Economic downturn may not spell doom for niche market

Sea change. Existential crisis. Transitional moment. These are just some of the terms bandied about to describe the current upheaval in the specialty film sector. While the economic model for independent films is clearly in serious trouble, industry veterans say the death of the global indie marketplace has been greatly exaggerated. Like cockroaches in a media apocalypse, indies may be one of the few sectors of the industry to survive these financially punishing times.

As one insider says, “The independents are all about lean and mean, entertaining films made for a price and distributed for a price. In that respect, it’s the most conservative sector of the film business.” 

Outside observers can cry doom and gloom all they want, but insiders can point to plenty of positive examples in the last year: Late-’08 releases “Slumdog Millionaire” and “Twilight” outpaced many of their bigger-budget studio rivals; summer releases “500 Days of Summer” and “The Hurt Locker” are more recent bona fide specialty hits; Focus Features had its second-highest-grosser ever, venturing out with the wide-release animated pic “Coraline” in February; homevideo rentals, according to many execs, are actually on the rise for indies thanks to Netflix and other new delivery systems; and just when the entire industry was ready to nail the coffin shut on the brothers Weinstein, the company’s “Inglourious Basterds” bowed to $65 million worldwide.

Such instances of good news don’t mean the industry is out of hot water, of course. Production remains down. DVD and pay TV sales are not what they once were. Domestic buyers are sparse. And international sales, even on well-sold titles, don’t cover the costs they once did.

“I always used to call it a waterbed, where if one country was going down, another country was going up,” says Summit Entertainment’s Patrick Wachsberger. “Now there are just a lot of holes in the bed.”

Working in such an environment demands flexibility and prudence.

“I have to be completely and utterly fluid in the way I plan and execute my business going forward,” says Focus Features’ James Schamus, who earlier this year oversaw the consolidation of the Universal specialty arm with the studio’s London-based international production division.

While other studios are closing down their indie units, the new U division has become a new force for global indie production and sales, targeting those territories and companies with a positive outlook.

“It’s about having no orthodoxy,” says Schamus, noting the 20 movies the company has greenlit overseas for regional markets. “We have to be completely open to any language, to any combination of territories and any approach to the marketplace.”

Likewise, producers are being forced to re-evaluate. “Companies like mine are having to think long and hard about making movies for a broader audience,” says Groundswell’s Michael London. “I don’t think that’s a bad thing. We’re not going to sell out in some egregious way, but we do have to think about having a viable business that will survive for the long haul. It’s not enough anymore to make movies for a small, upscale audience.”

Distributors agree.

“People just don’t want to see a nice low-budget movie in theaters,” says Magnolia Pictures’ Eamonn Bowles. “They’ll watch it on DVD or VOD, but in this day and age, it’s just not what they’re going to see. Theatrical movies are exclusively an event thing.”

Indeed, without a highly compelling hook, familiar genre or publicity coup, the star-driven indie drama is struggling in a marketplace that many insiders say is tending toward bigger-budget fare. Box office disappointments include such big guns as Focus’ “Away We Go,” Fox Searchlight’s “My Life in Ruins,” Samuel Goldwyn’s Jennifer Aniston starrer “Management” and “The Informers,” released by the now defunct U.S. arm of Senator.

And yet, some see in this retrenching and redefining atmosphere an opportunity.

Veteran exec Bob Berney, back in the game with distrib Apparition, says the fact that so many other companies had fled the sector or shutdown gave him and his financiers the reason to move ahead.

Berney discounts the notion that the economic model for small or mid-range films is in trouble.

“For a film that performs well theatrically, the subsequent ancillary numbers are still good,” says Berney. “The risk part is that you have to have the right film, and you have to support it in an aggressive way. And that scares a lot of people away.”

Many execs say that the collapse of DVD, at least momentarily, has been overstated. But that doesn’t change the wide-reaching confusion around what the future of the ancillary cash cow for these films will be, as there’s little doubt that DVD will eventually die.

“Everybody has only one question in this business,” says Focus’ Schamus. “With the migration to a remediated digital world in which our films are going to be living, what is left of the value chain, and how can we, as a business, organize around that value chain to support our filmmakers while showing profits?”

Producers and distributors have faith that an answer to that question will emerge. “The history of the motion picture business has shown that these things will reveal itself,” says Michael Barker, longtime prexy of Sony Picture Classics, who says older titles in the company’s library continue to pay dividends.

CAA’s Micah Green goes further. He believes that new-media models emerging will favor independent films, creating a potential explosion of value. “In the digital future, ancillary revenue for true specialty films could wildly exceed what this type of film is currently seeing in brick and mortar stores,” he says.

If yesterday’s big-box retailers such as Walmart never pushed the specialty films sitting on their limited shelf spaces, tomorrow’s digital recommendation engines will give those well-reviewed but once-shunned movies an extra kick.

For that reason and more, Green is staying upbeat. “We need to work from a place of optimism,” he says. “But I think it’s informed optimism.”

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