Expect to see fewer stars at the Hotel Du Cap as budget-conscious US sales agents try to deliver realistically priced product to international buyers.

A fundamental change is afoot in the international pre-sales business, the extent and consequences of which are expected to come into sharp focus when the Cannes market gets underway. While the challenges posed by the economic downturn have cast a shadow over much of the film business, the next few weeks on the Croisette will provide the clearest indication yet of how the recession is shaping the way films are financed.

 

“Budgets have to be scrutinised and talent deals have to be scrutinised”

Helen Lee Kim, Mandate


As banks and equity investors withdraw and borrowing becomes increasingly expensive, the pre-sales model, which is predicated on the availability of cash, faces its sternest test yet. But despite the prevailing air of doom and gloom the general consensus among US sales agents is that business will continue to get done — only more cautiously.

That is not to say every sales company and distributor is safe; there will be casualties. Business has been slow at key markets leading up to Cannes.

“You cannot have a half-baked project. You’ve got to have a good script, good cast and make it for a sensible price”

David Garret, Summit

Cash-strapped producers have been stymied by banks warier than ever of risk, and product flow has been low. One leading US sales agent suggests there are fewer projects of substance on the market than at any other point in living memory. “Companies that don’t have new product have to be hurting,” the executive says. “That’s the broad litmus test for discovering which businesses are in trouble.”

For those companies prepared to adapt to the times and exercise prudence, there are opportunities. You only need to look at the buoyant level of theatrical admissions in the US and elsewhere — not to mention the record pace of inflation-adjusted revenues in Hollywood — to see the demand for films remains very strong. Where there is demand, supply will follow.

“It’s still possible to pre-sell,” says FilmNation founder Glen Basner, who previously headed The Weinstein Company International and Focus Features’ international sales efforts. “As long as you’re specific about the films you select, bring them in at the right price point and make sure the film stands out.”

‘Cautiously optimistic’

Alison Thompson, president of sales and distribution at Focus Features International, agrees: “We’re taking a very close look at our budgets and are being conservative with our estimates. The big question is whether the relative value of what we have to sell is the same as it was a year ago.”

Thompson, most of whose films see North American theatrical releases through Focus Features, says she is “cautiously optimistic” and notes that in major territories such as the UK, France, Germany and Italy, “the people we deal with seem to be in good shape”. Focus is bringing four new projects to Cannes, including the new Mike Leigh film and Kevin Macdonald’s The Eagle Of The Ninth.

“It’s still possible to pre-sell, as long as you’re specific about the films you select, bring them in at the right price point and make sure the film stands out”

Glen Basner, FilmNation

Summit Entertainment’s David Garrett is also optimistic, boasting a slate for which most sellers would give their right arm, including the next two instalments in the Twilight franchise and four further new projects including Remember Me, starring Robert Pattinson. But Garrett too counsels caution: “You cannot have a half-baked project,” he says. “You’ve got to have a good script, good cast and make it for a sensible price — buyers are being a lot more sensitive to that. Currencies are probably down 25% against the dollar and worse in some cases; local economies are going pear-shaped and pretty much everybody we deal with is facing problems with their banks, even if they have good businesses.”

For those buyers mired in cash-flow difficulties — particularly certain companies from Spain, Russia, Eastern Europe and in some cases Italy, Japan and South Korea — there has never been a more urgent time to find the right independent title for those 2010 and 2011 slots. The collapse of TV advertising and the general decline in DVD figures means the theatrical appeal of films is potent.

“Buyers are going for the sure thing,” says Voltage Pictures chief Nicolas Chartier. “You need movies that are quantifiable and you need the big theatrical movies. A big star helps, North American distribution helps.
Pre-sales on a drama or period piece with no cast are difficult.”


Theatrical appetite

“Theatrical box office is healthy — it’s the ancillary that’s more challenging,” says Mandate International president Helen Lee Kim, whose Jennifer Aniston comedy The Baster and Ashton Kutcher thriller Five Killers are both shooting and have domestic distribution in place through Miramax and Lionsgate, respectively.

“When you have a movie that can play in theatres, there’s definitely still an appetite to buy this type of product. But budgets have to be scrutinised and talent deals have to be scrutinised.”

“The notion of asking for the stars and hoping to get something close to it isn’t working — buyers are so cost-conscious that it’s much easier to frighten people away,” says IM Global chief Stuart Ford, who will be introducing the corporate drama The Company Men, starring Ben Affleck and Tommy Lee Jones. “You have to go in with a serious asking price and be reasonable about what you will sell at.”

Kimmel International chief Mark Lindsay adds: “Not everything has to be $40m — you can be conservative on your budget.”

Kimmel will be handling the espionage thriller Trust, starring Guy Pearce, Billy Crudup and Kiefer Sutherland.
The irony of Hollywood’s new frugality is that although the days of the private-equity boom are gone, equity remains a key ingredient. The dwindling crop of US-based banks that continue to lend, including Comerica, Union Bank of California, CIT and Israel’s Bank Leumi, means credit is in short supply.

“You cannot make a movie today without a significant slug of equity,” one sales executive says. “There’s not enough gap financing. You can get 5%-10%, maybe a little more depending on the project.”

The right price

“Two years ago, someone would bring a film to the market that was valued at $35m because of fees and expenses and it was probably worth $7m less than that,” says Lightning Entertainment’s Richard Guardian, who will meet buyers to discuss Lightning’s fully-financed gangster drama The Irishman. “But the stars would come along and stay in fancy hotels and that got absorbed into the production budget. Today, you can’t do that.”

Finding the right project for the right price will be the name of the game at Cannes. Voltage’s Chartier, who was one of the few to enjoy brisk business at the EFM and will be in Cannes with the fully-financed thriller The Whistleblower starring Rachel Weisz, cites financing costs — driven up by late payments — as one of the biggest hurdles. “I spend more time dealing with budgets and sales, which is not fun,” he says. “It’s an acquisitions business now — it’s about getting the right title.”

It may not be fun but the diligent will stay afloat, maybe even prosper, in these tough times. “One of the more positive aspects of what’s happening is there will likely be fewer movies out there and I suspect we’ll be dealing with a less crowded market place,” says Focus Features’ Thompson.

“We’re stepping into the breach,” Guardian notes. “We don’t know what the buyers’ appetite is going to be like. That being said, it’s important to turn up and meet clients face-to-face. What kind of message would people be sending out if they didn’t go?”

MARCHE CLOSE-UP

- Regions Marché head Jerome Paillard estimates a slight drop-off in US
exhibitors this year but a rise in companies from China and Egypt.

- Films Paillard suggests there will be a rise in the number of films
screening from Japan and Germany.

- Budget According to Paillard, of the 1,500 films whose budgets have
been disclosed, the average is $5.5m per project in 2009 compared to $6m in 2008.

- Prices Cannes Marché has scrapped plans to levy a 2.5% price increase
on exhibitors and reverted to 2008 prices for this year’s market (see left).

$7,250
Approximate cost of a basic stand in the Cannes Marché (€5,450)

$520
Approximate cost per additional square metre (€390)

$620
Approximate cost of hiring digital screening and video rooms (€465)

$2,500
Approximate cost of a prime screening at a big theatre (€1,890)

10,000
Projected total registrations in 2009

10,400
Total registrations in 2008