INDUSTRY UPDATE – IS IT TIME TO CHANGE COURSE?

A Short Essay on How Film and Television Distributors 
Can Survive Rough Waters Now, 
and Rougher Waters Ahead
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Written by
​Stephen J. Kerr & Sarah Nean Bruce
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IMAGE-Sunset Sailing Boat-675847_1280_CC0 – CC0

PREAMBLE:
​This past month our firm polled about a dozen mid-sized film and television distributors to get their take on the current state of the industry.  We have been doing these periodic state of the industry reports for more than 20 years. Here is what we recently found: while independent film distribution has rarely been an easy business, never has the path ahead looked so difficult.

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➜Shifting Gears. ​

The continued decline (or complete absence) of DVD/Blu-Ray revenue, coupled with falling foreign sales income, has hit film and television distributors hard.  The rise of OTT channel revenue has not begun to replace that lost income.  Many veteran foreign sales agents informed us they have started domestic (USA) film marketing divisions to offset lower offshore film sales.  Others tell us they have created strategic alliances with would-be competitors, and increased the number of films they executive produce – all this to help rebuild their bottom lines.

The prognosis for 2019 is much the same.  

One of the bright spots continues to be Asia, where the gargantuan China market is just opening up to more Western IP.  Any foreign sales company without an Asia sales specialist on staff is missing out. 

➜ Changing Course.

Many of the major US platforms like Netflix, Amazon, Apple, HBO and others, focus on “originals” that they can buy outright.  Many know that this is in stark contrast to their former “domestic only” buying habits that allowed distributors to place a film at HBO, Netflix or Amazon, and then be free to sell that same film around the world.  These platforms now take global rights, because they can demand that.   As one veteran distributor stated to us, “There are more places to ‘sell’ films, but less ways to monetize them.”     
Film and television distributors know that they have some difficult choices in front of them. Do they stay the course and just hope they will acquire breakout hits to give them the revenue to keep going? Or, do they retrench and diversify their companies to stay competitive?  The answer of course is – both.

Here are three paths that successful indie film and television distributors - we talked to - are doing to rally, and improve, their bottom lines:

[1] Align.

Ally their company with a film fund.  Film slate funds have the money, but they do not have the back catalog or the global distribution machinery that indie film distributors possess.  Our firm knows several entertainment media funds that are currently being financed, that have no distribution arm.  A film fund can make more money by allying with an independent distributor, than if they sign an output deal with a studio. “Rumor has it” that studios have gotten rich by picking the pockets of producers and financiers for years.  By working with an independent distributor, media funds can keep fees and accountability more under their control, thus making more money for their investors, even if box office revenue is less.

[2] Prospect.

Mine other distributors’ back catalogs for unsold territories and under-marketed titles.  Many smaller distributors only sell their films to the ‘usual suspects’ - four or five big territories like the UK, Germany, France, Canada and Australia. Often they leave the rest of the world unsold. Our firm consulted with one company that had over 200 fairly recent motion pictures in their catalog, with much of the world undersold, nor exploited to their fullest.  Some distributors may lack the foreign sales team, or the resources, to go to the smaller markets.  Whatever their reasons, millions of dollars are often left on the table. It’s like a goldmine where all the easy gold has been dug out, leaving more ambitions miners to find and excavate the rest.

[3] Specialize.

 One thing our firm has learned from more than thirty years in the film and media business is companies that specialize in a genre of film and television entertainment media do better financially than those who do not.  Whether their specialty is: kids and family, animation, music, horror/thriller, sci-fi, or foreign language films – the best way to prosper in the distribution game is tospecialize.  It is too expensive - and too risky - to be “all things to all people.”  It’s fine if a company is a Lionsgate or a Sierra Affinity, but for most distributors the safest place to be is in genre specialization. Most successful distributors are focusing on titles with a clearly defined audience that can be reached online.

➜ To Exit or Not To Exit.

We have seen this before, and our tough-love advice to distributors if none of these paths appeal to them, is that they might want to radically change course and consider selling (or merging) their company with a stronger (bigger) company.
 
In the 1990’s our firm was heavily involved in publishing industry M&A activity.  By 2000, we saw the consolidation of that industry happening, and we advised many of our clients to sell or merge – which is exactly what most of them did.  Today the publishing industry is smaller, but healthier, because many of the smaller companies either left the business, sold out, or merged into financially stable ones.

From 1998 through 2009, we were instrumental in selling and merging numerous home entertainment companies. Many had risen up in the 1980s and early 1990s with the advent of the VHS/DVD business, and reached their peak in the late 1990s and 2000s.  We witnessed – and were glad to assist in – many payouts in the millions to home entertainment entrepreneurs who changed their course, capitalized on the trend – and then retired with hefty payouts. 
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For almost a decade we have been cautioning the film industry that there are “still too many film distributors in the world, all vying for a shrinking number of marketable films.”  We have often suggested that merging a number of film distributors together would be a smart move for the entire industry. 

➜ Today, the need for a consolidation is even more acute. 

Instead of fewer distributors, there are more – as new US and Canadian sales teams have jumped into the fray, more Asian and European companies have cropped up, and older firms have splintered into one or two man/woman shops.  This means less money for everybody, as more distributors compete for ever smaller slices of the pie.  

One of our film and television distributor associates told us:

“I still think that while the film industry would benefit from stronger, better funded distributors and sales agencies, the ones that remain have proven themselves highly adaptive to the new digital delivery marketplace.

To be generous, 1000+ indie film distributors only account for - maybe - 15% of the total revenue generated by the film industry, while the big, global studios divvy up the other 85%. In the days of large DVD orders and robust foreign sales, this was a good and sustainable business… but today, with the low prices paid by cable and OTT channels, virtually no broadcast revenue, and meager DVD/Blu-Ray sales, it is getting harder for these firms to survive, much less grow.   

Many veteran distributors/sales agents tell us they are skipping the smaller markets and only concentrating on the big ones like EFM, AFM, MIPCOM and maybe Hong Kong or Toronto.  They say they are sending fewer people to the film markets and trying to shave expenses everywhere they can.  Minimum guarantees are only being offered to filmmakers by the biggest firms, and then only on their cream-of-the-crop films.

The cost of a limited theatrical release has become more expensive – as full theatrical releasing and day-and-date releasing has become riskier. The HBO’s, Showtime’s, Cinemax’s and Starz channels have focused on limited series and originals – acquiring fewer and fewer indie movies for their audiences.  Same for Netflix, Amazon Prime, Hulu, YouTube Red, SlingTV and the other OTT channels.  They are fast becoming “closed shops” that are concentrating their acquisition dollars on limited series, originals and big studio movies.  

This has all made it harder on the good men and women, who represent the legions of indie movie and television producers and who work tirelessly, to slot their productions into an ever-shrinking window in the global film marketplace.   

Our firm has access to financial resources, strategic alliances, and tactical maneuvers for companies who need to chart a new course through the rough seas ahead.  If you would like to discuss how Bel Âge Médias can help your company explore ways to navigate the unfamiliar passage, shift into higher or lower gears, entirely change course, or even, to exit the business gracefully – please contact us

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Let us help you.

Our firm, Bel Âge Médias (B.Â.M.}, is a company specializing in providing Business Development, Branding Guidance, Mergers & Acquisitions (M&A) expertise, Exit Strategies, and Investment Banking services. Additionally, under out ongoing Streaming / OTT / 4K / Ultra HD initiative, we continue pursuing strategic alignments with high-end, entertainment technology providers, and explore low-cost alternatives for theatrical, televised, streamed, and online distribution of 4K and 2K films & television programs globally.
 
Bel Âge Médias • Santa Monica, California
Call Us - or Visit Us Online - or Email Us:
+1 310 666-6474 
https://belagemedias.com/  
Stephen(@)BelAgeMedias.com • Sarah(@)BelAgeMedias.com

LinkedIn-Stephen J. Kerr – https://www.linkedin.com/in/stephenjkerr
LinkedIn Sarah Nean Bruce – https://www.linkedin.com/in/sarahneanbruce

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Endnotes / References: 
1 - ARE THERE STILL TOO MANY FILM/TV DISTRIBUTORS? | BMC Online – 03/06/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/are-there-still-too-many-filmtv-distributors

2 - TO EXIT, OR NOT TO EXIT – STRATEGIES FOR FILM DISTRIBUTORS | BMC Online – 09/18/2017 by Stephen J. Kerr 
http://www.bizmark.net/blogs/to-exit-or-not-to-exit-strategies-for-film-distributors

3 - HOW TO BUY SELL MERGE OR VALUE A FILM DISTRIBUTOR | 
BMC Online – 06/06/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/how-to-buy-sell-merge-or-value-a-film-distributor

4 - VALUING A SINGLE FILM OR ENTIRE FILM LIBRARY (Updated) | BMC Online – 04/04/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/valuing-a-single-film-or-entire-film-library-updated
 
Image Credits: 
IMAGE-Sunset Sailing Boat-675847_1280_CC0 – via CC0 Creative Commons
PHOTO_Sarah&Stephen.png – via BelÂgeMédias

​Categories: #content #distribution #entertainment

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PUBLISHED AT:

LinkedIn-Stephen J. Kerr – https://www.linkedin.com/today/author/stephenjkerr

LINKED AT: 
​LinkedIn Sarah Nean Bruce – https://www.linkedin.com/today/author/sarahneanbruce

BAM News – https://belagemedias.com/news/