Wanted: Partners

Studios face dearth of indies to offer splits rights deals

HOLLYWOOD – The split rights biz just ain’t what it used to be.

Time was when a cautious studio could pick a project that it didn’t care to distribute internationally, talk to the same group of well-established sales agents, and then accept the most lucrative offer on the table.

Not any longer.

Some of these companies have merged; others have renamed themselves and moved on to new pastures.

But most of them have gone out of business.

The past year alone has seen the demise of split rights stalwarts Douglas/Reuther Prods., Orion Pictures, Rysher Entertainment and Spelling Films.

And the principal survivors of this shakeout, Mutual Film Co. and Icon Prods., although strong, are in no position to handle the entire market themselves.

As a result, the studios are on the prowl for a new breed of indie able to defray the costs of their riskier pictures.

“The universe of well-financed companies able to split rights with a studio is definitely shrinking,” observes Jere Hausfater, senior vice president of business affairs and acquisitions, Buena Vista Int’l. “There’s always room for a well-capitalized new player.”

Collapse of deals

Key to the shift in the market has been the collapse of several high-profile split rights deals.

Examples include the alliance between Scott Free Prods., BVI, Largo Entertainment and U.K. distrib First Independent, which went south last year; the bankruptcy of Andy Vajna’s Cinergi Entertainment, which used to distribute its pics via Summit Entertainment and BVI; and Paramount-based D/R, which failed to find new financing after its original backer, German media baron Bodo Scriba, bailed out.

Ten years ago independent companies such as Carolco and Orion were regularly involved in financing and distributing big-budget, star-driven pics.

Nowadays, the production tab of such films can often exceed $80 million. And pics at that level, say industry experts, can rarely be put together using split rights deals.

It’s notable that when Mario Kassar shuttered his Paramount-based MK Prods. — without making a single film — to join former partner Andy Vajna in an untitled new venture, the duo declared that they were not interested in handling their own international sales.

“Ten years ago the majors weren’t that excited about foreign distribution,” says Vajna. “Now they are the best at it.”

In the same way, following the disintegration of its Largo/First Independent/BVI pact, Scott Free’s new deal, with PolyGram Filmed Entertainment, gave worldwide rights to the studio.

And on the few deals where studios are content to share, the indie rarely ends up with more than a couple of territories.

Steven Reuther’s new venture, Bel Air Entertainment, is 50% financed by Warner Bros., and 50% by France’s Canal Plus, Spain’s Soge-cable and Italy’s Telepiu.

Canal Plus retains all rights to Bel Air films in France and Germany, Sogecable gets Spanish pay-TV rights, and Telepiu gets Italian pay-TV rights. The three European partners also have an equity stake in Bel Air’s projects.

But WB will handle distribution in the rest of the world.

And in Village Roadshow’s new co-financing deal with WB, VR retains only Australia and New Zealand.

Once again, WB has all other rights.

Avoiding high prices

The few “well-capitalized new players” are avoiding mega-budgeted pix.

Outfits such as Kushner-Locke Co., which has pictures on its slate costing up to $20 million, are positioning themselves as companies that — due to their nimble structure and flexible business plan — can go places studios wouldn’t even dream of.

“There are viable pictures that are better off in the hands of foreign sales companies than studios,” says Pascal Borno, prexy of K-L Int’l. “Sometimes a studio can’t get good results due to its infrastructure. They might know how to do a 600-print release in the U.S., for example, but not a 150-print release in Germany.”

“The typical studio machinery knows how to deal with a film such as ‘Con Air,'” comments Christian Halsey Solomon, chief executive officer of Quadra Entertainment. “But that’s not every picture.”

Generating own product

While few sales companies would turn down a five-year, 20-picture deal with a studio, an increasing number of them are co-developing and co-producing material with established Hollywood production entities. The sales company usually has an equity stake in the picture, and a share of its domestic as well as its foreign rights.

Intermedia has pursued this strategy with Scott Free (“Where the Money Is,” “Clay Pigeons”) and Sydney Pollack’s Mirage Enterprises (“Sliding Doors,” “Up at the Villa”). All the pics have been sold to studios or studio subsidiaries in the U.S.

Lakeshore Entertainment, which has a first-look domestic deal with Paramount, teamed with the U.K.’s Samuelson Prods. for the thriller “Arlington Road.” Earlier this year Lakeshore sold domestic rights to the pic, which stars Tim Robbins and Jeff Bridges, to PolyGram Films.

And K-L has set pics with MGM (“One Man’s Hero”) and Dimension (“Beowulf”).

Quadra Entertainment, which is run by Solomon and president of distribution Chris Bialek, believes that it has taken the formula one step further by becoming a supplier of pictures that a studio would be happy to make itself.

Quadra has joined with producer Ed Pressman (“The Crow,” “Judge Dredd”) and four overseas distribs to handle five films per annum in the $25 million to $40 million range.

The foreign buyers will split around 50% of each film’s budget. In return they gain all rights in their territory and retain a small equity position in each pic.

Per Solomon, a studio will come in on the domestic side with about 45% of each film’s budget. “The problem is development,” he says. “If you have a couple of re-writes on a picture it can cost you up to $350,000. What we are doing is taking this away from the studios and doing it for them. Generally, independent companies are unable to do this.”

“Today’s sales companies have to get involved in scripting and packaging,” says Hausfater. “They can’t rely solely on what a studio may decide to sell them.”

Of course, the risk — in developing and financing one’s own pictures as an independent — is that nobody may want to buy them once they are in the can. That’s why most players advise against greenlighting an expensive or even moderately expensive pic without first securing a domestic deal.

Today’s brutal market conditions oblige companies to be as flexible as possible.

A number have sought refuge in alliances that guarantee domestic distribution. Artisan Entertainment (which distributes domestically) has abolished its own sales division and formed a co-venture with Summit, which it may eventually buy.

And Nu Image has an output deal with Miramax Films for U.S. and all other English-language territories, with the exception of South Africa.

Most companies are being pragmatic. For example, Capella Films took foreign rights to New Line Cinema’s Mike Myers comedy, “Austin Powers: International Man of Mystery.” But Capella is fully-financing Myers’ subsequent film, the Irish-set comedy-drama “Meteor.”

Similarly, not long after establishing its own international sales arm, Banner sold worldwide rights to its hottest pic to Sony. Pic, the comedy “Go,” is directed by Doug Liman (“Swingers”) and stars Christina Ricci and Katie Holmes.

“The trick today is not to compete with the studios but to work with them,” says K-L’s Borno.

Flip side

The flip side is trying to sell a studio-pic that carries the stigma of having been “rejected” by its studio.

“The buyers can be suspicious if an independent company is handling a studio film,” admits one seasoned sales exec. “These are wealthy, sophisticated people who sit down and evaluate everything.”

But Hausfater, who also heads BVI’s own sales arm, Buena Vista Film Sales, denies that studios only sell off product that they believe to be inferior.

“We make straight sales, we do combinations of straight sales and distributing some territories ourselves, and sometimes we sell off all of international to another company,” he says. “Each picture has its own financial model.”