Pay-TV firms and streamers have become increasingly selective about the pay-1 deals they strike for films, adding further pain to an independent film market already wrestling with a challenged theatrical and home entertainment landscape.
The indie film world has never been easy, and doom-laden complaints about challenging market conditions are part of the industry discourse. But the cries from European film producers, distributors and sales agents have grown louder in recent years following the collapse of the transactional home entertainment market. The VHS and DVD deals that provided a reassuring financial cushion are long gone, leaving just two main ways to recoup: theatrical and pay-1 deals. But it has become harder to make money from each, blowing up the economics of the indie film business.
Box office might now be returning to pre-Covid levels in many countries, but the theatrical market has changed profoundly since the pandemic. Audiences are far more selective about what they are prepared to pay for, leading to a winner-takes-all theatrical scenario. A handful of movies take home an outsized proportion of revenues, leaving less for the also-rans.
For many, though, the real challenges lie in the pay-TV market. Many distributors report pay-TV companies and streamers are not only striking fewer pay-1 output deals, but they are also buying fewer independent movies at the pay-1 stage.
This is particularly serious given the outsize role that pay-1 now plays in the post-theatrical life of a movie. One distributor estimates that 10-15 years ago, pay-1 might have been worth 20% of post-theatrical revenues. But with the transactional market largely gone and free-TV in decline, pay-1 has assumed a bigger part of the pie. “Today pay-1 is between 60%-90% of your post-theatrical revenue. It is everything. So if you don’t get a pay-1 sale, you’re fucked,” says one UK executive, who asked to remain anonymous.
The difficulty of securing pay-1 deals is having serious repercussions on the entire sector. Distributors have become much more cautious about what they pre-buy and how much they will put down as a minimum guarantee (MG). Sales agents are struggling to sell projects, or have seen the MGs paid by distributors plunge. This has left producers struggling to close funding gaps for movies and chasing elusive private equity money, with the result that many projects are collapsing at the financing stage.
This has only heightened alarm about the state of the indie market in 2026. Some of the predictions are dire. “As early as Berlin this year, some very senior people and some big US agents were saying that at this rate, the entire indie business has got three to five years left,” says the anonymous UK executive. “I’ve never seen it as bad as this… ever,” echoes another.
Others caution that this is too gloomy a scenario, saying the industry will adapt and diversify as it has always done. But few people question how challenging the market has become.
“There’s a lot of problems with distributors right now. They are losing money because they’re not getting the pay-1 deals,” says Phil Hunt, co-founder of film financier Head Gear Films and sales and distribution banner Bankside Films. “In the past 30 years, I have never seen so much buyer default.”
Streamer caution
On the face of it, the pay-1 market should be booming. The market is more competitive than it used to be, with streamers like Netflix, Prime Video, Disney+ and HBO Max adding to the limited number of traditional pay-TV buyers like Sky or Canal+. The headline figures suggest that streamers are beefing up their acquisitions spend too. Netflix’s $7bn worldwide pay-1 deal with Sony, running until 2032, cost 40% more than their previous deal. HBO Max renewed its pay-1 deal with A24 for the US this year too, while Hulu has an exclusive deal with Neon, also for the US.
But the acquisitions market has changed. Figures from Ampere Analysis show that Netflix is now spending more on sports rights than acquired movies, prizing premium sports’ ability to lure in new subscribers. Distributors and sales agents say many of the streamers are being more selective about the pay-1 titles they pick up from independent companies. “They are not really knocking on our door to buy films,” says one UK sales agent. This is partly because the streamers have a steady flow of new titles from the US studios and mini-majors like A24 and Neon, but also because they are investing large sums in their own original European content.
Streamers are also favouring cheaper pay-2 or library deals rather than paying premium prices for pay-1 acquisitions. “Often, they say, ‘I’m going to wait and pay 10%-20% of the original pay-1 price for pay-2 rights,’” says one European executive, pointing to the “volume of older films” available on platforms.
Or they might wait longer for an even cheaper library deal, which might be worth a further 20% less than the pay-2 number. This means a possible seven figure pay-1 deal can quickly become a $10,000-$20,000 library acquisition. After all, why pay more when library content is working for streamers, the thinking goes. Library content now accounts for 63% of Netflix’s total viewing hours, according to Enders Analysis figures.
As a result, large European and international studio groups and distributors are said to be struggling to renew pay-1 deals with streamers or are having to strike more selective deals. Says one sales executive: “Output deals have let down pay-TV companies over the years — they definitely don’t need the volume of movies that don’t work. They are thinking, ‘Why should I pay for 10, when only three will work for us?’”
A lucky few distributors do have pay-1 deals, such as Germany’s Leonine with HBO Max and Constantin (Netflix), Italy’s Piper (Netflix) and Denmark’s Scanbox (Prime Video). “There are a lot of premium companies that do not have pay-TV deals in the UK,” says one UK distribution executive. “Some big companies are renegotiating now and Netflix has said to one of them, ‘We’ll take half your lineup.’ Quite frankly, they don’t want the smaller movies.”
The impact across the industry is being felt profoundly. Against the background of an uncertain pay-1 window and a diminished home entertainment market, distributors are focused more resolutely than ever on buying movies that can deliver theatrical box-office revenues.
“If distributors do not see it’s clearly theatrical in their territory, they won’t buy it. That’s the case worldwide now,” says one sales agent. “It’s all about what distributors can get out of that first window in order to drive all the other windows. If you can’t be theatrical, then you’re not going to get your pay window.”
Another sales executive says he has to “over-evaluate” projects before boarding them. “I know that if I go to market with an underpowered cast in terms of proven theatrical value, even though the script and concept is good, it’s not about the price point. If foreign buyers don’t feel it’s theatrical and they can reach that TV deal, they won’t touch it.
“Every sales agent has had an experience where the material is just not feeling theatrical enough at pre-buy stage, and no-one shows up. It’s not like it used to be where you would just do less sales. There are moments where if it isn’t theatrical, people will not buy at all.”
The MGs that distributors put down have also shrunk or are non-existent. “I can’t risk putting $800,000 or $400,000 on a movie,” says one distributor. “Because if I don’t sell pay-1, I have zero revenue after theatrical. I’ll only do it for a slam-dunk movie.”
Frédéric Fiore, president of France’s Logical Pictures Group, says theatrical is now the “central hypothesis” for everything it invests in. “At every level of this company, whether it’s sales [Logical Pictures International], the distribution side [The Jokers] or the investment side [Logical Content Ventures], the only question that everyone is asking when we read the script is, ‘Can this movie be a good theatrical hit?’”
This level of caution has been heightened by the winner-takes-all nature of the post-Covid box office. A single film, Spider-Man: Brand New Day, took more than 19% of this summer’s record US box office, while The Odyssey accounted for more than 12% of summer takings.
Many distributors are now buying fewer movies as part of a concerted effort to shrink their slates down from, say, 15 to eight to 10 films. These will be films they believe have strong theatrical potential, based on cast, script, IP, filmmaker track record or production value. In turn, this allows them to invest more time and resources on p&a spend to help the movie stand out in cinemas, and to score the box-office numbers that will not guarantee but increase the chances to unlock a pay-1 deal.
In some cases, this has driven up prices for certain movies. “We will sometimes pay even more than we used to,” notes Marc Gabizon, managing director of Wild Bunch Germany, which has sister distribution companies in Spain, France and Italy. “On paper there are not that many clear theatrical propositions with genuine potential, so all of us distributors are battling against one another for them.”
Breakout potential
Distribution executives say prices have held up particularly well for pedigree, commercial US films from the likes of A24 or Lionsgate that have the potential to break out in cinemas. Within Europe, distributors are also putting more emphasis on European titles that might have access to Creative Europe Media subsidies to support distribution and marketing spend, helping to at least offset some financial risk. European films are also attractive because they fall within the quota system that broadcasters and streamers are required to hit under the Audiovisual Media Services directive, which mandates that 30% of catalogues must be European.
Many European distributors also say they are buying or co-producing more high-profile, local-language titles — whether comedies or dramas — that have local box-office potential and, in certain cases, can be attractive for streamers to localise their catalogues. The top performing films in many European countries in 2025 were local-language titles, such as Buen Camino in Italy, Manitou’s Canoe in Germany and A Mouse Hunt For Christmas in Norway. Gabizon, for example, says Wild Bunch Germany is investing more in German movies than the company did 10 years ago.
Jerome Levy, chairman of pan-European distribution, production and sales group Vuelta, says it is easier to strike pay-TV deals for local titles than it is to sell on an independent US film. “Streamers have money for local titles because of spending obligations and because there’s an appetite for local films from their subscribers,” says Levy. “For international titles, it’s becoming much harder.”
Vuelta-owned producer Indiana Production was behind box-office smash Buen Camino, which was released theatrically in Italy through Medusa Film. Netflix took Italian and international pay-1 rights. “They paid a very healthy amount, and it was part of the pre-financing of the film for us,” says Levy. “They’re very happy with it, because big commercial titles are what work for them.”
Other UK-based distributors look on enviously at the financial obligations in place in many European countries that mandate global streamers to invest in local content. “Should the UK have a quota system on pay-1 for independent film in the UK?” asks one UK distributor. “I argue it should because it’s the only way to sustain the independent film market.”
The UK is identified by many as one of the markets hit hardest by the pay-1 slowdown, but the pain is also being felt in Germany, Italy, France and Spain. In each of these territories, pay-1 buyers are more selective — they are buying less but perhaps spending more on fewer projects.
One exec says France has become tough, partly because of the strong position occupied by Canal+ in the market. “If you don’t sell to Canal+, then usually the other options are far away from what they will pay. Canal+ is spending less money with independents. They have lots of films from their deals with majors and they have movies coming from their own Studiocanal. They just need less from independents.”
In many markets, pay-1 challenges have changed the way distributors buy films. Many distributors will now check at script stage with their pay-1 contacts to see if they are interested in a film before they pre-buy a project to help offset the risk. Others warn, however, that it is a risk for a distributor to shape its acquisition policy based solely on feedback from pay-TV players. “You also need to make theatrical decisions on your own,” says one. “You might make mistakes, but stick to your own beliefs. Sometimes the movies that work best are when the distributor sticks their neck out when the whole world was sceptical.”
Still, some types of movie are struggling to find buyers. “The streamers and pay-TV channels are still buying, but they are buying more commercial. They are looking for ratings, and taking less risks,” says Logical’s Fiore.
Arthouse and festival films have been relatively less affected by the pay-1 slowdown, but mainly because they have not traditionally been big audience drivers for pay-TV in most territories. Arthouse films have been more affected by the winner-takes-all theatrical phenomenon and the demise of the transactional home entertainment market, making them increasingly reliant on local subsidies and private equity funding. Often buyers will ask to see the finished film, rather than commit early.
Private equity demand
For many titles, the challenge of securing pre-sales or strong MGs from distributors has led to greater demand for private equity and/or public finance to close funding gaps.
But not all movies can find private finance, leading to many projects collapsing at the funding stage. One UK executive notes that institutional and public broadcaster funders like the BFI, BBC Film and Film4 often struggle to get films made that they invest in because few distributors will put in further money. “BFI, BBC Film or Film4 putting equity into movies is pointless if you can’t make sales to pay-1,” says the executive.
One consequence is that filmmakers and producers are having to bear down on budgets. Worried they will not be able to recoup through sales, investors have become less willing to greenlight projects with large funding gaps. “Going now with gaps of $7m-$12m is something that is very uncomfortable for us,” says Fiore. “If you have more than a $4m-$5m gap, it has to be a very good project.”
Fiore says this is why so many film investors have moved from equity funding to relatively safer and shorter term debt instruments. “But this space is now crowded. The real need is for equity.”
Which means many projects are not seeing the light of day. “All these films that you and I grew up on in the industry cannot be made at all these days,” says Head Gear/Bankside’s Hunt. “There used to be a perfectly sensible business plan for great films like Bend It Like Beckham. But they can’t really get made anymore these days. The only way to make a successful film like Obsession is to have private equity money, but it’s never been more risky to put private equity into the business than I’ve seen in the past 30 years.”
To end on a positive note, the industry has begun recalibrating around a new market normal and is adjusting expectations and business models accordingly. The pay-1 market, says Fiore, has begun to normalise at a lower level. “What’s important for investors like us is to have some kind of predictability. So we’re factoring pay-1 as a bonus on something that is already profitable rather than a security level like it was under our previous model.”
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