Amid lean times, pic purveyors seek silver lining

When the Cannes Film Festival kicks off this week, the sputtering economy will be readily apparent: fewer executives walking the Croisette, trimmed expense accounts making for less crowded restaurants and parties that are less lavish.

But, amazingly enough, after a huge shakeout in the indie sector, there still is money to be had.

With a drought in the credit markets, a glut of movies still searching for distribution and heightened caution among private equity players, the fest is bound to have the air of a search for a silver lining.Coin continues to roll into Hollywood — you just have to know where to find it.

Much of the money is coming from high-net-worth individuals, or groups of them, based in New York, Europe and the Middle or Far East.

They are the brave souls who see optimism in the recent upswing in B.O. and believe that movies, at least at the moment, are posting far better returns than a 401(k). Moreover, such players as Bob Berney and Rick Sands are each setting up new distribution entities, which could make up for the loss of many players and studio specialty labels.

There is no doubt it’s a tough market, as evidenced by the paralyzing chill at AFM and Berlin, with sales thin on the ground at both fests. In a market where foreign pre-sales have been in the gutter, and banks are just not putting up money like they used to, Cannes could be make-or-break time for many foreign sales companies.

Exacerbating the situation is the indie pic glut, in large part caused by the blast of private equity that flowed into the biz over the past three to five years. With an abundance of capital, too many films were made, and many went without distribution.

So, at Cannes, market screening slots are booked solid. Sales agents need to offload a surplus of product, and many are wringing their hands.

A number of financiers, meanwhile, are rethinking their strategies. Among them are Sidney Kimmel and 2929’s Mark Cuban and Todd Wagner, who have backed away from pic production. Kimmel’s stake in films such as “Synecdoche, New York,” with a reported budget of about $20 million, yielded abysmal returns, while a recent crop of 2929 productions — “What Just Happened?” “Two Lovers” and “The Burning Plain” — failed to sell to major studios for domestic distribution.

Two of the films from those outfits, “Synecdoche” and “Two Lovers,” bowed in the Cannes competition last year and left the festival without deals in place.

The new equity players and the survivors are proceeding with caution.

“We can make five movies in a year, which is what we’ve just done, or don’t have to make any,” says financier and producer Jim Stern, CEO of Endgame Entertainment. “You have to be careful in this environment. Betting the ranch on a movie, which would jeopardize my ability to keep running this company, is not something I’m likely to do.”

Fewer available release slots at the studio specialty divisions — with Picturehouse and Warner Independent shut down, and because Focus Features and Miramax buy few finished films — means pic financiers must have contingency plans for domestic distribution.

As one agent put it, “Those companies not relying on a Sundance deal to save them are fine.”

EBay billionaire Jeff Skoll’s Participant Media continues to put up coin for pic projects and has a home for them when they’re wrapped.

“We don’t require other funds, and we can distribute through Summit, which is really nice in this market,” says Participant’s CEO Jim Berk.

Participant invested in Summit Entertainment when Summit expanded into the domestic releasing biz. And, after setting up a $250 million revolving fund with Abu Dhabi’s Imagenation in October, Participant inked a distribution pact with Summit for the films that will emanate from the fund.

Overseas coin is playing a bigger role overall. In addition to Imagenation, India’s Reliance Big Entertainment has provided development funding for shingles such as George Clooney’s Smokehouse, Tom Hanks’ Playtone and Brad Pitt’s Plan B.

And, aside from its deal with Participant, Imagenation pacted with National Geographic Films in a $100 million joint venture that just announced its first project: Peter Weir’s “The Way Back.”

Bill Block, whose QED Intl. will be in Cannes to sell a new project that involves European money, says, “It’s a great time for smart equity. There’s much less competition, and there are a lot of opportunities to get both ownership and super returns on investment.”

Those are the shafts of light in a bleak landscape.

Nala Films, which is backed by the deep pockets of Mexico’s Emilio Diez Barroso, is grabbing those opportunities.

“It’s an exciting time for a company like ours,” says Darlene Caamano Loquet, who runs Nala from its offices in Santa Monica and is in the midst of boarding several pic projects with budgets hovering around $30 million. “We are getting access to material that we wouldn’t have had access to if the economy wasn’t in the toilet.”

Ali Jaafar contributed to this report.

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