More Capital, More Distribution Channels – Good News For Film Producers

The mantra consistently sounded at the 2013 American Film Market panel “Current Issues in Film Finance” was clearly this: the opportunity to fund and distribute your film project is greater than ever.  However, there’s a catch – you must not only have a great story, but a strong strategy from beginning to end.

3 power house indie film executives – Mark Canton (Atmosphere Entertainment MM, LLC,) Ryan Kavanaugh (Relativity Media,) and Steve Ransohoff (Co-President, Film Finances, Inc.) all agreed that the U.S. domestic distribution deal is harder than ever to obtain, however the demand for product is higher than ever.

Content demand has grown dramatically over the past several years with the advent of new digital distribution channels: Netflix, X-box, Google Sticks, Itunes, Amazon, Vimeo on Demand.  These channels provide innovative opportunities for new and veteran producers alike to get their product into the marketplace and in front of hungry consumers.

The word is – it’s a great time to be a content owner.

Ransohoff, who with Film Finances, Inc has been involved in the financing of over 250 films this past year, has seen an increase in pre-sales from digital distributors of as much as 5-10% in the last year alone.  Kavanaugh added that smaller films, under $5 Million, can obtain pre-sales via digital distributors and retain the theatrical rights for sale of the completed film.   They both agreed that digital distribution can provide for the lion share of back-end revenue for indie films.  Kavanaugh went on to say that digital distribution provides a high level of profitability for the indie producer as it is a strong revenue generator, with little to no cost to distribute.

The digital markets are becoming so strong, that some producers are able to separate the rights deals for DVD and digital.  This separation provides more flexibility for the saavy producer, but it also makes the deal more complicated, requiring more negotiations and higher transactional costs.  Thus bifurcation of DVD and digital makes the most sense for the producer that has a large equity component and has more freedom to make the best deal for their film.

Kavanaugh shared that the demand for digital content is exploding for mobile devices, evidenced by AT&T  shelling out large dollars to buy content for their smart phone divisions.  In developing countries, notably Asia, India, Africa and South America, 80% of consumers are watching content on their phone vs. 20% on their TV.

With all these new forms of distribution, is there an influx of funding?  Yes, and as always it’s cyclical.  Canton, who comes from the Studio executive ranks, confirmed the recent trend of tent pole movies from the Majors.  “The studios are all about Branded Franchises, which is somewhat of a factory approach…”

The majors are looking for a multiple and can’t play in the one-off game.

The good news for the indie producer with smaller budgeted films is that new equity players, Wall St. institutions and Tax Incentive programs have proliferated around the world.  After taking several big hits in the second half of the 2000’s Wall St. has gotten smarter and learned how to invest properly.  They understand that with appropriate collateral, talent and distribution in place, films can still provide strong revenue streams inside a portfolio of investments.

Tax incentives can provide between 15-38% of a film’s budget.  The vast majority of those programs require the film to be shot in the country where the incentive is based.  But if you don’t utilize these incentive programs, you are giving away an average of 15-25% of your film’s budget, which interestingly enough, is usually the profit margin for a successful indie film.  In addition to many states within the U.S., many countries including Canada, Spain, England, France, and those in Central Europe, Eastern Europe, and S. Africa are promoting strong incentive programs.   A film production can kick-start a country’s economy with the influx of jobs, resource needs, meals, entertainment and housing.  Kavanaugh mentioned that a country’s incentive program can provide 1.7-4x’s return to the country on every dollar spent.

The financing matrix is primarily 20% incentive, 60% pre-sales, and 20% equity.  As noted above, pre-sales include both international sales (the traditional method,) and now include digital sales as well.  Less than half of independent films require domestic distribution to get made, because of the increase in digital pre-sales.

The influx of fresh money and new distribution channels bode well for for filmmakers and consumers alike.