Kavanaugh was speaking Friday at a film finance summit, organized by the American Film Market in Santa Monica.
“There has been significant change in the past 12 month. Demand for product exceeds supply due to Netflix, Hulu, Amazon Microsoft X-Box and so on, which are all looking for unique product, with $40-$100 billion checkbooks,” Kavanaugh said.
“As we see it, digital has grown the profitability of the business beyond the DVD era,” he said.
Studios may see it differently. Their “dirty little secret,” according to Kavanaugh, is that their pay-TV deals preclude them from selling digital rights during the pay-TV window.
“We don’t have that problem, and are two or three maybe five time more profitable than the studios on digital,” Kavanaugh asserted.
Kavanaugh and other panelists also said that the pre-sales market is robust. “We are seeing films that typically combine 220% incentives, 60% pre-sales, and 20% mezzanine, gap, equity stuff,” said Steve Ransohoff, co-president of completion bond firm Film Finances Inc.
“We don’t have [conventional] pre-sales, but output deals which can provide us 100-110% [of budget],” said Kavanaugh. And he said that proportion has grown from some 80% in 2009, and 85% in 2009. Growth he said is coming from countries with large population that had been behind the curve, such as East Europe, the Middle East, Turkey or South Korea.
Panelists were also positive about the trends in TV and their impact on the film business. “From a content point of view this is a golden age for television,” said Mark Canton, the chairman and CEO of Atmosphere Entertainment.
Kavanaugh demonstrated that “underperforming” movies can be given new life on TV and pointed to the example of “Catfish.” The film did some $5 million at the box office, but was strongly popular with 15-21 year olds. “That wasn’t enough for a sequel, but was enough for cable TV…. We had so much data on it [from digital distribution] that was way more than any pilot, we could take it to MTV.”