There was a time when renting a booth, setting up a card table and hanging out a shingle at any of the international markets was enough to call yourself a sales agent. But the last cycle of too much capital and too many movies has finally struck some kind of equilibrium, and that’s seen sales agents having to do more with less, and explore new business models to stay ahead of the curve.
“We were looking at opportunities,” Nick Meyer says of the recently inaugurated Sierra/Affinity, of which he is CEO, “and more partners means more product flowing through. … In our case, both (Sierra and Affinity) were looking for similar things. I can’t say that this is the wave of the future, but it made sense for us. No one knows where the next magic is coming from.”
David Garrett, president of Summit Intl., the sales arm of a company that has remained independent as it morphed from a “pure sales agent” into a mini-studio, doesn’t expect a wave of mergers.
“Companies will disappear rather than be acquired,” Garrett says from his base in London. “If companies merge, it will work only if the other company is complementary to your own. An acquisition means that you acquire people, talent or intellectual property. There’s no point in merging with or acquiring a company that does the same thing that you do.
“Libraries may be acquired but not the whole company. … Even libraries have diminishing returns because TV is not buying as much, and the DVD market is down.”
The stressed world economy has resulted in fewer films being made. Buyers and sellers generally agree that this has translated into higher-quality product, and buyers are increasingly looking to A-list titles to produce revenue on their end. The number of companies with access to those films has shrunk considerably, and now only a handful of sales companies handle powerhouse product. Financiers look at who will be handling sales before signing on the dotted line. And there are only five sales companies that make the grade for the big titles.
“Financiers have become way more wary about who is selling the film,” says Stuart Ford, CEO of IM Global.
Investors are looking primarily for expertise in the marketplace — expertise that allows sales agents to make realistic estimates on the earning potential of a film. Volume is another characteristic that is prized as it proves a seller’s experience. And these days, the perception is that the bigger players wield some clout, enabling them to get higher prices for their films.
IM Global handled the mega-hit “Paranormal Activity,” which bumped it up to a higher echelon. But even with such an unexpected hit, Ford, who founded the company, sold a majority stake to Reliance.
“It was a game-changer for us,” Ford says. “It has given us access to a lot more films. Reliance is a great strategic provider of films.”
Not that a sales company is able to exist solely selling big pictures.
“The market is polarized into the haves and the have-nots,” Ford continues. “We handle big and diverse films. We can pre-sell small films as part of a package that is driven by these locomotives. … In the end, what sells are good, finished films in all categories.”
Summit’s Garrett echoed these sentiments. “We began handling small films and worked our way up. We were pedaling very fast in those days, but we established relationships that we still have today. A sales agent can’t just sell a film and that’s the end of it. Serious sales companies will concern themselves with how a film is marketed, promoted and handled, in general.”
And as far as the banks go in this environment, “it’s extraordinarily important to have faith in the sales estimates regarding a film,” says Charles Heaphy, senior vice president for the entertainment division at Los Angeles-based City National Bank. “The banks are putting up money that won’t be collected for a year or so, and many things can happen during that year. For example, a distributor could go bust or could be difficult about coming up with the money — so you need to have a top-notch sales agent that you can trust and that has a strong track record.”
Mergers like that of Sierra/Affinity will continue as long as it makes business sense. The days of the “pure” sales agent are most likely over. Those companies that began in this mode and are still in existence today have evolved with the marketplace, often working on economies of scale.
“We started the company in 1984,” says Paul Hertzberg, CEO of Cinetel, “and we began producing films in 1985. Now, our sales slate is about 90% self-produced. … Our main thrust is producing, not acquiring.”
As a sales agent, however, Hertzberg admits that he is far more conservative these days in estimating earning potential.
“If you give big numbers before going to market and then don’t reach them, it leaves you with some very unhappy producers.”
Mark Lester, who has kept American World Pictures in the black for nearly two decades with a combination of acquisitions and Lester-directed features, has discussed mergers but never found the right combination.
“One of the stumbling blocks to mergers,” Lester says, “is that the heads of these companies are highly entrepreneurial and resist the idea of ceding authority to anyone else. The question is always: Who is going to be top dog?”
What is clear is that in the new indie world, creative thinking is key will still be the foundation for the success of a sales company. The recent announcement that FilmNation will sell all product from Relativity, along with a number of multi-year deals the company has signed with numerous production outfits, is both unique and a reaction to the changing marketplace.
“The advantage is that we operate as an extension of their company, very much as, say, Summit does,” says FilmNation CEO Glen Basner.
“We consult at a very early stage to give a clear idea of the potential international revenue of a film. These estimates are extremely important as they become a cornerstone of the financial package. By getting in early, it’s different from someone who puts together a script, a director, talent and then take it to market and find that the earning potential is nowhere near what they had expected.”
In the end, it is all about synergy and how best to achieve that. A year from now it will be easier to tell who has achieved that and who has not.