of whether a film has a U.S. distrib.

Kamasa is skeptical: “It’s about getting the loudest noise for your film, and if you are releasing against studio movies, which is Joe Public going to spend his money on?: (the studio pic or) this independently produced genre film there’s no noise about?”

All these factors simply narrow the target for presales. With TV still struggling in the recession, DVD declining almost everywhere in the face of piracy and the digital future yet to reveal itself, buyers remain paralyzed by uncertainty about what a film bought now might be worth in two years’ time. The immediate theatrical value is becoming the sole driver for acquisition, with a consequent downward effect on prices.

“We are still preselling, but we are getting our take prices, instead of somewhere between our asking price and our take price,” admits a seller. “I don’t think we have yet seen the value drop as much as we will in the future.”

“Prices are probably slightly reduced, but when you’ve got something people want, they will buy it, and for good prices,” argues Summit’s sales topper, David Garrett. “We announced ‘The Beaver’ in August, starring Mel Gibson and Jodie Foster, and it has sold out between markets. At the AFM, buyers will have a hit list of 10 films, and that will be it.”

“For the right, calibrated movies at the right price, presales are good,” says Stuart Ford of IM Global. “We announced the Halle Berry shark movie ‘Dark Tide’ before Toronto, and it sold well there because distributors are stocking their shelves for late 2010.”

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