Just when it seemed hard enough to raise money to make movies in a struggling economy, producers are discovering they need to raise even more.
In order to land a distribution deal at a studio, shingles are being asked to provide their own print and advertising coin in addition to the production dollars needed to make the pics.
Studio brass used to ask for that from producers in the past. They’re not asking anymore; now it’s standard operating procedure in Hollywood.
That’s become a major problem for some producers at a time when the credit crunch is drying up sources for financing.
Just last week, Relativity Media’s plans to buy Rogue Pictures from Universal came with a caveat: In order for U to continue releasing the specialty label’s films, Relativity will have to pony up the P&A for those pics.
Similarly, in order to continue its distribution deal at Paramount, Marvel Studios had to agree to pay the P&A on its next five superhero pics, which includes the “Iron Man” franchise. Par covers the marketing costs upfront and is repaid by Marvel once the B.O. earnings start rolling in.
And when Participant Media announced in September that it created a $250 million film fund with Abu Dhabi Media Co. for a slate of pics, the financing included coin for P&A. The company is seeking a single studio to partner with, rather than shop each of its pics around town, as it has done in the past.
For the studios, the demand for P&A is just the latest example of the majors looking for ways to cut costs and eke out more profits to boost their bottom lines.
They’ve already reduced the number of movies they’re making and shuttered or started selling off specialty labels. It was only a matter of time before they focused on strictly collecting distribution fees from third-party partners to fill out their slates.
It reduces the risk of shelling out millions for a film that could flop and was never going to be owned by the studio in the first place and added to its library in the long run. If the films do well, they can claim bragging rights as Paramount did with “Iron Man” and “Indiana Jones,” which it merely distribbed.
For the production companies, the deals can be beneficial.
Doing business this way enables them to fully control how their movies are made — from production all the way through to promotion. And after the distribution fees of 8%-12% are paid to the studios, the production companies own all rights to the pics to exploit however they see fit.
Alcon Entertainment, based at Warner Bros., controls the P&A spending on its movies. For the company, doing so allows it to control how its movies are promoted — especially considering its pics aren’t usually the high-profile tentpoles that garner the most attention at the studio.
The P&A situation puts producers in the same position as Lucasfilm, DreamWorks Pictures (now at U) and DreamWorks Animation (still at Par). But it also puts them one step closer to becoming an indie outfit like an Overture, Summit, Yari Film Group, 2929 Entertainment or Gold Circle Films — companies that can finance and distrib pics on their own; bigger businesses they may not have wanted to become.
For those who can land that extra P&A coin, the deals essentially mean more money in their coffers.
Either way, having to find that kind of money is causing frustration levels to rise.
Comicbook publishers, outside of Marvel, which have set up properties around town (given the town’s frenzied interest in graphic novels), are feeling the pressure to raise coin in order to land a distribution partner.
But some can’t raise production financing unless they have a studio on their side. In order to get a studio on board, however, they need the P&A money.
“People want our projects but they want our money, too,” says one frustrated exec. “We either keep trying to raise the money or give up more than we want.”
Despite the down economy, the money does exist for those who can find it.
Most of it may not be in the United States.
In the case of Participant, its financing came from the Middle East. For Oliver Stone’s biopic “W,” the film’s producers raised $25 million in P&A coin from Australia-based Omnilab Media. Lionsgate distribs the film domestically and in some foreign territories, including Oz.
How much producers need to raise depends on the films being made.
With Marvel’s slate containing big-budget tentpoles, the comicbook company needs to spend more to release and promote those films worldwide — in its words $100 million to $120 million worldwide per pic for films produced in the $135 million to $165 million range.
Companies like Participant aren’t in the tentpole business, however.
The average budget for a pic that came out of a specialty label last year was $49 million, and it cost $26 million to market them, according to the Motion Picture Assn. of America. Even smaller pics with budgets of $10 million to $20 million typically require at least $18 million in P&A support, industryites say.
Chances are, the demand for P&A will affect what types of films that are made.
Without the once-expected studio dollars at their disposal to sell what could have been considered risky pics, shingles will be more cautious on what types of films they make. Expect more commercial fare to flow through the development pipeline that can appeal to broader audiences in the U.S. and abroad.
Not every producer in Hollywood needs to fret, however.
Those looking for first-look deals aren’t affected as long as they don’t want to own the movies they make.
They just face another problem: Landing that kind of deal is getting tougher as studios continue to slash the number of first-look pacts on their lots each year.
“This industry will be fun again when it becomes less about money,” says one producer trying to keep a deal at a studio.
Hollywood’s not alone when it comes to that sentiment.