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The pre-sale market has dried up and is never coming back, financiers at this year’s Cannes tell me. That, combined with fewer banks lending to producers, means equity investment is more important than ever. Even those private lenders still left in the game, say they want to fully finance their own movies with equity. 
The trend at this year’s market has been for sales agents to make one or two key pre-sales, encouraging financiers in. But distributors have been folding their arms, waiting for completed product. Buyers used to jump in throughout a movie’s production, locking distribution rights for themselves. No more.
“We’ve converted into a completed film market, unless it’s a bigger project being sold by a handful of sales companies,” one financier tells me. “It’s changed forever and I don’t think it’s ever coming back.”
Financiers say they are now only interested in genre films. After all, if distributors are not prepared to take a risk, then why should they?
Not that there was much to pre-buy anyway. Distributors have complained about the lack of attractive projects at this year’s market. Inferno generated heat on its Brad Pitt adventure The Lost City of Z, while Summit’s The Three Musketeers 3D sold well. IM Global sold out on its Jason Statham thriller – Statham being the nearest the indie market has to a sure thing.
As for all those hot projects being talked up before the market, there’s been silence. Nothing about Tony Scott’s Potsdamer Platz, starring Javier Bardem, Mickey Rourke and Statham again; nor about McG’s adaption of Broadway musical Spring Awakening; no sales news about Nu Image’s Kane and Lynch, starring Bruce Willis and Jamie Foxx. Of course, announcements may still be coming once everybody’s back at their desks.
There wasn’t much interest in finished projects either. Normally, there are three or four completed films that get buyers salivating. Not this Cannes. Sony Pictures Classics has been the only studio to flash its cash so far, buying domestic rights to three titles: Another Year, Of Gods and Men and In a Better World. Relativity Media bought US sci-fi movie Skyline. And IFC acquired US rights to Xavier Dolan’s Un Certain Regard entry Heartbeats. And that – for the most part – has been it.
Not that you’d know that from the daily trades here, which talked about “a roaring trade”. Sales agents spoke about the market stabilising with lots of buying going on. Well, they would wouldn’t they?
Didier Duverger, co-chairman and managing director of French bank Coficine, tells me: “The international market hasn’t been very good. The future’s doesn’t look much brighter, and that’s not going to change.”
Of course, it may be that those sales agents who blame the pre-sale market drying up aren’t very good at their job. Heather Mansfield of Mansfield Associates – who represents Hong Kong’s Standard Chartered Bank in Europe – tells me sales agents she was policing have made lots of sales “because they had movies that people want”. That said distributors have been negotiating hard to get prices down.
Other lenders I spoke to – who went around the market checking on what sales agents have been doing – were more downbeat. Duverger says: “I’m really scared the market is going to stay this way for another two or three years. It’s not a nice feeling.”
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Visited the croisette yesterday and chatted with a few people in the indie world who corroborated nikki’s assertions here. While I’m sure there was slightly more action in the first week, It’s my sense that too many people visit festivals like Cannes to shmooze and trade business cards with the BLIND hope of big sales.
But in the end, what distributors (that you couldn’t get on the phone with any other week of the year) is going to seriously consider projects like “Nude Nuns with Big Guns”!
Foreign producers should recognize the types of titles/concepts that could conceivably make it onto a screengems/rogue/Lionsgate slate before hocking their wares here– or at any festival for presale!
And finally perhaps, the word festival should be embraced more whole-heartedly. A native American-electronic band that was performing for spare euros was the most exciting
Hahaha I heard about them!
Dear Sttropezsunning.
Talking about BLINDness: Nikki didn’t write this. TIm Adler did.
Best
Hardly surprising given the general trend in all things finance, with company buyouts requiring some enormous equity ratios by historical standards, but still devastating. Banks just don’t like risk now.
Whether pre-sales of independent movies were ever a particularly good investment is of course the other issue (generally not). But what this means is that indies can forget about debt financing unless they’ve got something else to secure it with, or they’re able to guarantee the debt (ha).
“It’s changed forever and I don’t think it’s ever coming back”.
Until it does.
Best comment of the day.
And you’re right. There are always fools out there willing to loan someone else’s money in the hopes it will somehow pay off big time.
I give it ten years tops. And most likely far less.
The film world is now full of gutless men and women who assume no risk so they can achieve mediocrity on a grand scale. What happened to the moguls and risk takers of yesteryear? What a sad state of affairs for great storytelling. Television is the king for compelling stories right now. Cinema is strangling itself to death with nonsense 3D and movies that lower the bar intellectually. Cinema will die if it’s not nurtured. Wake up people!
I agree. Every person in any position of power is absolutely cowardly at the moment. NO risk is right. They either go with easy, guaranteed money, or nothing at all. SMH.
I think you just accurately identified the reality of why film is a dying industry.
The stuff they are producing really is rubbish. That’s why they have to spend so much money on advertising.
Word of mouth is dead – replaced by a system of boom or bust in the first two weeks of release.
Thank goodness for Television. It’s resurgence is about the only good thing going on now.
I just wish that studio’s would release straight to a pay per view system, where they could go to the home screen direct (I was going to say small screen – but I haven’t seen one of those in quite some time)
What’s changed is moguls don’t have ownership and skin in the game, or a sense of what the audience wants. Louis B. Mayer, or Samuel Goldwyn, knew a stinker when they saw it. They also reaped profits, if a film hit, and lost money if it bombed.
Hence, few turkeys in Hollywood’s Golden Age (because a string of turkeys eliminated bad/unlucky moguls) and lots of hits.
Neither Goldwyn nor Mayer would have ever green-lit something like TransAmerica or Stop-Loss. Nor to be fair, a good film like World’s Fastest Indian. Because those films would never reasonably make money. “If you want to send a message, use Western Union.”
You probably have too much risk, desire to be “hip” and careers made not by making money for shareholders but pleasing agents, stars, and producers/directors.
As far as not coming back, why would it? Money is free and easy? Just sloshing around the world, looking to be spent? Tax loopholes and shelters are gone.
Whoever you are: this is perfectly put. I’m in complete agreement – one can only hope for swift regime changes and new days.
This is total bullshit. As a buyer, I pre-bought 6 films at Cannes, and EVERY buyer I know pre-bought quite a few films, despite the fact that this was a weak Cannes. Pre-buying is not dead at all, but there are too many marginal budget-bloated films where a seller just wants too much. Generally, it’s business as usual. The biggest problem is all the crap projects out there, and that the indie producers are mostly out of touch with what people and distribs want.
So, buyer, what kind of things did you buy? What do ‘people and distrbs want’? Hard to believe they’re one and the same thing.
No one pre-bought several movies at Cannes, your just trying to get funding for a project. Don’t BS, I work on the highest level and everyone was timid. Stars don’t bring dollars anymore period. The game has changed and audiences want to see a great trailer not a star when determining going to see a flick.
Lost City of Z with Brad Pitt, Abduction with Taylor Lautner, One for the Money, Nazi Officer’s Wife, Midnight in Paris, Medallion and in talks on three others. I don’t know any buyer that WASN’T pre-buying (not for the U.S., but for Europe and Latin America). Agree the U.S. is a disaster…
if you are at the highest level you would never say “at the highest level.” however, if this IS you, mr. spielberg, i beg of you, please understand there is a difference between the words “your” and “you’re.” and i really enjoyed AI, incidentally. you were in a tough spot there, and i think you pulled it out. bless.
Equity is not going to be the magic bullet either. Those guys are getting regulated heavy, in the EU and in the US. That leaves Swiss, Hong Kong, and Dubai based funds which of course will have difficulty raising investments in the US and EU. Unless they submit to the regs.
Among them — avoidance of risk. Yes its stupid. But that’s the political fallout from the junk mortgage crisis. What do you expect after billion dollar taxpayer bailouts? Less regulation?
Film’s problem is … most films lose money, or barely make any. Indie films are a waste. Almost none of them make money. Tax shelters, and vanity projects by folks with too much money, are gone with easy subprime mortgages. The WSJ yesterday had a story about studios closing the window between theatrical release and pay-per-view. Thirty dollars a view at about a month after release!
Even though box office is up, attendance at movies is down 6% over last year, the $20 movie ticket making its appearance in NYC, won’t be enough to restore profits.
The Journal had a nifty graph showing the decline in DVD revenues not being offset by theatrical revenues. Easy money is over.
The indie world of tragic hipness made by folks who consider Whole Foods “cheap” is pretty much over.
HAHAHA… great comment.
The indie world of tragic hipness made by folks who consider Whole Foods “cheap” is pretty much over.
The mortgage business, all playing with other people’s money, played along as prices rose to silly levels. There isn’t much difference with the film market. Subsidy formulas punish anyone who doesn’t juice up their budget 10% to 30% to get more free cash. And the huge gorilla in the room – above the line fees for talent, maintained at unsustainable rates by agents who must keep increasing quotes or risk losing their job, have a role not much different that mortgage brokers had in the since-crashed mortgage market.
DHD would do all a favor by running a series of articles exploring how the above-the-line fees have been so destructive to below-the-line employment, particularly in California: it is a prime cause of runaway production; it hits below-the-line hardest, both because there is no money left in the budget, and because the dollars available get spread across fewer projects (because the dollars get hoovered up by above the line talent.)
So why the surprise that banks – who typically have low risk tolerance but who get drunk every 7 years and do stupid things – have retrenched and want equity?
Here’s the kicker – yes, I buried the lead: When a subprime mortgage was made to someone with almost nothing invested, i.e., no skin in the game, what’s the downside? Similarly, for non-recourse lending to films where the producer and sales agent and distributor and above-the-line have no financial downside if the film tanks (70% lose money, you know that, right?), then — why not jack up the budgets? Subprime drove up the price of a $100k cottage to $400k; why would the film business be any different?
@FinanceVet: You nailed it. Producer pre-sales, guarantees, advances, negative pick-ups and other sales devices only shift the risk to the fool down the line. Hollywood perfected derivatives long before AIG, Bear Stearns, JPMorgan-Chase and the other Wall Street brigands got into the racket. For years it was a marvel how a movie could go into profits before even a single ticket was sold. And when no tickets were sold, the producer/studio still came out ahead. Now the vultures have come home to roost.
Produce a movie people will pay to see, make it for the right price with the right talent, and you’ll find a buyer.
Well in the trenches you’ll find the cost of name talent has come way down. Down on the front end, waaaay down on the backend. The production paradigm is shifting while product overhang is getting chewed through (or left behind without a chance of distribution). Like any other business, dumb money drives out smart money, and now the dumb money has gone home. So actually, this is a particularly interesting time to make equity plays.
The indie world has two giant problems – Europe is still very much in financial trouble – and the rest of the world has figured out how to tell a cinematic story. Sales agents had their heyday in the 1980s. Even the really bad American movies were better than domestic fare in Holland – But the German’s and the Dutch have come along way in making good movies, which their own populations would rather see.
So the good old days of agents selling crappy movies ‘by the pound’ are never coming back. But tell a good story that makes people laugh really hard, or cry a little, and buyers will come. Perhaps the best thing about these times is the markets have lost all ability to value talent. It is now all about the story. So if it is a choice between George Clooney and George Jetson…go with Jetson. You’ll spend less money, find more buyers, and animated characters are far easier to work with on the set.
Financevet, it’s funny, I’ve used that same analogy to explain film finance to a recent grad who is debating working in Entertainment over Wall Street. We are mimicking the mortgage business exactly while filling a “need” that is based on greed rather than necessity. Brings me to wonder if this is the beginning of our own little crises… somehow I don’t think Equity is the answer.
No one is delivering a strong product anymore. The argument being, who can really when we’re competing with technologies only the Cameron’s and Spielberg’s can afford. This is bringing on general desperation that’s showcased in gimmicky scripts featuring overnight stars that haven’t had the time to develop any real talent (and probably never will since they’ve already reached their endgame – fame and money). It seems to be me that Hollywood has generally given up. I was sitting in on a development meeting last week with a young soul-filled musician who had a really original idea backed with a ton of passion. A couple hours later and he was now pitching a slapstick Michael Cera film with a “really cool soundtrack” and getting accolades for it. He was shell-shocked when he left the room and I, of course, was yet to speak a word (I’m a young female in the industry… I can yell at the top of my lungs and I’m not heard anyway.)
Yes, because of 3D and CG technology our industry is evolving. This doesn’t mean we have to turn every genre of film into a 3D debacle. Have I really been reading RomComs that promise that making it 3D will “set it apart” from other films in the genre? Don’t producers realize they’re all spitting the same thing and it’s all obvious and slightly pathetic? My advice, if you don’t have the script, the budget and the brains to make a film that really calls for a 3D experience — stop trying. Everyone’s doing it, the trend will die out before your movie is on the market.
I hate to do this, but to quote good’ol Bob Evans, “If you build a house, no matter how well you paint it or furnish it, if the structure’s not there, it doesn’t hold up. It’s no different in film. You can have stars up the ass, but if it’s not on the page, it’s not on the screen. Enough fuckin’ around making half-assed announcements just to be fashionable.”
End of the day, a good producer will get the money they need. Stop being desperate. Go back to basics. Find a story that needs to be told, a writer who can visualize the story in a way that tour audiences can understand and emphasize with, find your director, find talent that can turn the characters into something special and stop settling for something that’s “good enough” that will just become bloated.
Or sit back and watch the crises begin. Our crews, flown back home before they’re ever paid, independent production companies “foreclosing”, the age of the unemployed producer, writer, director as the economic equality in Hollywood soar to greater levels. “Such are the effects which must ever flow from an unmitigated exercise of the calculating faculty.”"
Bravo…
I think I was in the same mtg.
Thanks for the great stuff.
It’s all extremely important to a writer-filmmaker like myself.
I think it all goes in cycles.
So many have mentioned this before and it still holds true,
Likewise with it having to have to — be on the page.
But here’s what’s really cool with the new tech that’s
always changing…including 3 -D.
It still has to be about the story.
And in a growing, diversified global marketplace…a visually driven
story will overlap boundaries more than any English – dialogue driven one
will with big stars…who want way too much money.
All the new digital – based tech which Cameron and Steve
and the Studios have put so much money into these past 10 years,
are readily available through inexpensive software for filmmakers
like myself.
I’m glad I started off as a screenwriter first and foremost before
I stepped into directing.
Researching the ever – changing, diversified global audience
every day, only makes me stronger toward success.
Different distribution models help a lot also.
MARK11
oh petal you’re that guy aren’t you? if this didn’t read like such an adorable journal entry i might ask you to keep it down the next time you’re explaining the business to that other guy explaining the business to that guy at starbucks who may or may not be homeless. your optimism is refreshing, i will gladly give you that.
Beautiful.
the real issue here is not that there is a lack of pre-buying. the issue here is that the film products are copycat drones of each other and there is little to no originality left anymore. the really good films with heart are never bought (think miramax in its its prime) and slowly video on demand will kill third party distributors all together when films will be available directly to the consumers so you can kiss cannes, afm, mifed, etc goodbye
Werner Herzog should direct “The Lost City of Z”
The magic bullet is (as we all know) day and date VOD. Once it arrives there will be a healthy market for small films again(3-7 Mil) that can make back a huge part of their investments with DVR downloads the weekend they are theatrically released in 5-10 markets.
There is a giant untapped market of young parents who don’t want to shell out for a babysitter, popcorn, soda etc…who will be happy to pay a fair price to watch at home the same weekend it hits theaters. There is also a hug untapped market of teens living in the fly overs who are true film geeks but don’t have access to art house theaters within a short drive and would gladly pay 5-10 bucks to watch a film the weekend it hits LA and NY.
Hear hear.
I think we need some moguls back in the game. People with a strong in-the-trenches retailing background who can inject some life into the development and marketing of movies. Who can run on gut instinct. As for 3D, it’s the New Color.
My Cannes two (Euro) cents worth is that films will still always be wanted and needed. Doing the rounds of the market, business was being done and one major European company I know pre-bought at least two major U.S. features for its territory, essentially because the head of its film division wanted them.
Say what you want about films such as ‘Nude Nuns With Big Guns’ (I didn’t see it but sure want to!), they will sell well for DVD and cable. Anyone though, who is not producing genre, and goes indie above $12m is asking for grief.
Truth is, names still sell films. One very high level buyer I know told me his clients (he sells the films on) want names because their customers do.
There is still money out there, but producers need to learn to woo and win it. A friend of mine has made a low budget genre horror, all concerned deferred until the investors have all been paid back (which is now the case), the film is selling like gangbusters. Maybe it’s time to get back to such financial basics.
what a long and chaotic article – and indeed the comments stray a bit too. The idea that the pre-sales market is dead is just nonsense – there have been changes but sweeping generalisations confuse the picture – as I see it:
1. the banks have stopped lending gap – they will not take a risk on how good or bad a film will be and so they will lend against tangible collateral only – tax credits and decent presales with studios or the larger indie distributors where they can do what banks do and assess credit risk. But to take there place there are some new gap lenders – they are expensive but accessible for the right projects (i.e. ones that are with reputable sales agents).
2. a producer can no longer cover as much of the budget with presales as you used to – it’s not that the market is “dead” but declining DVD and TV opportunities just mean it is harder and with lower prices than before – presales may only cover 20% of a budget – where a few years back it could be well over half.
3. So the chunk of equity needed is larger than before – 20% gap, 20% tax credit, 20% presales – still leave 40% of the budget missing. And if a project really takes off and does sell 60% in presales – the chances are there will not be enough territories left to get a gap lender to come in – so which ever way you look at it – at least 20% equity will be needed. The idea that equity lenders want to fully finance their projects is nonsense as well – it has been reported on here that two of them – Magnet and Newbridge – want to do that but there are plenty of others if they can see a commercial proposition for how they will get their investment back.
4. and as for cast – yes stars are expensive but find a brilliant project and they will come through for a fraction of their quoted prices – and they will be worth every penny becuase it will be their names that generate the sales estimates that get the whole ball rolling.
……so I agree with many of the comments here….it all comes down to having a good enough project – if a producer feels as if he is banging his head against a brick wall – then he probably needs to take a long hard look at the script.
Nikki’s article is right on the money.
It’s true that there are tons of movies out there that never should have been made.
Having said that, Indian films like ’3 Idiots’ made $6.5 million at the U.S. Box office and faith-based films like ‘Fireproof’ and ‘Faith Like Potatoes’ are doing very well at the box office or on DVD.
Don’t assume every juvenile teenager likes ‘Nuns with Boobs’. Many of them will opt for more intelligent and worthy films.
Cathy
Sales Rep
Let’s say you have a really well-written genre film with a few quality indie stars attached. The budget is a reasonable $6-7M. That would seem to be what above posters are alluding to as a reasonable bet for financing and pre-sales. Trouble is, no one is financing this film. They still want Russell Crowe or Nick Cage in the lead. Well what A-list actor is going to do a genre picture for a salary under $1m and low back-end? No one…so your picture doesn’t get made. That’s the reality these days. So what is a filmmaker to do? Either make a micro-budget indie financed by uncle Fred or try and get a tent-pole going filled out with major stars and spend five years desperately trying to finance the thing. It’s a tough business any way you cut it…
from the producers of “tv is dead!” comes the thrilling new adventure “indy film is dead!” and, and, and, i hear the franchise plans to conclude with a futuristic thriller tentatively titled “internet is dead!” – according to my neighbor, anyway, who went to comic con, but never actually went in because the ticket he bought on ebay was allegedly fake. whatevs. personally, based on what my film theory teacher’s assistant keeps saying, it’s obvious the franchise only succeeds because of advertising dollars. it’s true. he says he sees he sees the same ads everywhere, it’s like the ads are having babies and multiplying, and he’s writing his thesis on it, so… or wait, he might be writing it on how word of mouth is dead now. either way, i believe him. i mean he sounds really smart when he talks. plus he’s taller than me. i’ve still seen all the films, though. he says i don’t know any better. i say call me a sucker for films that stay with what works – explosions during the title sequence. to me, these producers are a savvy bunch to be sure. but that’s just me. your average outsider with bottom-line logic, an empty penny jar named “final draft” and a completed first act outline for a little game changer i’m calling “art is dead, the serious business of taking yourself seriously!” admittedly, the title is long and i have no idea what it means…but it’s so fun to say!