New players dive into distribution

Startups avoid pitfalls of 'Hollywood accounting'

There are far more appealing things to do in the movie business than enter the world of domestic distribution.

Compared with launching a production shingle or marketing consultancy, distributing means getting your hands dirty — shipping prints, haggling over terms, attaching trailers, booking theaters. Not exactly the glitz and the glamour.

And yet, several deep-pocketed players are giving it an all-out run. Overture Films, backed by John Malone’s Liberty Media (with stakes in Starz/Encore, DirecTV and other media properties) and Summit Entertainment, a new arm of the longtime foreign-sales heavyweight started with $1 billion in Wall Street financing, are launching in upcoming months.

They’re the latest in a flurry that includes the reanimated MGM, the Weinstein Co., Yari Film Group and an assortment of more modest-scaled operations. You have to go back to the homevid boom of the 1980s to find a comparable drive to create alternatives to the studio distrib model.

“Because of consolidation in the theater business, you can book 85% of theaters in the country now with 10 phone calls,” says Steven Friedlander, head of distribution at Warner Independent Pictures. “And with computers, you don’t even need as many people to be calling. Overhead has gotten much lower.”

Consider also these factors: the explosion in U.S. movie screens over the past 15 years, the maturation of the specialty biz, and the infusion of capital from hedge funds and other third-party financiers. Together, those market conditions have opened up a rare opportunity for new players.

There’s also the upside of being in control of the distribution revenue flow. “The motivation for a lot of these guys is Hollywood accounting, which has always been ‘interesting,'” observes one distrib exec who is a veteran of both studios and startups. “The frustration with not getting their due is what continues to motivate them.”

The fresh faces are mindful of the challenges, and the fact that many before have tried and failed.

“There are definitely barriers to entry,” says Danny Rosett, chief operating officer at Overture. “In the near term, until everyone gets comfortable with what you’re doing, it’s hard to be competitive.” That said, he contends that Overture has distinct advantages. “For a startup, we have pretty impressive resources to put behind our movies.”

When engaging in the physical rollout of films, a new entrant like Overture has to essentially sell a theater owner on relationships, probably even more than actual product. Rosett, for example, worked at United Artists; Peter Adee, who oversees marketing and distribution, is a veteran of four studios; and CEO Chris McGurk ran MGM after stints at Disney and Universal.

Robert Friedman, the longtime Paramount and Warner Bros. exec who runs Summit with Patrick Wachsberger, also isn’t an unknown quantity to exhibitors. And he hired a well-regarded lieutenant, longtime AMC vet Richie Fay.

One question film biz skeptics lob at Summit, despite their esteem for its sales history: How will it compete without a pay TV output deal? MGM’s pact with Showtime and Overture’s with Starz/Encore make them instantly viable, but Summit will use its foreign might to offset the domestic costs and then pursue a piecemeal pay TV strategy.

“We feel very confident in the way we’re situated” is as far as Friedman will go in addressing the matter.

Not every newly fortified company wants to go all the way into domestic distribution. Lakeshore hired David Dinerstein, veteran of Paramount Classics and Searchlight, with an eye toward giving domestic a shot, but opted to pact with MGM, as did Sidney Kimmel. Senator, which recently grabbed “All the Boys Love Mandy Lane” in a bold pickup from Weinstein, plans to release it along with a half-dozen other domestic titles in 2008, but not using its inhouse muscle.

“It makes sense for us to think of distribution in virtual terms,” topper Marco Weber says. “We want to control marketing, control publicity and then join forces with a physical distributor. This way I won’t have the overhead.”

And overhead there is. Overture has staffed up quickly, filling a floor above the Mercedez-Benz dealership in Beverly Hills with a staff projected to reach 65. Most work in distribution and marketing.

The test for all the newbies is going to come a few months from now, when the already-saturated domestic film slate sees an influx of pics hit multiplexes.

“Guys will have gone to their bosses and the boards of their bosses and said, ‘I’m giving this new distributor a chance because I used to know the head guy when he was at a studio,'” WIP’s Friedlander says. “But what happens when they stop selling popcorn? What happens when people aren’t showing up? There’s only so many times you can take it in the shorts.”

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