Imbalancing Act
Disruptions threaten global indies as they strive to adapt to market changes on eve of EFM
As the film industry braces for a colder-than-normal Berlinale, the indie sector faces a rising level of pain points, now exacerbated by leaner and meaner commercial terms on offer from territorial and domestic distributors for indie titles.
Pre-pandemic overproduction, problems with minimum-guarantee payments (commonly referred to by the acronym MG), delays in payments, a decline in theatrical box office and even the deleterious effects of tastemakers ceding control to algorithms give international sellers headed to the European Film Market headaches — despite some giddy deals struck at Sundance.
“It’s a complete shitstorm,” states a leading global financier of indie content. “Buyers have been trying to get out of paying the industry’s long-standing minimum-guarantee precedent of a 20% deposit, offering 10% and, in some cases, even zero. And films are often being released theatrically before the distributor has even paid the full outstanding MG.”
While buyers remained tightlipped regarding the trend, leading sellers around the world confirmed the downward drift, explaining that delivery, acceptance and payment terms are sometimes poorly drafted and open to self-serving interpretation. “That’s where technical acceptance comes in, where a buyer claims they never got all the material, and yet they didn’t need all those elements to release a title in cinemas. It’s a classic stalling tactic,” explains Arclight Films’ Brian Beckmann, who adds that some U.S. indie buyers even have separate legal firms that handle all delivery and who have “mastered the art of delay.”
At the 2023 AFM, which took place before the SAG-AFTRA strike was settled, sellers explained that buyers were talking about signing “big theatrical movies.” Defining that intention is not easy, as major $50 million-$100 million budget
films are not what the indie market typically makes.
“We have two ways to go,” says Arianne Fraser, CEO and cofounder of Highland Film Group. “A very singular platform-dominated run, with either none or a very short theatrical [release] and only one pay window on that streamer; or a real bid by the industry to reach wider audiences and share in films. That’s what we tried to achieve with the upcoming Russell Crowe-starrer ‘Land of Bad,’ opening on over 1,000 screens and a 30-day guaranteed theatrical first window, in a bid to drive long-term performance overall.
“If the industry’s exploitation strategies no longer share and allow people to find content over time and in the widest sense, then the film world ends up providing the audience with a bifurcated experience,” she adds.
Above all, senior players are concerned about global overproduction of content. More than 9,000 films were produced worldwide in 2019, the last year before the pandemic upended production, nearly double the 4,600 films produced in 2005. The glut of titles is making buyers increasingly cautious about what they prebuy, thereby placing pressure on MGS and business practices. And sellers have seen territorial buyers adopt the heavily extended pay terms of the streamers, dragging out cash-flow payments across longer stretches of time.
“We’ll pay up when we get paid,” is how one distributor coins it privately.
“The streamers started this,” states Head Gear founder and CEO Phil Hunt, who points out that all-rights buyers are receiving less than half of their income derived from a Pay 1 streamer deal. “I’m seeing these deals done now where people are pre-buying movies but they’re going to be exploiting it before the lenders have been paid everything. And that’s kind of good-ish for me because it means I’ve got a loan that’s going to last longer and earn more money. Certainly, production and producers don’t like the trend, because it’s costing more, and I don’t really like it because it’s an unfair deal.”
Hunt points out that pre-pandemic, Head Gear undertook a study that demonstrated, across a slate of almost a thousand movies in the market over the previous three years, the sales that were made were only about 26% of the original worldwide sales estimates.
“You can have a great sales company, and they can have estimates for a horror [feature], and they can have numbers for a drama,” Hunt explains. “They’ll be undoubtedly far more out on the drama than they will be on the horror right now, but who knows what happens in a year’s time? But they’re just kind of guessing, and these are the variable things we’re all trying to cope with. Then suddenly you’ve got movies like [Bankside’s] ‘Talk to Me,’ where the sales forecasts went out of the window with everyone bidding way in excess of the high,” says Hunt.
All the rising variables are causing widespread stress and some rose-tinted trips down memory lane: experienced industry veterans consulted by Variety shared a collective sense of nostalgia for the pre-2010 “good old days.” At that time, territorial distributors enjoyed a heightened sense of agency; they controlled the marketing, distribution and booking strategy, the size of P&A and how they saw best to generate an audience and capture value through subsequent sequentially spaced-out windows. Indeed, the DVD market offered the highest margins, while more established distributors had output deals to help defray their upfront costs and risk.
Today, the picture looks vastly different. The steady decline in the theatrical business, fewer film titles being released in the theaters and the total collapse of DVD retail revenues means that territory-by-territory distributors are “more as aggregators of content than tastemakers in control of their own destiny,” in the words of one leading seller.
Most distributors, the argument goes, don’t need to finesse their cinema releases because they are really relying on sales to the platforms down the line. But that, in turn, means they are tied into the extended pay terms (often up to three- to four-year periods, with sometimes as many as 20 pay points). Further income is often at the behest of significantly lower non-exclusive income streams from AVOD and Pay 3 windows if, indeed, revenues are still being generated by that stage.
“There is a danger that distributors are being led down the algorithmic-driven digital abyss,” one world-class sales veteran, who
If we abandon high-quality drama, we are turning our backs on niche audiences and the awards season so critical to our positioning.” — Niels Juul
requested anonymity in order to speak frankly. “They no longer feel confident to exercise their discernment, taste and judgment. The days of hearing a distributor wax lyrically about how much a script moved them, or how they fell in love with a certain package that speaks to them appear almost over.
“What they worry about is if the content fits into the five algorithmic boxes. And therein lies the rub: algorithms are all generated by past experience — exercises in retrospective data that in the cases of, say Netflix or Amazon Prime, are confined to their viewer pool,” the sales vet continues. “The most interesting platform that works off different metrics is Apple, but unfortunately, it is buying less than a handful of indie titles a year.”
As a result of the shifting payment terms and fragmentation of the market, it’s now becoming increasingly difficult to make the numbers work. Part of the issue is both sellers and buyers rely more on the platforms’ ever-changing appetites (and own cash-flow concerns) than any one other factor. Meanwhile, slow-paying tax incentives, which sometimes take more than 12 months to become rebate cash, also typically push back cash flow in the funding process.
“The current [economic] climate means that interest costs are important to cover,” warns Fraser of Highland Film Group. “We’ve had to get creative, for instance sometimes agreeing to an extended payment term but sharing some of the associated interest cost with the buyer.”
Amazon Prime and Netflix are still driving both the pre-buy and pickup markets when it comes to streaming activity. On major titles they’re still looking for all rights and all windows well beyond Pay 1.
“The majority of our business is still selling all rights to independent distributors and they do a deal or have their own deal with the streamers. Even though payment terms are evolving depending on who you sell to, the standard is still 20/80 for theatrical movies,” according to Palisades Park Pictures CEO Tamara Birkemoe.
Palisades, which is looking to finance and sell around three to four $40 million-$60 million titles and a select number of $10 million-$20 million titles per year, is an ambitious new indie arrival on the distribution, production and financing landscape, backed by Ashland Hill Media Finance, the U.K. and U.S.- based entertainment financing company. “We’re finding that the script is absolutely key in all our packages, and a director that’s clearly able to deliver,” says Birkemoe. “And while A-list cast can be seen as important, most A-listers can no longer guarantee a theatrical opening.”
Building on Hunt’s point about genres, one of the further and most acute headaches facing producers and sellers is the pushback buyers are giving all and any drama projects. “All I hear is ‘don’t bring us any drama. We can’t sell drama,’” exclaims No Fat Ego’s founder and executive producer, Niels Juul (“Ferrari,” “Killers of the Flower Moon”). “They want horror and action and that’s not what I do. I think indies are shooting themselves in the foot if they follow this logic. We cannot compete with the studio-streamers in size and scale but if we abandon high-quality drama at the $5 million-$15 million budget levels, we are turning our backs on both niche audiences and the awards season so critical to our positioning.”
Ironically, great drama is arguably at the centre of all films, whether it’s tagged as horror, action, adventure, thriller, comedy or whatever “type” of film. “The mega success of ‘Barbie,’ ‘Oppenheimer’ and more recently the theatrical heat around ‘Saltburn,’ ‘Ferrari’ and ‘Poor Things,’ is a lesson to us all that if we take away drama, we take away the essence of film’s ability to reach and touch audiences everywhere,” says Mister Smith Entertainment’s David Garrett.
“Good drama is the very essence of what storytelling is all about. When we enjoy a good movie it’s because we’ve been moved emotionally. We need to treat each film as a prototype — an individual retail brand. What audiences, especially younger, 18-35 yearolds, are looking for is relatable content that speaks to their lives.
“It’s not just an event, it’s a story about something that audiences feel a connection to, something that defines them, and becomes a talking point,” explains Garrett. That’s why social satire, such as ‘Triangle of Sadness,’ ‘Get Out,’ ‘Saltburn’ or ‘Poor Things,’ are reaching people. These stories are making a comment around the zeitgeist.”