Cannes Film Festival 2012 - The Money

Don’t believe the hype. That’s the golden rule for distributors heading into Cannes looking to pre-buy hot projects.

As a glance back at previous years quickly confirms, the inconvenient truth is that far more films are announced than ever get made.

Many of those projects not only grabbed the headlines with their casts, directors and scripts, but also racked up a stack of pre-sales before disappearing, leaving buyers with holes in their budgets and release schedules.

“We bought 13 films at Cannes in 2009, and six never got made,” says Jim Frazee, director of acquisitions at Scandi distrib Scanbox. “It’s not unusual. At every major market, if you buy 10 films, two or even three might not happen.”

Scanbox’s missing half-dozen from Cannes 2009 include “Unbound Captives” from Hyde Park, “St. Vincent” and “Blink” from IM Global, “The Technician” from Content, “Clean Out” from PTZ Intl. and “Vengeance: A Love Story” from Moonstone.

“These things happen, as we know the world of film financing is a very complicated business, but films that don’t get made, that you are counting on and have spent considerable resources covering, tracking and negotiating, really create problems down the line for your release plans,” Frazee notes.Pre-buying pics that don’t get made is an occupational hazard for distributors. Avoiding the lure of phantom projects is a key part of their job. But everyone gets caught out sometimes — and it’s more common than many care to admit.

“It mainly happens with sales companies of second-tier quality,” says Constantin topper Martin Moszkowicz. “Most of the big sales companies make sure their films really are happening, but we’ve all had incidents where a film got delayed or didn’t happen, and some of them drag on for years.”

When sales agents promise projects that they can’t ultimately deliver, it’s sometimes just bad luck, with talent dropping out for a better offer. But too often, sales agents launch projects prematurely to the market before they are properly packaged and financed, in the hope they will attract enough heat to become a reality.

Talent agents have gotten wiser to this trick. Equity financiers testify that they are increasingly required to get directly involved in packaging indie projects. “Agents want to be reassured on their client’s behalf that the money is actually there, before their clients are used to shop the projects,” says Maggie Montieth of Dignity Film Finance. “There were so many years when people were using talent as a means of going out and raising the money.”

That’s why many distribs try to avoid making any down payment until the film starts shooting. “Sensible buyers don’t pay deposits, and sensible sales agents don’t ask for them” says Alex Walton, head of sales and distribution at Exclusive.

Where no cash has changed hands, pre-buying a nonexistent movie is just an inconvenience. But if it happens a lot, particularly with bigger titles, it can play havoc with acquisition budgets, and leave distribs scrambling at short notice to fill the gaps in their schedule.

“If you pre-buy a movie and it doesn’t happen, you aren’t just missing that movie, but you have a slot to fill that maybe you just can’t fill fast enough,” says Moszkowicz.

The big headaches come when there’s a deposit to claw back. It can be a long struggle to reclaim cash from less scrupulous and reliable sellers. Sometimes, notably when one of the parties has gone bust, the money is never seen again.

“In today’s financial world, you’ve got to be very picky, to make sure you don’t pay any money upfront before a film goes into production,” says Nordisk buyer Peter Philipsen. “But we’ve been in situations where we felt certain from the contracts we had seen that the film would happen, and we made our down payments really late, yet the film still didn’t get made, and then we had to fight to secure our money back, though we did get most of it.”

Often, films don’t start shooting as quickly as promised. But when projects are delayed, and sales agents are making reassuring noises, it can hard for buyers to tell whether the pic is really still alive or actually dead.

“Sometimes it takes a long time for them to get made,” says Mirjam Wertheim, who reps multiple distribs. “So we keep asking, when is it going to happen? The sellers give promises, adjust the budget, but sometimes the buyers start asking, can we get out of this? Often the sales companies will offer something else instead of just cancelling, and if the new project is interesting, maybe the buyer will do it.”

Wertheim’s client Falcon, based in Lebanon, is currently considering legal action against New York-based sales agent Elephant Eye to get its deposit back from three unmade films — “Turkey in the Straw” from 2007, and “The Frat Girl” and “The Harvest” from 2009. “The projects just disappeared, the seller wants to give something else, but we don’t want it. But we still see them at markets, staying in nice hotels, so they’ve got money from somewhere,” Wertheim says.

Elephant Eye co-topper David Robinson says he’s still putting together “The Harvest,” but the other two projects have been cancelled. “We have agreed to return the deposits; however, we are a small company and the last two years have been quite challenging, and we haven’t had the cashflow to refund them yet. We value our relationship with Falcon and are doing everything we can to resolve this situation as quickly as possible.”Robert Enmark of Svensk is sanguine. “I don’t get especially upset if things get delayed from one year to another. We waited for ‘The Tree of Life’ for a long time, but it came out well.”

On the other hand, Enmark says Svensk is currently fighting to reclaim its deposit from Handmade for two films that didn’t happen, although the company is telling Svensk that one of these, a remake of “Mona Lisa,” is still on course to get made.

It’s a bigger problem if a film is delayed once it has started shooting, when the buyers have made their first payment. “You often end up having to buy another film to cover your release date, so I go over my budget,” Frazee says. Even when a film does actually proceed as planned, foreign distribs can find themselves having to wait for the U.S. release, which can be a moveable feast.

Many pics are sold with a contractual hold-back forbidding any foreign territory from going ahead of the domestic date. But the U.S. distribution scene is so volatile that international distribs can be in limbo for months or even years while the domestic release gets shuffled about.

” ‘Red Dawn’ is finally coming out this year, and it’s been delayed for three years,” says Frazee. “We bought it from FilmNation at AFM in 2009, but it’s not FilmNation’s fault, the film just got caught up in the MGM bankruptcy.” He notes that Scanbox bought “The Road” three years before it came out in America. “I admire the Weinstein Co. for trying to jockey the film for its best date, but we bought ‘The Road’ for a particular slot, and when you have to wait that long, it gets ridiculous.”

Scanbox had an even worse experience recently with another TWC title, “Apollo 18.” “They changed the release date four times. The Scandinavian exhibitors just started getting pissed off with us because we kept moving it, and in the end they refused to book it. So we went straight to DVD, even though we bought it as a theatrical title.”

Delays can even happen when films are bought after they are completed. Buyers who picked up IM Global’s John Cusack movie “The Factory” from its Cannes market screening in 2009 are still waiting for its U.S. opening, even though it was supposed to have a guaranteed 2,000 screen release via Warner. “My clients will pay on delivery, but it’s frustrating because it would go well into their TV deals,” Wertheim says.

This problem has become so acute that some buyers will avoid projects that have U.S. distributors with a track record of date-switching.

The big Euro sales companies are more willing than their American counterparts to let buyers acquire their big international projects without a U.S. holdback.

Some sales agents have a reputation for bidding too aggressively to get projects, often before they are ready to be taken to market. “They want movies so badly, so they say they can come up with $30 million from pre-sales and the producers give them the movie, but then they can’t meet their estimates,” Wertheim explains.

That’s a cautionary tale for producers, because a premature launch can kill a project. Where buyers are concerned, there are rarely any second chances. “A lot of companies will jump the gun and send out scripts that haven’t been financed or greenlit, with just one key talent attached and a list of other possible names, to feel out the market,” says one veteran sales agent. “But then if they don’t get enough sales, they go back to the producers and say no, we don’t want to do it, and the producers don’t realize how much the sales agent has soured the market for that project, and soured the process for everyone else as well.”

One project that did manage a comeback was Darren Aronofsky’s “The Wrestler,” which was initially sold by Summit with Nicolas Cage attached. Several distribs picked it up, but the project fell apart and then came back together with Mickey Rourke and Wild Bunch, who redid the sales afresh, often to different distribs.

“We try to resist putting down money, and we also try to put on an outside start date as well as an outside delivery date,” says Alex Hamilton of eOne’s U.K. arm. “We understand the logistical challenges of production, but it helps us with our planning if we can put a date into the contract that a film must start shooting before the next major market.”Some sales agents recognize that the trust of buyers is an invaluable asset.

“We’re very careful about what we announce, and we announce less than a lot of other companies which launch two or three new films each market,” says Andrew Orr of Independent Film Sales. “As a producer, we want to get our projects out there, but we’re always telling buyers that things on our development slate aren’t ready to talk about yet.”

Others adopt a policy of throwing every half-baked project they can find at the wall in the hope that enough of them stick. It would be invidious to list the most notorious examples here, but these rogues and renegades — or perhaps just incurable optimists — are well known to buyers and their more conservative rivals, who scratch their heads about how they manage to stay in business. Often they don’t — the company names change from year to year, but the individuals somehow persist.Buyers learn to read the danger signals, and develop a finely-tuned instinct for projects, producers, talent packages and budgets which are plausible.

“If a guy you don’t know is selling Martin Scorsese’s next film with Tom Cruise, then you know it’s not true,” says Faruk Alatan of Italian distrib Medusa.The situation is at its worst at those periodic times of crisis in indie film financing, when previously reliable models fall apart and producers are scrambling to reinvent the wheel. Cannes in 2009 was one of those moments, when the aftershocks of the credit crunch threw the indie film business into turmoil.

The market has stabilized considerably since then. Over the past couple of years, many indie distribs have made big bucks with popcorn hits such as the “Twilight” franchise and now “The Hunger Games,” plus prestige titles such as “The King’s Speech,” “The Artist” and “Midnight in Paris,” which have earned profits many times the modest expectations on which they were pre-sold.But boom times can bring their own threats to the stability of the production pipeline. Constantin’s Moszkowicz explains, “When the market is hot because distributors have generated a lot of money that they want to spend easily and quickly, to reinvest in two or three new films, that’s when sales companies bring a lot of projects to the independent market that the studios aren’t making, maybe for reasons of volume, but which aren’t completely developed and set up.”

It’s a cliche, but buyer beware. Only time will tell how many of the big projects paraded along the Croisette this year turn out to be real.

Avoid prebuy peril

  • Does the U.S. distributor switch dates a lot? Buyer beware.

  • Is it a project that’s plausible? “If a guy you don’t know is selling Martin Scorsese’s next film with Tom Cruise, then you know it’s not true,” says Medusa’s Faruk Alatan.

  • Is the sales agent frugal with announcing projects? “As a producer, we want to get our projects out there, but we’re always telling buyers that things on our development slate aren’t ready to talk about yet,” says Andrew Orr of Independent Film Sales.

  • Is the project properly packaged and financed? “Agents want to be reassured on their client’s behalf that the money is actually there, before their clients are used to shop the projects,” says Maggie Montieth of Dignity Film Finance. “There were so many years when people were using talent as a means of going out and raising the money.”

  • How important are down payments? “Sensible buyers don’t pay deposits, and sensible sales agents don’t ask for them” says Exclusive’s Alex Walton.

  • Remember, sometimes all the best-laid plans can go awry. “We’ve been in situations where we felt certain from the contracts we had seen that the film would happen, and we made our down payments really late, yet the film still didn’t get made, and then we had to fight to secure our money

    back,” says Nordisk buyer Peter Philipsen.

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