There may be several ways
to get into film distribution
but there are only a few
successful ways to get out
to get into film distribution
but there are only a few
successful ways to get out
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Written by Stephen J. Kerr & Sarah Nean Bruce
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Written by Stephen J. Kerr & Sarah Nean Bruce
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PREAMBLE:
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.
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.
Sarah Nean Bruce (SNB): Does it seem to be the worst of times as a distributor
Stephen J. Kerr (SJK): The last few years have been tough for film distributors, but it has also been one of the best of times to distribute content. There are more places today to sell movies, documentaries and television serials than ever before.
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.
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.
SNB: What is the less fun part?
SJK: The less fun parts are disgruntled producers, collecting money, paying advances, battling lawsuits, hiring and firing, monetizing 4K, reporting, trying to keep up with digital technology racing ahead at breakneck speed… and more. Much more.
SNB: Where do you think the distribution business is heading and why?
SJK: Soon all distribution will be digital, with producers simply selling their films directly to digital outlets –without the help of middlemen at all. It is already happening. People may argue over the timing of this, but there is no argument over the certainty of it.
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.
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.
SNB: Recently, you wrote that there were too many film and television distributors and that a consolidation of film distributors was long overdue. (1) Can you explain how or why they should consider exiting?
SJK: What was once an oligopoly of large and mid-sized independents is now a hodgepodge of micro, medium, and maximum sized content distributors. This is the sign of an industry that has seen its halcyon days and has probably reached its apex.
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.
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.
SNB: Do you think it is easier or harder to sell a film distribution company today?
SJK: Often, the most beneficial way to exit a distribution business is to sell to a much larger company. In the home video era, our firm assisted more than a dozen DVD distributors sell their companies to friendly competitors and other media companies. In some ways it is easier these days to sell a media company, without boxes of DVD’s sitting in a warehouse somewhere.
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.
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.
SNB: What are the benefits that a $50 million film distributor might enjoy by acquiring a $5 million distributor?
SJK: A smaller distributor may have a niche market that the larger company wants to get into. They could also have direct put deals with one or more key digital channels (think Netflix). They might have highly-prized, branded properties that could turn into a franchise. Or they may just have great relationships with notable producers and directors that would benefit any larger company.
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.
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.
SNB: What is another way to create an exit strategy for distributors?
SJK: Merge with another, equally successful, distributor. (2) Sometimes this can result in making one strong company out of two weaker ones. Our firm has helped many media companies travel this route, especially with Canadian, UK or other foreign houses.
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.
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.
SNB: What creates value for film distributors?
SJK: The value for most distributors rests in its people and its relationships. The catalog of past films, acquired over the years and sold to the world markets, is usually not a big value driver.(3)
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.
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.
SNB: What if you don’t want to sell or merge with another distributor?
SJK: It is a still good idea to have an Exit Strategy even if they have no plans to put it into action for years. There may be moves a film distributor can make to enhance the value of their company and make it a more attractive now, and in the future.
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.
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.
If you would like to discuss ways that Bel Âge Médias can help your company To Exit or Not to Exit, please give us a call.
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
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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Reference List:
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 - 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
3 - 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
4 - WHAT IS YOUR 4K / UHD STRATEGY? | BMC Online – 01/05/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/what-is-your-4k-uhd-strategy
Image Credits:
IMAGE_ToExit-NotToExit-Vortex.png by Bel Âge Médias
PHOTO_Sarah&Stephen 2.png via Bel Âge Médias
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ALSO PUBLISHED AT:
LinkedIn-Stephen J. Kerr – https://www.linkedin.com/pulse/exit-strategies-film-distributors-stephen-kerr/
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 - 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
3 - 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
4 - WHAT IS YOUR 4K / UHD STRATEGY? | BMC Online – 01/05/2017 by Stephen J. Kerr
http://www.bizmark.net/blogs/what-is-your-4k-uhd-strategy
Image Credits:
IMAGE_ToExit-NotToExit-Vortex.png by Bel Âge Médias
PHOTO_Sarah&Stephen 2.png via Bel Âge Médias
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ALSO PUBLISHED AT:
LinkedIn-Stephen J. Kerr – https://www.linkedin.com/pulse/exit-strategies-film-distributors-stephen-kerr/
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