It can’t get any worse, can it?

That’s the question sales agents are anxiously asking themselves as they gird for Cannes, torn between dread that the market might have much further to fall, and hope that it might finally have hit bottom.

Like the rest of the global economy, indie film finance is suffering a painful correction that started at Toronto last September and deepened through the American Film Market in November and Berlin in February.

Sales agents talk about a perfect storm of negative conditions that has shaken their business to the core. The credit crunch, the recession, collapsing international currencies, piracy and the rising popularity of local movies are conspiring to undermine the value of foreign rights and the ability of distributors to pay.

Presales have vanished for all but the most obviously commercial product, and prices are plummeting for completed films. With gap finance shrinking, equity investors feeling the pinch and subsidy coin being squeezed, the model for indie production is under severe pressure. As a result, films are falling apart left, right and center.

“Everything that could possibly go wrong with local economies around the world has done so, and I don’t think the worst is over yet,” says Summit International prexy David Garrett.

Box office is still robust, but DVD and TV sales no longer offer that all-important safety net for anything but the biggest theatrical hits. Indies have enjoyed success in recent months with Pathe’s “Slumdog Millionaire” and Summit’s “Twilight” and “Knowing,” but even the value of these hits has been dented. “Twilight” earned a boffo $190 million at the international box office, but eight months ago that figure would have been $250 million because of more favorable exchange rates.

Meanwhile, there’s an epidemic of distributors seeking to renegotiate deals that were signed and sealed in rosier times a year ago, particularly in the territories worst hit by currency problems, such as Russia, Korea, Australia and Latin America.

“Some territories have shrunk almost to evaporation, and the credit crunch is only part of that,” says one veteran sales agent-turned-consultant. “In Japan, for example, if you look at the box office top 10, eight are local films and the other two are studio tentpoles. There’s just not the same appetite culturally for nonlocal fare, so if you are doing sales estimates, Japan is virtually a zero.”

Each territory has its own tale of woe. Russia, which a year ago was paying vastly overinflated prices, has fallen into a black hole, with the rouble devalued by 75% against the dollar and distribs claiming that the banks are blocking them from sending any money out of the country. In Spain, the collapse of DVD and TV market has left several distribs teetering on the brink. In the U.K., the demise of retail chains Woolworths and Zavvi put a big dent in the home entertainment business.

As a consequence, the independent film sector is set to contract. Fewer films will be made, with fewer companies around to handle their sales and distribution. Such consolidation may ultimately create a more sustainable business model for those who survive the crunch. But there will be a lot of casualties, including the kind of risky scripts that sometimes turn out to be the greatest hits — as “Slumdog Millionaire” just proved.

Michael Ryan of HandMade Films Intl. has lived through many cycles in four decades of the foreign sales business, but even he struggles to think of a more uncertain time. “There were a couple of years in the ’80s that were worse, but this is very tough,” he says.

From his vantage point as vice chair of the trade org IFTA, he predicts a significant fallout among sales companies. Many IFTA members, he says, have already quietly given up on theatrical sales to concentrate on movies for TV.

Carl Clifton, managing director of the Works Intl., agrees: “There’s an argument that the film business is somewhat behind the rest of the economy, in terms of feeling the impact of the recession. We’re going to see more companies disappearing and buyers sharpening further their selection criteria. There will be great challenges, but there will also be great opportunities for those who can see out the storm, however long it lasts.”

The new buzz word is “accessible,” Clifton says. “A film must be easily communicable to the audience, it must have an obvious story hook. A big star and a big director isn’t enough, the material also has to be right. A great director and a great cast in a tricky mature drama is not a slam-dunk anymore.”

According to Ealing Studios topper Barnaby Thompson, “What people are looking for at the moment are comedies, or bigger, glossier and well-cast mainstream movies for a reasonable price; a $25 million film like ‘Taken’ that a studio could put out in 2,000 cinemas. Dramas right now are tough, so there are projects we’re simply putting aside because of the state of the market.”

Peter Naish, sales head of Exclusive Media Group, adds, “In our development meetings, all we talk about is that movies must be entertaining, they must offer an element of escapism, be triumphal, give hope for the future.”

Exclusive, launched last year by the merger of Guy East and Nigel Sinclair’s Spitfire Pictures with Hammer Films, is focusing on a small number of high-end projects, such as Peter Weir’s “The Way Back.”

Crucially, it’s using its own equity to close the financing.

“A lot of buyers are not prebuying because exchange rates are volatile, maybe they have an issue with credit from their own local banks, and they are nervous that films are not going to be completed,” East explains. “So if we can use our equity to get our films made, we can allay that fear. Berlin was tough, but we did relatively well for presales, and we think, whether at Cannes in May or the AFM next November, the buying will start again in a much stronger way.”

Indie film folk remain somewhat optimistic. As Paul Brett of Prescience Film Finance says, “There is a real problem out there, but distributors are still going to have to fill their slots. This won’t last forever.”


What: Cannes Film Festival and Market

When: May 13-24

Where: Cannes, France

Web: festival-cannes.com