rel·e·vance
noun: The condition of being relevant, or connected with the matter at hand. Meaningful.   from Medieval Latin relevans , from Latin relevāre  to lighten, from re-  + levāre  to raise, relieve

It does not matter whether you entertain the masses with major motion pictures; pump oil out of the ground to fuel our economy; or save people’s lives on the operating table; we are all searching for relevance in this world.  The best and the brightest of us, most of all.

For 26 years I have worked with some of the smartest, most talented and very, very accomplished human beings on the planet.  My firm buys and sells media companies and I have had the fortune to know the men and women who started them, grew them and made them such a success that others wished to own them.  I have been fortunate indeed.

That is why I wanted to write this blog, it is about how each of us is searching for relevance. 

It does not matter if you have a fine home in the hills, drive the latest model luxury car, and have a ski chalet in the mountains… if you are unsure of your relevancy on this planet, you will be discontent.  Accumulating nice things does not give you the satisfaction of feeling accomplished.  More often than not our possessions just make us feel trapped.

Angelina Jolie, a woman who gives away more than one third of her enormous income to the poor, was being interviewed on television recently, and she said; “I am paid a ridiculous amount of money for what I do. Why shouldn’t I give it those less fortunate than me.”  She, the highest paid actress on the planet, is still searching for relevancy in this life. 

Like myself, many of my client’s have never made millions of dollars, but they have built good and stable companies that employ talented, hard working people.  They help creative people reach their potential by bringing their artistic talents to an audience – whether it be on the stage, on film, on the internet/ television, or even between the pages of a book.  These people are the backbone of the communications industry.  They develop, nurture and promote the most talented writers, directors, artists, filmmakers, singers and actors that they can find and risk their money and time so that the world can know their art.

It is an old and noble profession.  We are the impresarios of our age.

Why is it then that so many of my friends and clients, especially those in their late 50’s and 60’s, seem so discontent with their accomplishments?  They have what many would deem “interesting lives”.  They lunch with actors and writers; they strut their stuff on La Croisette in Cannes; they have interesting conversations about creating books, films, music, art and stage plays with people who know how? 

So, what is the source of their malaise?

It all comes back to feeling relevant. Most publishers, record producers, movie makers, playhouse owners and even television executives that I know want, more than anything, to make something important that will last beyond their lifetime.  A lot of that entertainment is basically 'pop culture'.  It is created for a purpose, consumed and quickly forgotten.  Most entertainment companies create pop culture.  Sometimes, if we do it right, even inexpensive pop culture movies, music and literature becomes art.  Think Berry Gordy’s Motown music of the ‘60s, Saturday Night Live, John Carpenter’s Christine or anything from the pen of Stan Lee.  Pop culture can become iconic culture.   

It is that search for relevance that drives even successful pop culture purveyors to strive to make and disseminate better quality, artistic entertainment… they don’t just want to make a buck, they actually want to make a difference.  Touch people’s lives.  Move the world. 

I once asked a real estate developer of storage garages and industrial buildings why his home was so finely ornate, and he answered, “Stephen, I just wanted to build something of quality, not something for the lowest cost per square foot.”  I understood completely.

The search for relevance is the search for meaning in this life.  Our own little corner of immortality.  We are fortunate to have the opportunity to create and promote art, literature, films, music, games and other artistic endeavors.  We actually do get a chance to touch lives and move the world. 

If we do it right.

My firm is all about helping companies build and realize their highest value; whether it is in film, television, music, video games, publishing or online.  As you get ready to go to Cannes I want you to think about what makes your company valuable and consider what you can do to enhance that value as you do your work of buying and selling films.

The single, most important thing that you should think about as you prepare for Cannes is...

What is our brand? 

Many companies go from show to show, building their catalog and selling territories without really giving much thought to their overall company image or “brand”.  But your company needs a brand; it needs to be known for something more than just an eclectic collection of films.  That in fact is what a lot of the foreign sales companies have become:  A mixed assortment of movies and documentaries.  You cannot discern much of a plan or corporate image from their list of titles, accumulated over the years.  Most were picked up because they were priced right and expedient, and the acquisition team knew that they could sell them to a certain number of buyers.  Not much thought was given to how this or that title fits into the overall company “brand” or how a title will enhance the value of the corporation as a whole.  It often gets down to price, terms and sell-ability.  Deal done. 

But that is not the end of the deal.  That title will become part of your company’s long term identity.  You know the phrase “you are what you eat,” well… you are what you sell. 

Building your corporate brand is crucial to the long term successful growth and financial health of your company.  What are you known for?  Why do buyers want the films that you take to market?  When you want to recruit top talent to your team, why do they want to work for your company? 

I started my career at the Walt Disney Company.   Arguably, the most brand conscious corporation in the entertainment industry.  We were always fastidious about building, enhancing and protecting our brand.

You need to do the same. 

Buying and selling films is just as much about personal relationships as it is about marketing entertainment properties.   Often films are picked up from this producer or that one because you sold their last film and may want their next one.  But how does that help your company?  Ten years from now will you look back and be really glad that you acquired and sold that film, or will it just be another brick in the wall?    

Build your brand.  They are not bricks.  Acquire only films that will enhance the overall value of your company and give you a catalog of titles that others would admire and wish they had acquired. 

It does not matter if you have the best collection of creature features, Anime, romantic comedies, rock docs, international spy thrillers… or kid vid.  Be known for something.

A lot of people talk about branding, but few companies in our business are really serious about it.  As you get ready to embark for France, think about your long term objectives and what you want your company to be known for, and do not compromise on that vision.

Poll underscores the fact that unlike in U.S., most global viewers prefer live television.
Almost 90% of viewers prefer watching live television, although other modes of consumption, including streaming or downloading from a computer (27%), streaming from the Internet to TV (16%), using a DVR or other recording device (16%), and via mobile device (11%), are gaining in popularity, according to new data from research firm Ipsos.

The survey of 15,551 adults in 20 countries (including the United States) conducted Feb. 4 and Feb. 18, 2013, found that traditional ‘live’ TV watching is more popular (91%) among older respondents ages 50-64, compared with those younger/middle age 35-49 (88%) and under 35 (81%).

Indeed, watching TV programming on computer and laptop is most popular (35%) among respondents under 35 — a percentage that diminishes as viewers’ ages 35-49 (25%) and 50-64 (17%) increase.

Streaming TV content from the Internet was preferred by 20% of respondents under 35; 16% among respondents 35-49; and 11% among the 50-64 demo. The percentages fall even further watching TV on mobile devices. About 15% of respondents under 35 watch TV on a portable device; 10% among the 35-49 demo; and 5% among those 50-64.

Using a DVR or other recording device is most popular with those 50-64 (18%) compared with 35-64 (16%) and under 35 (15%).

Countries whose residents are most likely to choose watching live TV programming include France (93%), Spain (93%), Germany (92%), Turkey (90%), Argentina (89%), Sweden (89%) and Australia (89%).

Those rounding out the middle of the pack are from Brazil (89%), Italy (89%), South Korea (87%), Great Britain (83%), Mexico (82%), Poland (82%) and India (82%).

Those least likely to watch TV programming live are from Japan (82%), Russia (81%), South Africa (81%), U.S. (81%), China (80%) and Canada (77%).

The results seem to support a recent Rentrak Corp. study that found that nearly 67% of primetime network viewing occurs three days after a show’s initial broadcast.

Watching TV on computer or laptop was chosen most often by respondents from China (52%), Russia (43%), Turkey (42%), India (40%), Sweden (35%), South Korea (31%) and Great Britain (29%).

Less inclined are respondents from Poland (27%), South Africa (26%), Canada (26%), Germany (24%), Mexico (24%), Spain (23%) and Brazil (21%).

Respondents from Argentina (20%), the U.S. (20%), Australia (19%), Italy (17%), Japan (14%) and France (12%) is least likely to watch TV on a computer or laptop.

Streaming from the Internet to TV is most popular among respondents in Turkey (44%), Russia (36%), China (33%), South Korea (25%), India (23%), Sweden (19%) and Great Britain (17%).

Those in the middle of the pack are from Canada (17%), the U.S. (17%), Brazil (15%), Mexico (13%), Spain (12%), Italy (11%) and Australia (10%).

Respondents from South Africa (9%), Argentina (9%), Poland (7%), Germany (5%), France (5%), and Japan (3%) are least likely to choose streaming from Internet to TV.

Respondents most likely to use a DVR or other recording device hail from Japan (45%), the U.S. (40%), Canada (32%), Great Britain (31%), South Africa (27%) and Australia (25%).

Those in the middle of the pack are from Poland (18%), India (16%), Germany (11%), France (11%), China (10%), Mexico (9%) and Sweden (8%).

Respondents from Turkey (7%), Brazil (7%), Spain (7%), Italy (7%), Argentina (6%), South Korea (5%) and Russia (4%) are least likely to use a DVR or other recording devices.

Finally, watching TV programming on mobile device is most popular in South Korea (26%), China (25%), India (21%), Turkey (20%), Mexico (13%), Great Britain (12%) and Sweden (12%). And less so in the U.S. (10%), Australia (9%), Spain (9%), Brazil (8%), Canada (7%), South Africa (7%) and Italy (7%).

Least likely to watch TV on mobile device were respondents from Argentina (7%), Japan (6%), Poland (5%), Russia (5%), Germany (4%) and France (4%).

If you want to buy or sell all the rights to a film, you do not have to call an appraisal company to arrive at a fairly accurate value of the property.

My firm has been valuing film and television (intellectual) properties for more than 25 years and we have also studied the valuation techniques of many other firms as well, and for the most part, it comes down to “apples to apples”.

Step One
Break down the film, or films, by director, star(s), genre, original box office (or DVD) revenue and foreign/domestic exposure. 

Step Two
Contact other producers or distributors with similar genre films (with the same director/stars if possible) in their library.  These are called “comps”.  Find out how those films have performed over their lifetime.   You might be surprised how forthcoming most rights holders are with this information, they have nothing to hide and often gain valuable information about their own films in the bargain.

Step Three
Our firm gives each film in a library a rating (1 Worst – 4 Best) depending on the film’s past financial performance, the presence of known “movie stars”, the age of the film, and the film’s director, producer and debut reviews.   We total the points for each of these factors and create an average (Example: 2.3).  

Researching the past sale price of similar films is a bit tricky, but there is a lot of published and unpublished information about past film sales available on the internet.  Again, it is wise to turn to your friendly competitors and other rights holders.  You will probably find, as we do, that you can develop a consensus of thought about any particular film based on its genre, star and director.  So, if the consensus, general market value of films of a similar nature is $10,000, then you apply your multiple (for example purposes only: 2.3). 
Gross Value $23,000.

Step Four
Applying a discount.  You may need to discount the film’s value based on many possible factors; among them are the number of territories sold/unsold (and currently still under contract), the availability of clear chain-of-title information, and the quality of the original print.  If the print has not been digitized and is not in high definition (standard def), then that becomes a factor too.  We add up the discounts and apply them.  It usually comes in at .50 to .80.  This is your discount rate.  For example purposes only, let’s assume that we have created a discount of .67.  We multiply our film’s gross value of $23,000 times .67 to arrive at a Fair Market Value of $15,410.

That is a very accurate assessment of the value of this property.    

You may be wondering why we first create a rating point system and apply it to an average industry consensus of similar films, and then discount that gross value to arrive at a Fair Market Value.  We do this to make sure that we are treating each film fairly and accurately.  Just because a similar Kevin Sorbo or Mark Harmon picture sold for $22,500 in 2006, that does not mean that's what your film is worth;  you will need to rate all of the elements of the film and apply any discounts to be accurate.  

The days when DVD was king are over, and films today are very much valued on their digital distribution rights value.  If those rights, or elements, are not available, then the value can fall to the floor. 

We understand that this is not a cookie cutter valuation method, but it forces you to look at all the positive and negative aspects of a film and apply a numerical value to them.   I promise you that if you use this process you will feel that you have a handle on the true market value of the property. 

If you need any help with this process, or would like us to do it for your company, please do not hesitate to contact us. 

Recently, I was representing the seller of a very nice business to a qualified and strategic buyer.  My client wanted to sell his business at a fair market price, the buyer was highly motivated to buy my client specifically, and had the money to do so. 

It should have been a marriage made in heaven.  

In this case I was representing the seller, so it was not my place to give M&A etiquette advice to the buyer.  So often, I watch buyers and sometimes sellers shoot themselves in the foot when a deal was there on the table that both sides could agree to.  I have been personally involved in closing the sale of 56 different businesses over the past 25 years and been party to dozens that did not close, for one reason or another.  Often, the buyer and seller had the transaction in their grasp, only to watch it slip away due to ego, self-interest, or just plain misunderstandings.  As an intermediary it is my job to guide both the buyer and seller to a place of mutual agreement, and then get it in writing. 

That is easier said than done.

The biggest mistake that I see buyers make is thinking that they are somehow superior to the seller because they are buying his/her company, and not the other way around.  It’s called hubris.  I’m invading your country and I have a bigger army, therefore you should listen to me. 

Go tell it to the Spartans, Persia. 

My advice to even very large acquirers is to humble themselves, listen carefully to what the seller is saying to them and find a way to meet his or her needs, at a price and terms that you can afford.   It is my contention that when you are dealing with even a modestly motivated seller and a financially qualified buyer, that every deal can get done… somehow. 

Even when the buyer and seller are seemingly miles apart in their valuation of the company, there are often missed “bridges of opportunity” that will span that chasm and eventually satisfy both parties.  One of those bridges of opportunity is discussing the seller’s aspirations after he/she sells the company.  Maybe they want to make films, or direct, or do charitable work.  The buyer should be sensitive to that and see if they can make that part of the compensation package.  The other is looking at the tax consequences of the sale on the seller and finding ways to mitigate the large tax bill they could be facing, perhaps by stretching out payments or reclassifying compensation.  Another bridge is looking at the seller’s skills/experience and employing them for years to come – to the benefit of the combined companies.  Often overlooked by the buyer is that fact that the largest assets they are acquiring are the knowledge and relationships of the seller. 

Even when the buyer and seller like each other and fully agree that a merger/acquisition would be in the best interest of both parties, there are always cross currents that can tear any well intentioned deal to pieces.  Deal killer lawyers, voodoo accounting, disgruntled executives/wives/employees, undisclosed liabilities and legal entanglements, and even the health of the key players… can all derail even the best of transactions. 

It should also be noted that time kills all deals.  If the buyer takes months analyzing the seller's financial statements, cannot seem to figure out the seller's business, and also does not keep in communication with the seller or their agent; then you can probably kiss this one goodbye.  Sellers have no patience for wishy-washy buyers. 

The definition of Fair Market Value is: A price, based on what a knowledgeable, willing, and unpressured buyer would pay to a knowledgeable, willing, and unpressured seller.  When neither is under any compulsion to buy or sell.

If the seller is under no compulsion to sell, then it is the buyer's burden to prove to them that it is in their best interest to do so.  If the seller is 66 years old, has no heirs in the business, and has had health issues, then he is under obvious personal compulsions to sell.  If the seller is 46, has family in the front office, and is in the prime of health… then his motivation may be… different.  That does not mean they do not exist.  Every company can be purchased for the right price under the right conditions.

It is incumbent on the suitor to find the tipping point that motivates the seller to act.  And it isn’t always money.  Often the seller’s company has been constrained for years by its lack of capital, and could benefit from the suitor's greater access to cash.  Or access to markets.  Perhaps the seller has other goals and aspirations outside of the company that are going unfulfilled because they feel trapped by their commitment to their business/family/employees.  Often the seller is simply bored running their small company, day in and day out, and would welcome to chance to play in bigger pastures. 

If after fully analyzing the seller's business, considering all the synergies of combining the companies and making the very best offer that one can, the two sides are still far apart... you might want to consider buying less than 100% of the target company.  Remember that 51% control gets you just as much as owning 100%.  There are dozens of ways to meet the seller's expectations without having to walk away from the deal.  Assuming of course that the seller is a reasonable person and actually wants to sell.

While it is true that it almost always comes down to money.  Money is never the only issue and even the price paid for the business can take a back seat to the transaction when the buyer and seller sit down and really listens to what each other needs.

The independent movie distribution business is in something of a death spiral.  You know the one, where the fighter plane is in a flat spin, hurtling towards the earth.  With hands over our mouths we watch the intrepid pilot struggle with the controls to break out of the spin and regain control over his airplane before it smashes into the ground. 

Yeah, like that.

The death spiral that we are in is not nearly as dramatic, but it is real all the same.  Movie company X makes two films: One a $80,000 slasher film with no name actors, a predictable and derivative plot with lots of blood; the second is a $800,000 lovely, coming of age story, with recognizable actors, and some real production values. Movie production company X gives both films to their distributor.  Distributor takes both to the markets, getting MG’s for many of the major territories.  They generate $100,000 for the crappy little slasher movie and $250,000 for the coming of age story.  Having lost a bundle on the coming of age story, and having made money on the slasher film, which kind of film do you think the filmmaker will opt for next?

Although the decline of revenue for the average indie film has been occurring for awhile, it basically came to a grinding stop overseas in 2013, for the vast majority of recently-produced feature films, which did not have any theatrical exposure. Why? Consumers no longer rent DVDs in any great numbers -- with the exception of Redbox here in the U.S. (and Redbox does not exist overseas.) Kiosks exist in certain foreign territories but not for video rental—only sell through. Unfortunately, unless you have a film which has been released theatrically and/or has a well-known cast, or great audience pre-awareness, very few consumers still purchase hard copies of independent films, unless they’re in the $5 discount bin at Wal-Mart.

I suppose that we are all hoping to be the next Jason Blum. 

Since Blum, 45, hit big with Paranormal Activity in 2007, his "microbudget" model has upended the horror movie business. That film, which Blum discovered and pushed after filmmaker Oren Peli made it for $15,000, grossed $193 million worldwide and has spawned four sequels for Paramount.  Studios, faced with increased pressure to cut bloat and release more profitable films, salivate over the three franchises Blum has launched in the past four years: Insidious (a $1.5 million price tag) grossed $97 million worldwide; Sinister ($3 million) grossed $77.7 million; and The Purge ($3 million) grossed $89.3 million. The Hollywood Reporter 2/27/14

Since those financial successes even Blum and his distribution partner Universal have struggled to find a market for the low budget horror/thrillers he is turning out with regularity. Like Roger Corman, or Ed Wood before him, Blum is a victim of his own success. A success that gets harder and harder to sustain. 

When the overseas film buyers are not paying that much more for good films, as they are for crappy films, how do the producer and sales agent break out of the flat spin, and regain control over their flight? 

Answer: Stop buying bad, meaningless films that just bring the market value down on all films. 

Here’s your dilemma: You’re probably not very proud of the “art” that you have to peddle these days, but, you can’t sell from an empty cart either.  Your distribution company has to acquire films that they can make a profit on.  That brings up another problem.  At the bottom… the commissions are so low as to make it hardly worthwhile.  Even if you’re charging 15% - 25%, on a total buy of $100,000 that does not cover your cost of attending AFM, EFM, Filmart, Cannes and all the other shows that you have to be at to do your job.

The obvious solution for all film distributors is access to more capital. Better capitalization gives distributors the ability to pass on the truly bad films and concentrate on the better ones.  Filmmakers rely on the foreign distributors to be able to raise up to 60% of a film’s production budget from offshore buyers.  But when your new releases look just like everyone else’s, all you get is minimum buys. 

The demarcation line is no longer is it a good movie or a bad movie, it’s “is it commercial”.  A North American theatrical release, even as low as 150 screens, will give any film a big lift overseas.  It gets reviews, it gets press, its gets access to film festivals and more.  Or as one veteran sales agent put it to me, “…since very few genre films are being pre-sold, buyers are waiting to see the final film before making a decision. At this point, they simply do not care what the budget of the film is compared even to obviously smaller budget films in the same genre. As one buyer told me recently, “I don’t care if the producers spent $1,000,000 or $100,000 on the budget of a film. It’s not my problem. If it’s not going to be released theatrically, or have an obvious television sale, one particular film is worth virtually the same to me as another – regardless of the budget.” Simply said, the current marketplace is not rewarding better production values in films – unless they’re released theatrically.”

That is of course the impetus behind so many day-and-date releases in conjunction with Netflix, Redbox, Amazon, Blockbuster and others. It gives your film credibility.  Note however that foreign buyers are now savvy to the game of limited US theatrical releases and will ask how many screens, what the P&A spend was, and what the US audience numbers were. Just because you “four-wall” the film in 5 or 6 cities, that does not a theatrical release make.

I’ve financed films before and I know how hard it is.  There is just no substitution for a great story, backed by a well thought out distribution plan, with P&A money to support it… and that’s what gets films made, into theaters, and into our DVD collections. 

You can’t sustain a restaurant selling bad food, you can’t sustain a retail store selling bad merchandise and you can’t sustain a distribution business selling bad films. Sooner or later the customers will simply stop coming.

There is a major consolidation of film and television distribution taking place – being brought on by the loss of disk revenue, challenges of digital distribution, and the growing problem of collecting money owed from customers.  Let’s face it, foreign distribution is not what it once was; there are new players, new technologies and new financial hurdles that every film &TV distributor has to be concerned about.  Even if you have good films/shows, you're probably not getting the sales out of them that you once enjoyed. Not to put too fine a point on it, there are just too many foreign sales organizations chasing too few good films.  And, too few foreign buyers that actually pay their bills on time. You go to MIP, you go to AFM, you go to EFM, and what do you have to show for it?

Paper and promises. 

If you ask the other foreign sales agents... they will put on a brave face and tell you that they are doing just great, and point out the one or two films that they are actually getting decent MG's on.  But at its core they know that the market is rotten.  Whole catalogs of past films are going unsold in major territories and too few company owners are looking at the underlying reasons. 

It all comes down to the law of supply and demand.  Demand has fallen off in almost every major foreign (and domestic) territory, while the supply of low budget flops and unscripted pabulum just keeps coming.  So, what happens when supply (of even bad entertainment) does not abate, and demand falls through the floor?  Prices evaporate and companies crumble, that’s what.  It's happening, right now, all over the industry, and all over the world.

Those companies that have the financial resources should be looking to buy up their competitors, and grow their companies in the process.  The entire industry would benefit from shrinking the some 200 foreign sales companies down to less than 100.  Those surviving companies would have better market reach, better film catalogs (by dumping the junk) and more power with the film buyers. 

Your firm may have had an excellent EFM, and I hope that you did, but that does not change the fundamental weakness in the current film distribution marketplace.  We saw it last year at MIP; we saw it at AFM; we saw it at NATPE; and we just saw it again at EFM.  Consolidation is the only solution to a chaotic marketplace.  We need fewer, stronger, better financed distributors, able to purchase quality films, and let the flotsam and jetsam sink to the bottom, where they belong. 

There is no industry more populated with wide eyed optimists than the entertainment industry.  We are a hit driven business and we can always convince ourselves that the next movie, the next documentary or the next television serial will be the one that makes everything alright.  Is it getting harder and harder to believe that old yarn?

Have we learned nothing from what happened in the music industry and more recently the book industry?  Those companies that acted early, with dispatch, have survived; while hundreds of their slow reacting competitors have disappeared.  Both of those industries have gone through a major upheaval that the film industry is just now waking up to.  Filmed entertainment is a commodity, just like every other consumer good.  It obeys the laws of supply and demand slavishly, and the companies that are smart and are aggressively doing something about their situation are going to be the winners. 

There is no "business as usual" in the film industry anymore.  The game has fundamentally changed and the players will soon be dwindling down to the few. .  It's not about getting by in 2014, it's about still being in business in 2016.  Ask yourself, with honesty and clarity, if your company has the staying power, and is taking the necessary steps to survive the challenges that are wracking havoc in the film industry

If the answer to this question is "no" or "I'm not sure", let’s get together and see what we can do about that.

Stephen J. Kerr
President
Business Marketing Consultants

  7 Jan, 2014 By: Thomas K. Arnold

  Consumer spending on home entertainment finished the year essentially flat with the previous year, with a total of $18.2 billion spent in 2013 on packaged media (Blu-ray Disc and DVD) and the various incarnations of electronic delivery.

That’s up less than 1% from total consumer spending in 2012.

Disc purchases for the year were down 8% to $7.78 billion, from $8.47 billion in 2012, according to numbers provided by the studios and key retailers and released Jan. 7 by DEG: The Digital Entertainment Group. Even the generally robust fourth quarter witnessed a 9.3% decline in spending, to $2.77 billion, although observers attribute this to massive discounting around the Thanksgiving holiday, with DVDs as well as Blu-ray Discs widely available for a few dollars. (DEG did not provide unit sales this year.)

DVD sales continued their steady decline, while Blu-ray Disc sales, after a slight drop in the third quarter, finished 2013 5% ahead of 2012.

But a steep increase on the digital side saved the day, with total consumer spending on digital content up 23.9% to $6.46 billion, from 2012’s $5.22 billion. Leading the charge was electronic sellthrough (EST), now rebranded as Digital HD, which saw a 47.1% increase in consumer spending to surpass $1 billion for the first time ever. According to DEG, consumers shelled out $1.19 billion buying movies and TV shows digitally in 2013, up from $808.42 million in 2012.

Driving Digital HD sales was the policy adopted by most studios during 2013 of releasing new titles two weeks earlier than their disc or VOD release — a policy change Universal Studios Home Entertainment president Craig Kornblau calls “a game changer.” Further boosting Digital HD sales was a dip in pricing and much greater availability, thanks to new platforms such as Comcast’s digital movie storefront, launched in November, and Target Ticket, a digital store that was opened in September by the nation’s No. 2 discount retailer, Target Corp. — as well as new media hub consoles such as Microsoft’s Xbox One and Sony’s PlaysStation 4, both of which hit the market in November.

Digital HD wasn’t the only digital component to post significant growth in 2013. Consumer spending on VOD was up 4.8% to $2.11 billion, from $2.01 billion in 2012, while subscription streaming — a market segment led by Netflix — rose an estimated 32.1% to $3.16 billion, from $2.39 billion in 2012.

The year-end DEG report also found that:

• The number of Blu-ray homes continues to grow, with total household penetration of all Blu-ray-compatible devices (including BD set-top players, PlayStation machines and HTiBs) now at more than 72 million U.S. homes.

• There are now more than 15 million UltraViolet accounts, thanks in large part to support from most major retailers.

• Consumers bought more than 38 million HDTVs in 2013. HDTV penetration is now at more than 96 million U.S. households, according to numbers compiled by DEG from retail tracking sources.

• Traditional physical rental continued to decline in the double digits. Rental revenue at brick-and-mortar stores fell 14.3% during 2013 to $1.04 billion, from $1.22 billion in 2012 — not surprising, given the fact that by the end of the year the 300 remaining Blockbuster Video stores had nearly all closed. Meanwhile, subscription rental, again mostly through Netflix, was down 19% to $1.02 billion, from $1.26 billion the year before.

• Kiosk activity, dominated by Redbox, was flat, coming in at an estimated $1.92 billion, a slight drop of 1% from $1.94 billion in 2012.

Regret over things that we could have done, would have done and even should have done… is useless.

My girlfriend, Lorrie Fisher, is a psychologist and a very wise woman.  One of the important things that I have learned from her is how to let go of regret.  What I learned from Lorrie was this:  Given the decisions that I have made over the past 35 years of my career, if I were to go back in time to each of those decisions – armed with no more information or resources that I had at the time… could I, would I or even should I have made any other decision?  The answer has come back to me again and again, probably not. 

A lot of my media creation and distribution clients are struggling right now.  The media industry that I work in is in such disarray that many companies that formerly had a strong position in their relative niche are struggling to find a foothold in a market that is built on the shifting sands of technology and time.  Many of my current and former clients have had to totally reinvent themselves.  Some have actually left the DVD, television or movie industry for greener pastures.  Others have so totally transformed their business as to make it unrecognizable from its former structure.  Gone are warehouses, in-house sales teams, acquisition pros prowling the media festivals and specializations that made them a lot of money in the past.  Replacing that are internet sales, independent contractors, global content alliances and multi-discipline distribution strategies.    

Veteran filmmakers and directors have had to resort to crowd funding, day and date VOD/Netflix releases and foreign pre-sales to get their films made.  Gone are the days when they walked into Warner Bros, Paramount or Universal and got the money to make their movie. 

So what?

If the sands of technology and time are shifting under your feet… learn to surf.  There is no point in holding on to the past wishing that things could be, would be, or should be… different.  

I suggest to you that there has never been a better time to be a content creator or a media distributor.  With the loss of the iron grip the TV networks and big movie studios had over what people see, there has come a brave new world where creators are free to make filmed entertainment and educational content that they can sell directly to people without anyone telling them what they can or cannot do.  The consumer now decides what they want to see and what they will pay for.  If you make programs and movies that people want to see then you make money.

To quote Carly Simon, “…these are the good old days.”

Hollywood filmmakers do not have a great track record with investors.  That’s why so many producers have to lean on state and foreign film incentives, pre-sells and gap financing to get their movies made.   If producers put their financiers’ need for a return on their investment above their own all powerful need to get their movies made, they would probably go about the filmmaking process differently.

The problem, as I see it, is not that motion picture producers are unethical or uncaring about whether their movies make money or not.  Quite opposite.  They care passionately that their films are critical and box office successes.  In there lies the problem.  Self delusion.  Most of the film packages that we see have no hope of making money for their investors when you consider the budget, the lead cast, the genre, the cost of P&A, and the theatrical market for the film. 

You see, filmmakers are storytellers, and they get caught up in their own web of telling stories for a living.  They forget the fact that… at a budget of $8 million, with washed up television actors as the leads, in a rehashed urban crime plot – that offers nothing new or original… they are probably already $7 million over budget. 

Film investors want to see their name up on the screen in the Executive Producer credits, they want to be on the set laughing it up with the cast and crew -- and they want to be part of the whole Hollywood mystique. 

What they don’t want is to lose all their money.

Filmmakers need to be better stewards of investors’ capital.  They should treat every dollar as if it were our own, and only make movies that are truly original and have a high probability of making money.  Self delusion benefits no one.  Right size your budget for the genre, cast and market potential of your film.  There is no shame making a film for $800,000, instead of $8 million if the market potential is only $1 or $2 million.  Before proceeding, ask yourself, “Would I put my own (or my Mom's) money into this film?”  Only proceed if the answer is a resounding, “YES!”

In today’s entertainment marketplace, when it comes to making money by making movies there seems to be two preferable ways to go about it.  One, make your film for the least amount that you can… or two… go for the big score. 

On the low end, you might want to consider making your film, non-union in a tax incentive state for under $2 million.  You use gifted amateurs, non-SAG actors and one veteran television star (who is just happy to be working). Then, if it is actually a good film, you can sell your movie to foreign distributors for $500,000, Netflix for $200,000, Video On Demand for $300,000, Redbox for $200,000, Pay Cable (HBO/Cinemax/Starz) for $50,000, and then free television for another $50,000.  If you can get a 25% tax credit from an incentive friendly state, then you are in the black.  No theatrical release, very little P&A spend and no shelping around from film festival to film festival praying that someone buys your movie.  

Scenario two, you raise $10 to $20 million and make a really, really great film, with an original concept,  a couple of big name movie stars, special effects,  an award winning director and all SAG, DGA, WGA, IA trappings.  You will then of course need either a major studio to buy (or distribute) your film – or $25 million in P&A to self distribute.  This path takes a lot of cash, whether it comes from you, investors or loans to pull off.  It is high risk but the rewards are big if you succeed.  Think of it as swinging for the fences.

What is not working very well right now is the $3 million to $8 million budgeted films that have no major stars, no distribution or P&A money.  You can’t make enough in foreign pre-sales to offset the cost of the film and unless you have a big name star in your pocket (think Matthew McConneghey, Brad Pitt, or Charliez Theorn) you won’t see big MG’s.  The domestic and foreign distributors only care about who’s in your movie.  They don’t care that you have a brilliant script, they don’t care that you have a great director, they don’t care that you have a killer marketing plan… they buy 90% based on cast. And a little on the concept.  You could put big name actors in a dreary urban drama and they would still pass.

So, don’t get caught in the middle with a film that doesn’t have the horses to win the box office race.  Consider the fast, inexpensive film… or go for it all.

A recent meeting with Larry Goebel at Imagination Worldwide, a successful foreign distributor, revealed an interesting problem: What do you do when the international film buyers don’t know themselves what their entertainment consumers want?  Larry offered them family films, horror films, dramas, comedies and thrillers… trying to get them to buy his films for their territory.  Frustrated by the buyer’s lack of commitment, Larry finally asked, “So what are you looking for.”  The answer came back a very puzzling, “Give me something that I can sell.”  Well… that was helpful.

Obviously, the major Hollywood studios have the same problem.  They don’t know what the customer wants to see.  The well publicized line up of box office failures this summer proves that no one, even if you are Sony, Paramount, Fox, Universal or Disney know much about what the consumer wants.  Big stars, big special effects and big sound does not a movie make. 

The international film buyers really do know what they want, it’s what they always want:  Good stories, well told.  Stories that have depth and meaning, stories that are well acted, stories that make people care, and want to go to the movies.   The accountants and lawyers took over the big motion picture studios long ago, they are not run by great storytellers anymore – they are pabulum servers with a really big spoon.  

So, it falls to the independent filmmakers to deliver to the world good stories, well told.  If they too pander to the lowest common denominator, the way the studios have, well… I guess there’s always a book.  

I was struck today with the incongruity and yet inter-connectivity of  two separate articles regarding financial security in America.  The first one was from the Associated Press, rebroadcast through the Huffington Post, titled 80 Percent Of U.S. Adults Face Near-Poverty, Unemployment: Survey wherein it states that “Four out of 5 U.S. adults struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives, a sign of deteriorating economic security and an elusive American dream.”  http://huff.to/11omSe1

The second article from ABC News was titled: Study Finds Only 28 Percent of Millionaires Think They're Rich, wherein they state “According to a study from investment bank UBS, entitled "What is Wealthy?," 40 percent of those with $5 million in investable assets said they didn't feel they were rich. And only 28 percent of investors who had between $1 and $5 million in investable assets viewed themselves as rich.”  http://abcn.ws/12VOe97

I simply cannot view both of these studies about the state of the American condition without comment.  The first one deals with one level of insecurity, as in – I cannot make my mortgage payment, fix my car or pay for my child’s education; and the second one deals with a different level of insecurity, as in, I have all the comfort that I need… but my neighbor has three houses, five cars and a more beautiful wife.  Both are insecure conditions to that person. 

I live in Beverly Hills, California where it is very easy to understand the attitude of people who don’t think that they are rich, even though they have a few million dollars in the bank.  In my neighborhood you can throw a ball in any direction and hit someone who has more money, cars, homes, women and stuff than you do.  At the same time I wonder how some of my neighbors are getting by when they have not made a movie in three years and have no visible form of income to support themselves or their family.  "The Lord (read – entertainment industry) giveth and the Lord hath taken away, blessed be the name of the Lord. [Job 1:21]"

My point is that poverty is still a real possibility for all of us.  You may be flying high today and they may be repossessing your Lamborghini tomorrow.  What the 40% of millionaires that have $5 million in investable assets know is that it could all disappear tomorrow.  You can’t allow yourself to become complacent.  If you don’t stay hungry, you don’t stay rich for long. 

 If you are a producer and you want to make money, I would encourage you to look at creating serial television programming over creating motion pictures. 

Do it.  Do it now!

Netflix, Hulu, Amazon, HBO, Showtime and the multitude of other pay services are crying for brilliant series right now, not movies.  They have found that dramatic and comedic TV series hook their users in longer and give them a reason to come back again and again for more.  If you scan the current Netfilx offerings and don’t see a movie that interests you, or that you have already seen, you may turn the television off , or worse, go to another service. However, if you’re seven episodes into Lie To Me, House of Cards or Game of Thrones, you’re going to probably sit down and watch more. 

There is another, more pervasive issue going on here:  People are losing their ability to focus their attention for more than about 20 minutes at a time.  Our young people are the first "YouTube Generation". A generation that has consumed a great deal of their entertainment in one to two minute bursts.  A 22 minute sitcom is an eternity to them.  Working adults have such over impacted lives with their  jobs, kids, sports, hobbies, games and other attention grabbers that sitting down to watch a two hour movie is not a pleasure -- it is a chore. 

When our news is consumed in the length of 140 character Twitter feeds, what do we expect?  http://bit.ly/15zpFRq

It is interesting how motion pictures were once the place to be for top flight producers, writers, directors and stars.  That has changed.  Movies just don’t hold an audience as well as a well crafted series will and the networks and pay cable channels are throwing millions and some of their biggest stars into them.  It is no wonder -- worldwide syndication revenue can be in the hundreds of millions for a really successful series. 

I recently met with the CEO of a major international media company.  I asked him what they were acquiring for 2014 and he said, “Dramatic, high concept television series.”  Movies were not a priority on his list.

If you have a great dramatic television concept and you are looking for funding.  Call me!

 When you create entertainment productions you need to think well beyond the borders of Los Angeles, or California… or North America for that matter.  You should consider how to make people laugh, or cry or stand up and cheer in China, Poland, Brazil or New Zealand. 

I recently had lunch with the owner of a Russian television network who is summering here in Los Angeles, soaking up more than our sunshine, he is here on a hunt for content that will entertain and delight his viewers back in Mother Russia.  For God only knows what reason, the rest of the world looks to “Hollywood” to help fill their lonely hours.  We Americans may no longer dominate the world car market, computer chips or appliances… but we still are seen as the “center of the universe” when it comes to creating and marketing entertainment. 

Never mind that a lot of the best known American television shows are often just copies of their British predecessors, or that most of what Hollywood turns out is simply drivel… it is still better drivel than they are making elsewhere. 

We (the American entertainment industry) are still very good at our jobs.  We know how to conceive, produce and disseminate programming that the rest of the world likes to see.  So, when you’re planning your next pilot, series or movie… think about people in the Philippines, Korea, Spain and Argentina.
What do you think they would like to see? 

For they are your audience too.

Being in the film finance business, I hate to write about the many ways that film financiers can get reamed.   Just to make sure that I was not using the word “reamed” in an inappropriate or sexual way, I looked up the definition.  Besides it meaning to be bored or cored out, it also means to have the juice squeezed out of fruit with a reamer.  
That seems appropriate.

This blog was greatly influenced by a conversation that I had a few days ago with the vice-president of  one of the major film, television and home entertainment distributors.  I wanted his opinion on the merits of having a theatrical P&A fund at his disposal, for acquiring and distributing motion pictures.  He said to me, “Stephen, we don’t need to have a P&A fund.  There are so many movies made with “A list” actors that have no distribution – which we can pick up for pennies on the dollar.  Some of those completely finished films had budgets of $10 or even $20 million, and we can acquire them for less than $2 million.  We know that the maximum revenue that we’ll be able to generate out of films like that is probably only $5 to $6 million, but that’s a great pay day for us”. 

My blood ran a little cold at those words.  He was saying that he could pick up a $20 million production for 10% of the cost to make it?  That probably means that the investors aren’t going to see a penny of their money back.  It just reminded me again that the key to success in the motion picture industry is distribution – not production.  As long term executive from the motion picture industry recently said to me.  "The studio bosses take the distribution guys out to dinner, because they’re the only ones on the lot that make them money… everyone else is an expense". 

Before anyone invests in a motion picture, they need to ask how the film is going to be distributed and what those deals look like.  A truly wonderful film can (and probably will) lose money if the distribution plan is poor; while a really bad film can actually make money, simply because it was well positioned and smartly marketed.  Never overlook the importance of marketing.  Once again, distribution trumps creativity.  Don’t let your emotions overtake your judgment, because it is not a great script, or A list actors that make you money – it is box office brilliance.   

No matter whether your company gained or lost in 2012 you probably need to tighten up that flabby bookkeeping, shape up those bulging business records and pump up your net margin.

Unfortunately, just like exercise…getting your business in top form takes hard work.  Are your intellectual property rights well protected, are your accounting standards being followed, is your ship of state leaking cash?  Maybe this is the year to shed some unwanted IP baggage, toxic employees or inventory? Get rid of a costly distribution relationship, dump  non-performing properties, shed those high interest notes, beef up your marketing program and get your assets working again. 

Getting a business valuation done is a lot like getting on the scale.  You might not want to know what you weigh, but if you don’t look now, you’ll never know if your program is working.  We recommend to all our clients that they get a business valuation done every five years, to know where they are at now, and how they can improve the picture next year. 

Think of Business Marketing Consultants as your personal trainer as you work your company back into shape.   We will design a custom program that can help your management team tackle problem areas that may have been hanging on for years.  If you need capital…we can get it.  If you need to make acquisitions…we’ve got them.  If you need to get your debt down and your margins up…we’re on top of that too.  Sometimes we all need a personal trainer to get us back on the right track.  Count on BMC, we're here to help.

Being an independent filmmaker is a hard way to make a living.  You write or collaborate with a writer to bring a screenplay to fruition, fighting naysayers and dead ends all the way.  Along the way you attract allies, colleagues and true believers to your film… and that keeps you going.  Every dime you bring in from your “real job” you plow into the development of your project.  You take coffee meetings with people with big promises, and no money.  You talk to people with money, but just not for your film… and you wait. 

I had a conversation with a financier the other day who said he couldn’t invest in my movie until I was out of “development hell”.  I tried to explain to him that he could turn my hell into development heaven very easily with a letter of commitment to fund the movie.  He didn’t agree.

From the pan to the fire.  Even if you do get the millions of dollars that it takes to make your indy film, the game is rigged to make sure that you never see any of it.  Other than your producer fee, which the investors will try to chop back, to reduce the fixed costs of the film, your back end profit is in last position behind everyone else. 

There are a lot of sharks swimming in the waters, just waiting for the minnows (that would be you) to swim by.  Come here said the shark:  I’ll lend you $10 million to make your movie… only I want to tack on a producer fee of $400,000 for myself; hold a lien on all rights foreign and domestic; have approval over every aspect of your film from casting to delivery; be recouped from any tax credits and foreign presales; charge 20% interest annually; carve out sales to Germany for myself; and take 50% of all back end profits.  Gulp.

I heard a story the other day about Woody Allen.  When the studio offered him a “package” for his next six films he said “thanks, but no thanks”.  He asked for $10 million a picture.  Up front.  “No, we’re offering you a chance to make a lot more,” said the studio.  Allen stood fast on his $10 million per film price until the studio executives relented.  What Woody Allen had learned from the business was that you get your money up front, because the waters are full of sharks that are just waiting for minnows like you and I to swim by.  Woody was just too fast for them. 

Casting a movie reminds me a lot of when (and I’m going to age myself) I used to sit around on the lawn with my neighborhood friends in Anaheim, California and trade baseball card.  “I’ll give you a Don Drysdale for a Maury Wills.  I’m not trading Maury Wills for anything less than Sandy Koufax or Willie Mays.” 

Actors would be horrified if they knew how casting decisions are really made.  “How about Eric Bana? No, his foreign numbers are lousy; we should go with Kenau Reeves.  No, he and Jennifer Connelly can’t stand each other.  They were in that tentpole that really bombed.  Well, how about James Franco?  Too young.  He can play older.  Think he’s tall enough?  Jennifer is pretty tall…”

And so on and so forth.  It seems to have nothing to do with their acting ability, if they are appropriate for the role, or their personality.  It is all about what they mean at the box office.  And, to a lesser extent, if they can get along with their co-stars.  How they behave on a set really matters.  I suggested a certain actress to my director and she visibly shuddered.  “No way, she is impossible to work with; I’m not going through that again.”  Well… put her card back in the pack. 

Back in the day, studios manufactured movie stars.  Today, it seems that even pretty bad actors can become movie stars, if their foreign numbers are good.  That is one of the reasons that you see so many British and Australian actors playing Americans in the movies.  Their names on the marquee draw theater goers overseas.  Almost 70% of a movie’s revenue and 100% of its profit will be generated by foreign sales. 

To the director, the actors are the raw clay that they form into the narrative of the film.  To a producer, the actors are simply an expense item that they need to get the film made.  To the exhibitor, the actors are the reason that people are sitting in their theaters – they could care less about the narrative of the film or what it took to get the movie made.  To the actors, it’s a rigged game that keeps a small number of actors living in luxury and the vast majority of them waiting tables and selling cars.

Nielsen study shows slow shift away from discs - L.A. Biz

Blu-ray and VOD are gaining in popularity on traditional DVDs. According to Nielsen, while 83.6% of consumers watched home entertainment on DVD or Blu-ray, 45% watched content via a video game console and 44% via a digital video recorder, re-emphasizing the increasing importance of streaming and time-shifted viewing.

Almost 32% more of consumers surveyed in 2012 said they would rather stream a rental movie than acquire the DVD, compared to the numbers in 2011. In a shift that indicates a move toward on-demand TV watching, 29% more of the 2012 respondents opted for transactional VOD for TV shows, compared with the previous year. Per the report, 12% more preferred Netflix for watching movies and 24% more upped use of a subscription video-on-demand service to watch TV programs.

With the increase in streaming service choices, came the decline of premium video-on-demand (VOD) business. VOD saw almost 8% fewer consumers who ordered movies. Per the report, respondents buying movies on DVD dropped almost 1%.

“People do still purchase and rent physical DVDs and Blu-ray Discs, but streaming services such as Netflix and Hulu continue to gain traction as a convenient alternative, accessible through a variety of devices,” the report noted.

Sales of action-adventure films increased 24% to more than 126 million units, but sales of comedies and family fare declined 12% (104 million units) and 11% (97 million units), respectively. The top-selling discs included Disney/Marvel’s "The Avengers," Lionsgate’s "The Twilight Saga: Breaking Dawn — Part 1," and "The Hunger Games."

______________________________________

Author: Gina Hall is a Los Angeles-based writer and producer with more than 10 years experience in television, documentary and feature film production. She is a graduate of USC’s School of Cinematic Arts and blogs for the Huffington Post at huffingtonpost.com/gina-ha

Yahoo announced Wednesday that it acquired the exclusive rights to classic clips of "Saturday Night Live" from 1975 through 2012, effective in September. The clips will be removed from Hulu and NBC.com, where they currently reside, and be shown instead on Yahoo, which wants to share in the buzz the show creates, Brian Stelter reports Thursday in The New York Times.

The deal between Broadway Video and Yahoo highlights the jockeying among companies that want to have a library of online videos to call their own. A dizzying number of online video producers are pitching their programs to advertisers this month, ahead of the traditional television upfront sessions in May. While these Web programs' quantity and quality are increasing quickly, there are doubts about whether the advertising dollars are.

"On one hand, digital video advertising is growing fast and its prominence is increasing," said Clark Fredricksen of the research firm eMarketer. "On the other, compared to television, online video is an incredibly competitive market, where you have more companies fighting over far less." Mr. Fredricksen's company estimates that $4.1 billion will be spent on online video ads this year, in contrast to $66.4 billion on television ads.

"There are a handful of major conglomerates that split revenues from the huge TV-ad pie," Mr. Fredricksen said, "while the digital video world features hundreds of companies fighting, comparatively, for scraps from the TV table."

Attaching, barnacle-like, to television might be a way to stand out from the crowd. Yahoo, which is trying for a turnaround under its chief executive, Marissa Mayer, has content-sharing relationships with many major media companies, but its video hub, Yahoo Screen, has lagged rivals like Google, which owns YouTube.
                                                          Reprinted from New York Times, April 2013

If you owned a video, book, music or magazine retail store ten years ago – you are probably out of business today.
Likewise, television and film producers, book, magazine and music publishers are finding it harder and harder to keep their companies afloat.  And that has had a massive affect on the broadcasters, printers, duplicators and packaging companies that rely on the producers and publishers.

The problem is that the road turned so rapidly that many media creators and distributors missed the signs as their business dissolved right in front of their eyes.  That is not to say that they did not put up a fight by creating websites and introducing technological changes to their businesses.  They did.  They updated their computer systems and made their organizations more efficient.  But that could not protect their companies from the most fundamental and sweeping change to global business – the consumer changed!

Most businesses are still geared towards selling goods and services to Baby Boomers.  The problem is that Baby Boomers are not the predominant buyers of goods and services in America anymore, it’s the 15 to 35 year old children of the Baby Boomers that are consuming most of the music, books, games, movies, television shows and software.  And their lifestyles and buying patterns are very different than their parents.  If anyone still believes that the next generation is going to wait around to see a movie in the theater, and then run down to the store to buy the DVD, and watch it again on HBO, then they are just not paying attention.  This generation wants its entertainment when they what it, and where they want it.

So, what do you do about it?

Go digital.  You need to find new ways to monetize and disseminate your content that are radically different than you have in the past.  The road turned. So what.  Turn with it.  You need to get right into the consumer's mind via their iPhone, pad and notebook to satisfy their need for massive stimulation.  This generation grew up on video games, YouTube and reality TV.   They want entertainment -- and lots of it.  You know what you need to do.  If you don't, there is no shortage of social media and new media consultants to help show you the way. 

While there is still a market for books, DVDs, and in some cases, CD's, mostly when selling programming to an older demographic;  I'd put my money on digital platforms and on-demand entertainment.  That's where the road is taking you.

One of the most misused, misconstrued and generally confused words in Hollywood is the word “attached”.  As in I have (insert star’s name here) “attached” to this picture.  One might be lead to believe that the actor has actually read the script, talked it over with the producer/director, agreed to be in it and even signed a contract to appear in the film.  Well… not necessarily.

When a producer says that they have their lead actor or actress “attached” it could mean that they are indeed contracted (see play-or-play) to star in the movie and have scheduled their time to rehearse and play the part.  Or it could mean that they have read the script, like the role, and schedule permitting (and subject to negotiation), will be in the motion picture.  Or, it could mean that the actor’s agent has discussed the part over a cup of coffee with the casting director, no one’s read the script, but the actor might like the role.  Or, quite often, neither the actor nor their agent has ever heard of the film, never talked to anyone about it and are probably too busy to be in it anyway. 

“In filmmaking, a guarantee is a term of an actor’s contract that guarantees remuneration if, through no fault of their own, the artist is released from the contract. Such an arrangement is known informally as a “play-or-pay” contract”. http://bit.ly/114IrxD Wikipedia.

A “pay or play” offer is often backed up with at least 10% of the agreed upon shoot fee being placed in an escrow account.  If the film is not started by a specific date, the actor would be released from their obligation and can keep the money.  Think of it as a down payment on their services.

You have to be careful about who you talk to about your actor being “attached.”  I was down in Bogota, Colombia working on a two film slate and meeting with Colombian investors.  One of our films was a romantic comedy set to star Sophia Vergara, and was being produced and directed by Ron Shelton.  Shelton told me that he had contacted Ms. Vergara about the role, but I was not in on their conversation.  When I was pitching the investment to one of the Colombian businessmen, he said, “Sophia, has agreed to star in your picture? Wonderful, she is my niece.  I’ll have to call her and congratulate her”.  A moment of panic flooded my brain because I knew that Sophia Vergara had no pay-or-play offer, had not scheduled her time to be in our film and may or may not have read the script. 

Yeah, she was attached alright, somewhere between committed and “who are you?”

“Who’s on first.  What? What’s on second. I don’t know.  No. He’s on third”. 

Funding a movie seems a lot like that old Abbot and Costello routine.  Unintelligible answers to insolvable problems.

I hope you’re laughing… because that’s about the only thing that you can do.  “Do you have the $10 million to make your movie? No, my investors want to know that the film will get distributed first.  Well, we can’t commit to distributing your film until you have $10 million”.  See, it always comes back to “Who’s on first”. 

Every producer goes through this.  Investors are wise to the game.  They won’t commit to a film until you can prove to their satisfaction that the movie will be made and distributed as you say.  The theatrical film distributors get so many submissions, that they know that they can sit back and let the producers take all the risk of developing, financing, producing, editing and even pre-marketing the film without making any financial commitment to the project.  While they are taking a chance that you’ll make a big hit that another distributor might profit from… in the movie industry, that usually not a huge risk.

Do the math.  More than 15,000 films are made each year in the English language alone.  Fewer than 700 ever see the inside of a movie theater.  Maybe 100 of those make a significant profit.  To the distributors and exhibitors you represent nothing but risk.  They are in the business of taking a risk on distributing motion pictures to the public, but, if they have their druthers, they’d l limit that downside risk by making no commitment to a film until after it is made, edited and reviewed.   

Back when the studios ran things and made all the movies, they developed films from books and screen plays that they commissioned; financed, produced and then handled all distribution throughout the world.  I worked for Disney… I was once part of that system.  And, the system worked pretty well for the better part of 70 years.  Today, the studios turn out many fewer films and most of those are remakes and sequels.   Not much creativity there.  The really interesting films are being developed, financed and made by indy producers.  Those independents can either try to sell their projects to a studio (good luck with that), release through a “rent-a-studio”, model or chose their own path through the growing legions of independent domestic and foreign distributors like Millennium, Freestyle, Cinedigm or Inferno. 

It’s a tough road. But doable.

So, to answer the eternal question, “Who’s on first”?  Second and third…

You are!  Welcome to the world of independent film making.

In a recent edition of The Wrap, an article appeared titled, Tippett Studio Chief on Layoffs: 'Why the Hell Doesn’t California Do Something?' http://bit.ly/117JMFT

The article starts off, “Award-winning visual effects company Tippett Studio has laid off 50 employees in the latest blow to the embattled industry, and its chief Jules Roman wants California to step in and stop the bleeding”.   Almost more interesting than the article by Lucas Shaw and Brent Lang, are the comments that others made.  All the way from sympathetic support to “Why MUST the state bail you out? Poor business decisions, the economy and technological changes are part of being a freelance/business/independent. Suck it up, merge, close, do whatever it takes...” 

What this article and interview with Ms. Roman tells me is that any industry entrepreneur needs to be careful about how much they are willing to invest in infrastructure here in California.  High union costs, guild residuals and just the unfavorable labor laws here in California make it a challenge to do business in this state.  I love Southern California and I love the motion picture industry, but the free market is against running a studio or effects house here. 

Only the bloated budgets of the studios’ tent pole movies can really afford to do a complete production here in Southern California.  I’m a member of a production company that is making a movie about the last days of Marilyn Monroe.  We’re shooting principal photography in Albuquerque, standing in for Los Angeles in 1962.  We would much prefer to shoot here in Southern California, but with a 25% rebate from New Mexico and a lower operating cost, we had to bite the bullet and go out of town.  We can bank the tax credit and put that $600,000 back into our movie. 

Movie and television production, as well as all the effects and elements included in production, are a global industry.  As a filmmaker I would love to stay here and shoot my movies in Southern California.  As a businessman, I have to go where I can make the best product for the lowest dollar.   Tippett Studio turns out a great product, but they’re going to be waiting a long time before the State of California ‘steps in and stops the bleeding’.