24 FPS Blog

The Film Release Slot Machine – movieScope

The evolution of independent UK production has seen many false dawns over the last 20 years. Yet, oddly, during a time of worldwide financial apocalypse, a potential diamond is sparkling in the dark. We might just be looking at a potentially positive transformation in our fortunes, and the way we view and do our business. It could even be that if these new opportunities are fulfilled, they could revolutionise the sector and help focus the commercially smart to reach audiences of which they could only have dreamed of previously.

Right now, there are fewer UK tax incentives to provide production funds. No Section 48 or 42. British Screen is gone. Financially, the BBC and Channel 4 are on their collective nuts. You can’t count on the BFI to wade in, and nearly every indigenous distribution company or sales outfit is on the breadline. As for equity investors prepared to take a punt… well most of those are either living in padded cells or helping the police with their enquiries. So what’s all this positive message stuff?

The fact is that studios are simply not making the level of production output that they have in the past, and this at the very time that the lines of communication and delivery are opening up in front of us. Sure, we all know that DVD sales are diminishing globally, but that is mostly because the traditional high-street DVD carriers are dropping dead before our eyes⎯and that’s unlikely to be through lack of people wanting to consume movies in some form or other. Lest we forget, the market for home video was worth some $18bn in 2012, 80 per cent of that still reflected in physical sales or rentals and an increase percentage wise on recent years. In the UK, however, Woolworths, Zavvi, Blockbuster and HMV⎯despite recent financial restructuring⎯are all now largely a thing of the past in regard to the financial importance they once represented to producers and distributors. This is as much an indication of the requirements and sophistication of the customer as it is of the decline of the DVD industry.

But that’s an aside. Going back to the studios, we must determine why they are currently making so few films, and why this provides such a glowing opportunity for the independent sector. The studios have always been, and will continue to be, geared for volume. They have massive output and turnover requirements and even when they start looking to cut back on staffing levels⎯as we have seen in recent months⎯they nonetheless strive to retain huge market share because that is what keeps them able to fulfil their worldwide TV output deals.

Indeed, television remains the key profit centre for the majors. Global pay and free to air network sales are, in some respects, the studios’ best-kept secrets. Existing output deals with key partners such as HBO, Sky, Starz and their brethren continue to underpin most studios’ bottom line. New broadcast outlets largely maintain this hunger for studio-quality features and programming when looking to fill airtime and distinguish their offerings in the marketplace. Recent insurgents in the sector, such as the near ubiquitous Netflix, further feed this demand with ongoing catalogue acquisition and renewal and now original production; see House of Cards and Hemlock Grove, etc. One only has to consider the recent acquisition of Disney’s first-run pay TV window by Netflix from Starz in the US, starting in 2015 at some $350m+ per year, to appreciate that no matter how things change they essentially remain the same—from a studio perspective at least! One Time Warner corporate executive was recently quoted as saying that TV now provided at least 80 per cent of the conglomerate’s annual profits.

Despite the vicissitudes of prevailing economic conditions, studios remain remarkably robust in their profit profiles and continue to adapt to the overall diminution of the once indomitable packaged goods business. They’ve achieved this by at once refining and rationalising their product offering⎯with a renewed focus on easily branded high-concept tent-poles and micro-budgeted genre pictures⎯and effectively driving down above-the-line production costs and reliance on ‘star power’ whilst cultivating and engaging with new markets and distribution methodologies.

To wit, they are actively licensing to new media platforms and outlets (Amazon, LoveFilm, Hulu, YouTube, etc.) with these licensing fees beginning to compensate for the offset in BD/DVD sales. Foreign revenues and yields also continue to grow despite a slowdown in domestic box-office results. The BRIC economies represent a significant part of this growth, with China in particular the focus of renewed distribution and co-production efforts. With the recent success in the Chinese market of mainstream action titles such as Looper and Skyfall and the unique Chinese variant release of Marvel’s Iron Man 3, this is only likely to be the start of the monetisation of this particular market by Hollywood.

Similarly, VOD, SVOD and Digital Download are continuing to grow and beginning⎯just⎯to represent a significant revenue stream driven by an increasingly diverse range of delivery systems and technologies, studio willingness to be more flexible with their release windows and more effective marketing of the consumer proposition despite the continuing entrenchment of the exhibition community. Fox’s recent offering of Prometheus, Hitchcock and Taken 2 as branded hi-def digital downloads a month prior to their respective BD debuts is certainly a portent of a shift in corporate, if not yet audience, appetites. As is surely the recent appoint of Warner’s long-serving home entertainment and digital head Kevin Tsujihara to the position of company CEO, as the digital space looks to drive these revenue opportunities.

Therefore in this financial landscape the studios’ emphasis has to remain clearly on the massive-budget tent-pole movies required to feed their vast catalogues and act as a locomotive to lead sales from the front. The victim here is the once prevalent midrange film, the $15–30m movie that studios now seemingly perceive as an unnecessary distraction, rather than a cash cow element of their production activity going forward.

And it is probably because of this that smart independent producers have started to customise their products to requirement. Studios are beginning to buy in third-party ‘commercial’ films, having now come to their collective senses and thankfully deserted the Sundance Film Festival driven buying frenzy of a few years back, when everyone had their own specialist ‘art-house’ acquisitions brands. Remember Warner Independent or Paramount Vantage? The switch to buying in more overtly commercial product, sometimes just for an indigenous territory, is a result of the emergence of the more accessible tastes of giants such as LoveFilm and the aforementioned Netflix, abetted by the VOD and PPV product providers and, lest we forget – eventually -profitable streaming. Technology is our friend and we must embrace it. It will eventually liberate independent production, and that day gets closer with the passing of every straight-to-Netflix TV product such as Arrested Development and Amazon’s forthcoming Zombieland TV spinoff.

The majors and the mini-majors, such as E1, Lionsgate and their ilk, have this power base for blanket delivery. Thus they have superior market clout and, of course, vast infrastructures. But they need product to flow through them. Think about it; the big cash burn for these guys is the cost of the production itself. It can threaten their basic existence if it goes completely tits up. So, it makes sense to buy in selectively as a way of padding out that schedule.

Another argument in favour of third-party acquisition is that a third-party producer is probably far better able to strike competitive deals to bring the movie to the screen in good order and at a price that makes sense. Being cynical, the profit margin probably exists in the excess that the studios would have to apply these days. What self-disrespecting supplier is going to offer Warners, Fox, Paramount, Universal or Sony a huge discount on a one-off transaction? Proof in point? Once again we are seeing fallen giants like MGM rising up to the new dawn of technology and getting the cheque book out to buy aggressively from the independent sector. None of us saw that coming a few years back. Yet there is that old Lion growling out from screens again, and it’s good to see him back.

So, does this distribution-pull rather than production-push mean we can all put the champagne on ice because we have the phone number of a senior exec at a studio who we happen to know needs a few movies to fill the multi-territory TV output machine he’s in charge of? Of course not; nothing in life is ever that simple. But it does highlight that ambition, ability, occasional opportunity and a little bit of luck can be a potent mix.

We don’t need to point out that right now we stand in the rubble of the worst financial crash in living memory. Yet, the odd thing for the small business person is that the giants of our trade are hurting worse than anybody. That is both an opportunity and a risk. An opportunity because we can at last sell our products to them thanks to that economic restructuring and their need to take us seriously. And a risk because, well, if you stand next to a giant, they sometimes step on you by mistake… •

 

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