The Benefits of, and Issues with, Offering Minimum Guarantees
The Absolutely True Stories of Indie
STORY-TELLING & STORY-SELLING
A series of conversational articles and brief essays on
The Art & Science of the Entertainment Media Business
Written by Stephen J. Kerr & Sarah Nean Bruce
We wrote this essay after we recently interviewed six of the top independent feature and documentary distributors about the status of MGs today. What we learned and synthesized for this piece is the collective knowledge and opinions of those veteran film distributors, along with our company’s 35+ years of experience in the film, television and entertainment medias industry. Here is what we found.
➜Distributors now take on more risk with Features and Documentaries.
Nearly everyone knows that the landscape of independent film distribution has forever changed, both in North America and around the world. The line between film producers and their distributors keeps blurring as distributors and sales agents become more involved, and earlier, in film/doc financing, production and marketing.
➜These days, there is nothing simple about the Home Entertainment industry.
The explosive growth of companies like Netflix, Hulu, Amazon, HBO, Showtime and about 500 other direct-to-consumer (over-the-top/OTT), and subscription movie services (SVOD), has made the job of distributing features, documentaries, and limited television series, both easier… and harder.
➜Producers are Distributing and Distributors are Producing.
A feature or documentary producer can finance, self-distribute and even sell their content directly (via YouTube, or Vimeo) to consumers. A distributor might play a significant role before, during and after the production of a feature/doc, and then distribute through all the usual windows. Or they might decide to go directly to the consumer as well. Most of us know that Netflix, Hulu, Amazon, Crackle, HBO, Showtime, Cinemax, and The Movie Channel no longer just offer consumers filmed entertainment. They initiate, develop, produce, finance, and proliferate productions on all platforms around the world – including (sometimes) theatrically, at retail, and on competing channels. That’s not even touching on what the television channels like A&E, SyFy, Lifetime, Hallmark, NatGeo, and Discovery are doing.
➜Established distributors hire firms like ours to help attract and set-up multi-million dollar “Minimum Guarantee Funds” to enable them to acquire better productions.
Sometimes, projects are acquired by distributors years before they are made and distributed to the theaters or broadcasters. This trend of distributors acquiring projects early on has turned many ‘Heads of Acquisitions’ into ‘Heads of Development.’ There was a time that a global film distributor or international sales agent could simply wait for good features and documentaries to come to them at film markets like AFM, EFM, MIPCOM, Hong Kong – or they would bid on completed projects at one of the dozens of film festivals that go on – seemingly every week – around the world.
However, when companies like Netflix, Amazon and HBO began snatching up the best projects from the top festivals and markets, and started paying prices that no indie distributor could possibly match – it most definitely changed the game. No longer can independent distributors and international sales agencies afford to bide their time to pick up feature films that the big studios (or Harvey Weinstein) passed on.
➜Often today, distributors need to lock up foreign and domestic rights by connecting with producers while their projects are still at the script stage, and sometimes even before there are any cast attachments.
Distributors do not always have to make investments directly into the film projects, or even make advance payments based on Minimum Guarantees, they can sometimes make sizable P&A commitments in the project’s theatrical, or day-and-date, distribution. Securing a theatrical release of 1000 screens, or more, can do wonders for foreign and domestic sales. Distributors and Sales Agents have told us that quotes from foreign buyers can be as much as 300% higher for a US theatrically released movie. Assuming of course it was not panned by the critics, then it will only be slightly higher.
➜The Producer’s Dilemma.
Many film producers have not woken up to the fact that revenue estimates for international sales and domestic OTT or pay cable pickups are often unreliable. Some distributors/sales agents are not entirely truthful and just want their market fees, so they give producers grossly overstated sales estimates. This makes it more difficult for the scrupulously honest distributors who give their producers the real numbers. The producers are torn between: giving their investors the lower estimates, and risk not getting their movie made; or giving their investors inflated numbers, and just hope that it all works out. Distributors who make early investments into films have to be sure of their sales estimates because they are sharing the risk that their numbers will prove out.
➜Life can be difficult for a distributor’s Head of Acquisitions who travels to film festivals with empty pockets.
Distributors have told us that it is definitely an advantage to have a fund set aside to offer filmmakers advances and make early stage investment into worthy feature films and documentaries. Niche players who specialize in campy horror, foreign, art-house, Christian, Latino, urban, gay/lesbian features, or music docs, may not encounter these issues as much. The major OTT’s, broadcasters and Pay-TV outlets do not focus on, or pre-buy, most genre films. Some genre product will find its way onto Netflix, Cinemax or SyFy, but specialty distributors rarely have to compete with these broadcasters for the distribution rights on niche films.
➜The challenge for international feature film distributors and sales agents is finding product that is “bankable.”
Distributors know this means features have strong enough casts, directors and genres that the banks will lend on the distributor’s revenue estimates. One can count the number of distributors on their fingers and toes whose sales estimates are considered reliable enough for bankers to lend against. Producers use to be able to walk their signed territory sales agreements into the bank and get up to 70% on those estimates. These days, they are lucky to get 30% on estimates… and then - only from the top territories like Germany, UK, Australia, France, and Japan.
➜Currently, most film buyers around the world want to see the finished movie before they will make a financial commitment.
The reluctance of foreign film buyers to make a pre-release commitment to even better quality feature films has made providing Minimum Guarantees very dicey. The better healed companies like A24, IFC, Bleeker Street, Magnolia, Roadside Attractions, STX, Freestyle, FilmRise, Archstone, The Orchard, e-One, and others, still pay advances and/or put up P&A money for top shelf theatricals. The foreign buyers are more apt to take a pre-release risk on their pictures, than on others.
➜The benefit for distributors, and their investors, to pay advances to producers is that they are usually last money in and first money out.
As soon as the first big territories are sold, MG money is often repaid. In some cases, filmmakers arrange for some cash to go back to their investors from early territory sales (“corridor”). But in most cases, a film’s investors recoup well after the distributor. Film distribution has always been the world of HAVES… and HAVE NOTS. The most successful companies have sizable acquisition and production funding, often provided by a hedge fund, venture capitalist or high net worth individual. This is not the game that one can successfully play without cash.
➜Companies hire us to quietly and privately seek out, and arrange, strategic partnerships.
While a lot of money is still pouring into indie film productions by investors all over the world, a number of the more savvy financiers are placing their bets on distributors. Our firm works with investors from China, Dubai, Germany and right here in the USA who recognize that owning a piece of an international sales agency or film distributor is the way to go. Financiers have found out that making several smaller bets on movies and documentaries is better than making one big bet on a single production.
In 2014, we wrote an article entitled Too Many Film/TV Distributors (see link below) which suggested that through a series of mergers, the proliferation of small distributors and sales agencies could be consolidated into fewer – but stronger ones. Investors are looking for opportunities in film distribution, but they are mostly attracted to larger companies ($10 million and up) and insist on an equity stake. We have found that loans, or revenue sharing, do not appeal to financiers. It’s most often equity, or nothing.
Let us help you.
Our firm, Bel Âge Médias (B.Â.M.}, continues to align itself with investment groups and high-end entertainment companies domestically and abroad. We have also been retained by investment groups to seek out entertainment companies to invest in, purchase, or merge with.
Bel Âge Médias
Santa Monica, California
firstname.lastname@example.org / belagemedias@ME.com