Traditional film sales are in flux, with the rise of digital platforms creating new opportunities for sellers against the backdrop of tough economic times. On the eve of Berlin’s European Film Market, John Hazelton explores a fast-evolving sector

As they prepare to set up shop in Berlin for the first big international market of 2012, film sales companies can look forward to a challenging year and an interesting future — in ways both good and bad.

To thrive, sales outfits will not only have to work their way through economic times that are putting the squeeze on their traditional customers: independent theatrical distributors in big and small markets around the world. They will also have to evolve, by cultivating relationships with a new wave of buyers and by adapting to what may be their changing role in the wider industry.

As seasoned international seller Lisa Wilson, who comes to Berlin’s European Film Market (EFM) as founder of new Los Angeles-based sales and financing company The Solution Entertainment Group, puts it: “We just have to keep, as an industry, re-inventing ourselves so that we remain relevant.”

‘We aspire to become more and more efficient and more like a studio’

David Garrett, Summit International

Trends already affecting the way sellers do business include the rise of multi-territory buyers such as eOne, StudioCanal and Alliance. Multi-territory deals can allow sales companies to simplify their banking arrangements and sell rights for difficult territories such as Spain on the back of rights for healthier territories such as the UK. On the downside, such deals often involve cross-collateralisation and can put relationships with other buyers at risk. And because multi-territory buyers often acquire bigger projects co-financed by the Hollywood studios, their rise may be making it more difficult for smaller independent films to get released.

Kirk D’Amico, president and CEO of Myriad Pictures, suggests that multi-territory buyers “prefer to buy the bigger titles and thereby they’re reducing the number of theatrical slots that are available for purely independent films”.

Meanwhile, the role of sales companies in the financing of independent films has been affected by producers’ increasing use of private equity over other types of finance. “Private equity companies want to know there is an experienced sales company on board,” says D’Amico. “They want to look at estimates and see some level of pre-sales in order to test the commerciality of a project. Whereas the bigger institutional money in the past just made certain broad-stroke assumptions.”

Those sales companies that pass muster with financiers can now have a greater influence over what gets produced. And that, even sellers admit, can have the effect of putting reliable genres and stars above creativity.

“That is one of the problems of the international sales business,” says Alex Walton, president, international sales and distribution at Exclusive Media. “A lot of our values are based, contradictorily, on originality and things that are proven in the marketplace — stars that give us insurance on foreign television networks, for example.”

Some sales companies are becoming more influential as marketers. Bigger companies with ongoing deals in international territories are putting more emphasis on their marketing function.

“We aspire to become more and more efficient and more like a studio,” says David Garrett, president of Summit International, whose parent Summit Entertainment was recently acquired by Lionsgate. “We are establishing more finesse in the way we handle our marketing, tailoring it more to individual markets.”

Newer companies, meanwhile, are making marketing a central part of their business. “The ability to help service the distributors, to help them position the movie, are vital components of the function we serve,” says Nick Meyer, president and CEO of Sierra/Affinity. “It is more important because the distributors are demanding it — and they should.”

‘In the last year, our percentages of traditional and new media have changed dramatically’

Alex Walton, Exclusive Media

Perhaps the most significant change affecting the future of the sales business will be the emergence of television-based and digital video-on-demand (VoD) platforms such as UK-based, Amazon-owned LoveFilm, which also operates in Germany, Sweden, Denmark and Norway, and the US-based Netflix, which has expanded into Latin America and the UK. So far, the new platforms have presented opportunities mostly to traditional distributors who buy all rights to films and now have alternative outlets to which they can sub-license pay-TV rights. “It is a huge boon for the independents to have more opportunities for what was traditionally the pay-TV window,” says Meyer. “So it’s a big plus for the overall industry.”

But the new platforms are also beginning to present opportunities to sales companies, which can get a bigger share of revenue from a VoD operator because the distribution mechanism involves no prints and advertising costs and minimal advertising spends.

Exclusive’s Walton, for example, says that at his company “in terms of library and maybe some premium library titles, we’re dealing directly with the new digital platforms. In the last year, our percentages of traditional and new media have changed dramatically.”

The big question now is whether sales companies will try to take the next step and license new films directly to the new digital platforms. Doing so would disrupt the traditional model whereby independent films are partly funded through minimum guarantees from local distributors who can then hedge their theatrical bets by selling on television, DVD and digital rights. But if international digital platforms can become as widespread as those in the US — where some smaller independent films earn most of their income through VoD and where bigger releases such as Lionsgate’s Margin Call have managed to thrive with simultaneous VoD and theatrical exposure — the risk might, some sellers suggest, be worth it.

“It will make sense to go through [all-rights buyers] for as long as the basic distribution model requires exploitation across multiple media platforms,” argues Stuart Ford, CEO of IM Global. “But if and when the core of the distribution model entails monetisation via digital platforms, it would make sense for sellers to deal directly with VoD operators.”

Ford recently took a step towards, in his words, “getting under the skin of the new distribution platforms” by joining the board of US film marketing and distribution platform Prescreen.

‘It’s not unforeseeable that VoD and digital rights aggregators will sooner or later become the lead buyer’

Stuart Ford, IM Global

Traditional theatrical buyers are understandably concerned about the prospect of sales companies dealing directly with new digital outlets. Many of them have been hit hard by the decline of DVD markets around the world, “and the next platform that’s going to replace that is VoD,” points out Mirjam Wertheim, head of Los Angeles-based foreign buyers consultancy Orange Entertainment. “So it’s really important they get that.”

If sales companies sell VoD rights directly then local distributors, Wertheim warns, “would only get theatrical and TV and that’s not going to be enough for the pricing that is going on right now”.

Many sellers are sympathetic — seeing, in the words of Summit’s David Garrett, that theatrical distributors “are hardly going to want to spend all that money releasing and marketing a movie from which we then extract the value by retaining VoD rights.”

Some sellers, though, see the possibility digital distributors will one day operate like their theatrical counterparts do now, becoming the initial buyers in a territory for independent product.

“It is not unforeseeable that VoD and digital rights aggregators will sooner or later become the lead buyer, not a sub-distributor, and themselves decide where and when to sub-distribute locomotive titles theatrically,” says IM Global chief Ford. “None of us yet know when the tipping point will occur or which overseas territories will get there first. Right now the rate of evolution varies significantly across the world. But at the rate of change the digital revolution is experiencing, those territorial discrepancies could even out or switch around very quickly.”

Sellers speak

A group of sellers respond to the question: what is the biggest challenge facing the international sales business?

Carl Clifton, partner, sales and marketing, K5 International

“Providing financiers and financing models with reliable projections is one of our biggest challenges in a changing environment where what works across all media is harder and harder to predict. With theatrical less certain, DVD dying and TV buying less predictable, the key will be to make sense of video-on-demand (VoD) and to effectively evaluate it.”

Rikke Ennis, CEO, TrustNordisk

“The world has never seemed smaller and yet the challenges are growing. How do we exploit the new windows without ruining the existing ones? How do we cope with the fact a film can be distributed globally with one click? Embracing future technology and accepting the shaky new ground is probably the biggest challenge we are facing today. The thinking about international distribution is turning upside down.”

Guido Rud, CEO and founder, FilmSharks International

“If you have good films, the question is how to handle a future where there will be no more windows and the focus will be on how to do an efficient mixture of big-screen and small-screen marketing campaigns. If the film is good, awareness of the film will create the audience, at least in the long tail if the marketing campaign failed at the beginning. But it all depends on the film itself from now on.”

Mimi Steinbauer, president and CEO, Radiant Films International

“There are three big challenges. Two of them are issues for US films in general, not just the independents. One is the ongoing issue of securing solid US theatrical releases for independent films. This continues to be tough. Two is opening up the China marketplace for US theatrical films. There are strict quotas, and even if you do get your film on screen in China, the revenue-sharing system is such that the producer only sees a small percentage of the local revenues. Three is piracy.”

Nick Meyer, president and CEO, Sierra/Affinity

“The changing circumstances of economies around the globe require all of us to be diligent in bringing the work of the creative world to international distributors to create the unique value proposition that drives the cinema-going experience and all related ancillary markets and opportunities.”

Marina Fuentes, general manager and founding partner, 6 Sales

“The biggest challenges are piracy and new windows like VoD not making the numbers video used to make.”

Stephen Kelliher, co-founder, Bankside Films

“The windows system is the biggest challenge for independent films. We are the only entertainment business not to offer our products truly on-demand when we live in an on-demand world. We still dictate when and how films are made available. The system can still work for films with A-list cast, films with a known director and a proven track record, and for genre films which offer a new take on material. But the broadest spectrum of independent film cannot flourish until the way in which we offer our films to audiences changes.”

Nicole Mackey, executive vice-president — sales, Fortissimo Films

“While opportunities for electronic delivery open up, other platforms are narrowing. In this new world of ever greater choice, to have desirable films and a good brand name is vital.”

Charlotte Mickie, executive vice-president, eOne Films International

“The biggest challenge is sourcing premium independent films with genuine commercial potential. This focus is especially important to eOne where we are seeking to acquire films for domestic distribution across our global divisions as well as our foreign sales division. eOne recently brought Sally Caplan aboard as managing director and expanded the international film division into the UK. In the end, it’s all about content. When you have a great film, the sales follow.”

Andrew Orr, managing director, Independent Film Company

“The slow proliferation of digital technologies like 4G, connected television and high-speed broadband means we’re still not at the stage where VoD/mobile and online can compensate for dwindling DVD value. This, combined with growing audience sophistication and fragmentation, means we as a sales and distribution community are having to evolve increasingly sophisticated ways of reaching our target audiences.”

Stuart Ford, CEO, IM Global

“Adapt. Adapt. Adapt!”

David Glasser, COO and president, international distribution, The Weinstein Company

“The biggest single challenge is presented by the decline of home-entertainment revenue, which is occurring in multiple territories. VoD and other digital platforms are on the rise, eclipsing a fairly recent generation of home-entertainment options, and making it much more difficult to realise ancillary revenue in markets.”

Harold van Lier, EVP, international distribution, StudioCanal

“Our biggest challenge on the indie circuit is to make sure our distributing partners survive and continue to prosper through these transitional times by delivering to them the highest quality of cinema and helping them create events in their local markets. Now more than ever our challenge is to back films which are better value for money, easier to market and with such unique strengths that our distributors can hope to reach a broad theatrical audience. That goes with being more demanding on originality and quality, smarter on budgets and wiser on how to market more effectively.”

Alex Walton, president, international sales and distribution, Exclusive Media

“It is a big fear that if digital does not take off significantly enough worldwide to offset the declining DVD market, it’s going to be tough to make up the revenues. VoD is buffering in the US and UK but it needs to be embraced worldwide to really impact revenues. It is not a sure-fire thing they will — Germany and Japan did not embrace pay-TV for example and many territories are slow on the take up of VoD. I spoke to one German distributor and he’d never even heard of Netflix and that was only a year ago. Also, there are not enough new stars breaking through. US studios are working with new faces but they are not breaking through quickly enough to be internationally recognisable and bankable assets.”

Lisa Wilson, founder and partner, The Solution Entertainment Group

“It is difficult to pick one single challenge. The challenges are multiple and all add up. The eurozone’s economic problems are impacting sales to Europe, particularly Italy. The situation at broadcaster ARD will have a major impact at Berlin on the number and genre of titles acquired by independent distributors in Germany. Added to the erosion of DVD and the slow rise of VoD revenue, the result is more than ever you need to have really strong material with a great cast, at the right price. Bright spots are the CIS, China, Brazil and India.”

Kirk D’Amico, president and CEO, Myriad Pictures

“How do independents get access to higher-level product? That’s the biggest single challenge. Because invariably the money gravitates to the more established companies, and that includes studios.”

Kini Kim, senior vice-president, CJ Entertainment

“Due to the conventional home-video market’s decline, and new home-entertainment platforms which have not been lucrative in recent years, international sales is suffering a decrease in sales amounts. Also, the global economic recession — especially the European downturn — is causing a significant drop in regional sales.”

Buyers speak

A range of buyers respond to the question: what makes a good international sales agent and how is the conversation between seller and buyer changing?

Dori Begley, senior vice-president of acquisitions, Magnolia Pictures and Magnet Releasing (US)

“Strong sales agents take time to educate themselves on the evolving models of their distribution partners. As Magnolia ramped up our Ultra VoD programme [a premium platform which makes titles available on demand ahead of the theatrical release] years ago, it presented an industry-wide learning curve which proved to be a litmus test. Forward-thinking agents who were focused on smart, long-term strategies for their films really understood the plan and actively helped us target titles that found great success with the model. Other agents were more rigid, viewing distribution through the lens of past successes without a keen understanding of how the landscape was changing. It has been a long haul but these days most of those reps have figured it out, thankfully.”

Louisa Dent, managing director, Artificial Eye (UK)

“Despite changes in the industry, relationships are still key. Integrity, honesty and keeping one’s word are the foundations of a successful long-term relationship. A good sales agent will also understand the various markets and which films are right for each individual distributor.”

Ralph S Dietrich, CEO, Ascot Elite (Germany and Switzerland)

“A good sales agent offers a top after-sale service: helps you get the best worldwide available artworks, materials and marketing tools. This goes hand-in-hand with the overall communication between seller and buyer, which should be productive from the very beginning of a project until — and during — the release in all media. A good seller is also one that believes in business relationships.”

Milada Kolberg, head of acquisitions and sales, Senator Entertainment (Germany)

“A good international sales agent draws a perfect line between a brave discoverer of talent and an ideal business partner — reliable and professional. They have to be aware of the true commercial value of their films despite the budget percentage, which is often misleading. They need to have an idea about the special needs of each territory and have to master impeccable communication. The conversation between the seller and buyer reflects the fact the local markets have become more fragmented. Ten years ago, the conversation usually focused on the script, the cast, the director and maybe the festival the film was going to. Today, there are so many other issues to be addressed such as the look of the film, the rating, the length, the availability of the cast for publicity, DVD extras, the co-ordinated involvement of social networks, etc, not to forget the US distribution strategy which is still playing a pivotal release role. The conversation has become much more extensive.”

Nick Manzi, head of production and acquisitions, Lionsgate (UK)

“A good international sales agent is one who understands your market and business and treats you in a businesslike and respectful way. The relationship is becoming more like a partnership where the sales agent seems much more invested in the success of the film.”

Wallie Polle, managing director, Cineart (Netherlands)

“It is the films and the love for cinema that makes a good international sales agent. One change in the conversation might be that the light in our eyes is more important than the figures in the head.”

James Velaise, president, Pretty Pictures (France)

“A good sales agent is someone who comes up with quality films with box-office potential, market after market, who doesn’t ask silly prices that have nothing to do with the potential of the film and who appreciates the quality of the work done by the distributor (who is, after all, the client). It is unfortunate that the real price/value of a film still gets distorted because of certain distributors who pay the totally wrong price just to be able to boast that they have the new film by such-and-such a director. What remains exciting about the distribution side of the business is discovering and distributing new talent (low minimum guarantees with a good upside for all) or confirmed talent at the right MG. We are also a little suspicious of films offered to us by sales companies who are also distributors in their own territory. Why would they be offering the film to us if the film is that good?”