‘King’s’ bling eludes indies

BSkyB dominance muffles earnings for non-studio pix

While the copious revenue generated by “The King’s Speech” has often been used as an example to illustrate the ins and outs of the biz, it throws a particularly bright light on how BSkyB’s dominance of the U.K. pay-TV market has affected Britain’s indie film business.

Local distributors argue that the satcaster’s monopoly has restricted their ability to compete with the U.S. majors, and limited the upside from British indie hits such as Tom Hooper’s multi-Oscar winner.

BSkyB has expensive output deals with all the Hollywood studios, but only rarely buys films from local indies, and then at dramatically lower prices.

“The studios get the highest prices anywhere in the world outside the U.S., and the independents get the lowest,” says one exec who has worked in senior positions for both studios and indies. “It’s probably the single most debilitating factor for indies in the U.K. — worse than low cinema rentals and high P&A costs.”

The financial gulf is so great that it’s more lucrative for an indie to enter a distribution partnership with a studio in order to access vacant slots in its Sky deal than to attempt to sell pay-TV rights direct to the satcaster.

That’s why last November, two months before its opening, Momentum Pictures quietly flipped “The King’s Speech” to Universal.

Universal offered a Sky slot worth at least $2 million, with the studio creaming off a 50% fee and Momentum keeping the rest.

At the time, the indie was hoping “The King’s Speech” would reach $15 million at the B.O. Momentum reckoned that might net $250,000 from a direct sale to Sky. The satcaster typically pays 4%-5% of gross for an indie action movie, but much less for a period piece.

There was no guarantee, however, that the satcaster would actually buy the film, particularly if it fell short of predictions. Sky never brought previous Oscar winner “The Hurt Locker” from Optimum, for example.

On the other hand, if “King’s Speech” turned out to be smash hit, Momentum might not only squeeze top dollar from Sky, but could also use its leverage to sell its whole slate of films, or even secure an output deal.

But Momentum topper Xavier Marchand didn’t have the luxury of waiting to see how “King’s Speech” performed before making his decision: The fine print varies, but the U.S. majors can only put films through their output deals if they acquire them prior to theatrical release.

In some cases, such as Momentum’s separate ongoing relationship with Paramount, the studio must act as co-distributor, handling the theatrical sales for a fee and sharing the credit. But Universal’s Sky deal works differently, so Momentum was not required to split the theatrical income or put the studio’s name on the film.

“The King’s Speech” had already recouped 90% of its equity from foreign sales, so the investors, including the UK Film Council, were willing for Momentum to refuse U’s offer and gamble on getting a better deal from Sky after the theatrical release.

But Momentum still had its own advance and its hefty P&A commitment on the line, and the U offer was simply too rich to turn down.

As it turned out, “The King’s Speech” grossed $74 million. Fortunately for Momentum and other “King’s Speech” investors, Universal’s pay deal is linked to box office by a complex internal formula. The exact value allocated to “The King’s Speech” has yet to be fixed, but insiders reckon Momentum’s half-share is still likely to end up greater than the indie would have earned by selling direct to Sky.

But pre-selling to U meant that Momentum was unable to use its monster hit to secure better pay TV deals for the rest of its slate, or to take the option of collapsing the pay window and selling direct to free TV for a premium.

In the end, Marchand arguably got the best deal available for “The King’s Speech.” But he was forced into contortions to do so, and the result was worth far less to Momentum, and to the public and private investors in “The King’s Speech,” than any studio would have earned from the same film.

No wonder Momentum is now one of several indies negotiating long-term output deals in the pay-TV window with Web streaming services Netflix or Lovefilm. For the first time, BSkyB faces the prospect of real competition for pay-TV rights, with the Web services offering what indies describe as very attractive sums.