to get into film distribution
but there are only a few
successful ways to get out
Written by Stephen J. Kerr & Sarah Nean Bruce
We wrote this piece for entertainment professionals who own a film and/or television content distribution business, because they know what challenges impact their businesses. Challenges like lower revenue from foreign sales; disintermediation due to self- distribution; rising acquisition costs for quality productions; the need to invest earlier in films in order to lock up distribution rights; increased risk from foreign competitors, and more. It has never been easy to be in the film distribution business, but lately the hurdles seem to be growing, and a clear path forward more challenging.
The world is a smaller place, with previously insignificant markets like India, South America, Africa and Southeast Asia now becoming viable markets for American entertainment.
With 500+ cable channels and as many OTT channels blooming on the internet and on your TV, there is an audience for almost every conceivable form of entertainment. The challenge is that with all those choices, the audiences for each movie and show are smaller, and therefore content is less valuable.
Being a film distributor has its rewards: lunch on the Cours Masséna in Cannes with actors, auteurs, and producers; red carpet photos with beautiful people at Sundance and Tribeca Film Festivals; pitching film buyers in Santa Monica, Berlin and Hong Kong. That’s the fun part.
In the 1990’s our firm advised many book publishers and music labels on how to sell their businesses – many heeded our advice and walked away with millions of dollars. Others held on to the “bitter end” and got little or nothing for their companies and titles. In the 2000’s, we helped several home video entrepreneurs cash-in on the equity they had built up in their companies.
Today, we are witnessing many of the same warning signs that indicate that film distribution, as a business, is reaching its twilight years.
Direct-to-consumer marketers like Amazon and Netflix, Showtime, Cinemax, HBO, HULU, VUDU and Starz are not only customers and producers, they are competing head to head with film distributors for the best product.
How long before the producers decide that they no longer need film distributors to get their films in front of the public? For small producers, distributors still serve a purpose as aggregators of entertainment content for the broadcast and digital outlets. But this is not the game they want to be in when only the rich are getting richer.
At their core, film distributors are basically a collection of contracts, connections, and digital content sitting on servers somewhere. Companies that want to merge or otherwise consolidate, don’t have to worry about moving their physical product – only moving their contracts and transferring their media. The digital video revolution has definitely made some things easier.
The fastest way for a big distributor ($40 to $100 million) to grow quickly is to acquire other companies. The most lucrative way for a small distributor to exit their business is to sell to a big one.
Combining film catalogs and marketing relationships can give both companies a boost. Merging two or more companies can help insure the survival of both houses. Each company brings its strengths to the table and by combining those strengths, can mitigate their weaknesses.
Once merged, the now one, stronger company may become an attractive acquisition target for a large publicly held company or private equity group.
We recently valued a 20+ year veteran distribution house with over 250 good movies and documentaries in their backlist. The market value of their catalog was only $1.3 million, because they had sold off most of the world territories, and the remaining economic life of their titles was nearly exhausted.
Strong relationships with both domestic and foreign film buyers, and access to new and better films in the future, are the hallmarks of a valuable distributor. Another potential way to squeeze out any remaining value on titles from the last few years is to consider re-releasing to OTT or others in 4K because that market is starting to become significant.(4)
There appears to be a glass ceiling for film distributors at the $4 to $6 million level. It is difficult for a company that reaches this revenue peak to get much bigger simply by working harder without the infusion of fresh capital to pay minimum guarantees, executive produce their own movies, and/or negotiate “put” deals with the big digital players like Netflix, Amazon or HBO.
One of the most beneficial, and yet overlooked, improvements to any distributor is knowing where all their contracts and elements are, keeping them up to date, and exploiting any unused rights. It’s amazing how this much-needed piece of housekeeping can increase the value of any business.
Another way to build value is to sell off non-performing assets (titles) that weigh catalogs down, but don’t generate much value for the company.
A third, value-building move is to negotiate an exclusive “put” deal with any major OTT or cable channel. Exclusivity, of practically any kind, can create a higher perceived value of that distributor.
Of course, there are many more ways to help enhance a distribution company’s value. These are just a few where we have guided companies.
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
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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1 - ARE THERE STILL TOO MANY FILM/TV DISTRIBUTORS? | BMC Online – 03/06/2017 by Stephen J. Kerr
2 - BUY SELL MERGE OR VALUE A FILM DISTRIBUTOR | BMC Online – 06/06/2017 by Stephen J. Kerr
3 - VALUING A SINGLE FILM OR ENTIRE FILM LIBRARY (Updated) | BMC Online – 04/04/2017 by Stephen J. Kerr
4 - WHAT IS YOUR 4K / UHD STRATEGY? | BMC Online – 01/05/2017 by Stephen J. Kerr
IMAGE_ToExit-NotToExit-Vortex.png by Bel Âge Médias
PHOTO_Sarah&Stephen 2.png via Bel Âge Médias
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LinkedIn-Stephen J. Kerr – https://www.linkedin.com/pulse/exit-strategies-film-distributors-stephen-kerr/