With an increase in the financing of production entities rather than individual pictures, a panel of finance and production heavyweights discussed the pros and cons of single film versus multi-picture financing as well as the importance of copyright ownership over distribution rights and the search for equity investors in the last of five seminars on "The Independent Vision" at this year's AFM in Santa Monica. Moderator Mike Simpson, Senior Vice-President and Co-Head of the Motion Picture Department at the William Morris Agency, addressed the one versus many picture question by asking panelists about the benefits of working with prolific producers. Guy East, founder of and currently a consultant for Majestic Films and Television International which co-financed production and handled international distribution of Kevin Costner's Dances with Wolves, Bruce Beresford's Driving Miss Daisy and Kenneth Branagh's Henry V, prefers to fund a production company with a small slate of pictures. He looks for a producer with a worthy project who is intent on attaching only those people who will help move the project forward and who is willing to take the always rough script and "polish the diamond." He continues to back such producers hoping they will be able to deliver more than just one picture.

Jorge Gallegos, President of American Film Services, Inc. and founder of FILMS Group, a company that has financed 43 films since 1991 as an international media, marketing and structuring arm of Banque Internationale a Luxembourg SA and Berliner Bank AG, stated the main advantage of working with a prolific producer "is the continuous supply of product that leads to more and more deals." As a banking institution, FILMS Group accepts collateral for loans in the form of discounted pre-sale contracts, equity loans based on a company's financial credibility, or collateral attached to any one picture. As "unexciting bankers," Gallegos claims that his company "doesn't want to get paid in film" and therefore "doesn't base any lending decisions on a subjective review of the quality of the script."

Michael Jay Solomon, Chairman and CEO of Solomon International Enterprises, a network of worldwide production and distribution companies, as well as broadcasting, satellite and cable program delivery services, prefers TV to movies. Solomon likes the TV biz better "because you can make much more money at much less risk." Television financing is deficit financing and Solomon says he has no problem providing 20% to 30% of a budget knowing he'll get his money back plus profits. He also likes the small screen better because he captures the rights to properties often for 20 years, inclusive of three sales cycles and thus three chances to turn profits. In film, Solomon stated that too often good scripts are victims of "poor execution."

Larry Kasanoff, Chairman and CEO of Threshold Entertainment, an interactive media company that develops, manages, produces and publishes intellectual property in all media, is currently exploiting a number of products related to its successful film Mortal Kombat. Previously as President and Co-founder of Lightstorm Entertainment, Kasanoff assembled a consortium of worldwide film and ancillary rights distributors who agreed to provide $500 million in financing for the company's films. Kasanoff says an output deal "is like a good marriage; it requires hard work and regardless of what's on paper, if people don't like each other, they get out of the relationship."

Prolific producer Steven Reuther, President and CEO of Douglas/Reuther Productions, took Kasanoff's cue and stated that "all financing roads lead to an examination of the type of relationship you have with your distributor because domestic theatrical releases drive the film market." Reuther admits he exerts a certain amount of influence because the studio knows he will deliver a number of pictures. For example, because the studio wants access to a Douglas/Reuther late 1996 release starring John Travolta and Nicholas Cage, it will likely assure that Reuther's summer, 1996 release The Ghost and the Darkness, directed by Michael Douglas, will be treated well with great screen access and good marketing. This means that a distributor interested in maintaining a profitable relationship with a prolific producer will use its relationships with self-interested exhibitors to make the best screens available to the big films without also insisting on additional screens for smaller projects from one-time-only producers. For this reason, East has no problem being honest with a distributor in trying to determine its level of commitment to the film. If one distributor is not that passionate about the film, East will take whatever time necessary to find a distributor who does demonstrate the requisite passion.

The two studio output deal recently structured by Icon Productions that guarantees four films for both Fox and Paramount was almost universally praised by the panelists. Reuther feels that a two distributor output deal is a great advantage to the producer because, as Kasanoff observed, a producer could "play one studio against the other" and "effectively eliminate" the unfair power balance existing between the parties under the terms of a producer's standard output deal with a single distributor. Reuther clarified that "of course, the margins of profit as a producer are higher if the project is self-financed" as long as the producer controls the rights to the work. Reuther also queried whether "perpetual" distribution rights are equal to ownership of the copyright. Kasanoff strongly believes that "film sales alone aren't good enough" to maintain acceptable profit margins. Therefore, he wants both copyrights and distribution rights because he looks at a movie "like an Eskimo looks at a whale" and is prepared to exploit each element in the bundle of rights a movie represents. For example, Threshold is currently making a sequel to the first Mortal Kombat album due to its great success and has profited from the film franchise in different areas of merchandising, music, video and electronic games and television programming. Agreeing that the copyright and not the distribution right is the greatest value, Solomon stated that he was going to buy a distribution company earlier in the year until he discovered that it owned only distribution rights and not the copyrights to an entire library of films. Reuther further explained an important reason why copyright retention is critical is that even films that are more than ten years old are still sold to TV markets every three years. According to Reuther, "movies generally don't make money in their initial lives" and that the long revenue collection stream is only made possible by copyright ownership.

The panelists also attempted to identify the whereabouts of the elusive creature known as the equity investor. East claimed that the entire film finance business rests upon relationships. Everyone needs equity: banks, investors, relatives. Fortunately for independent filmmakers who are willing to give up anything in order to secure financing, foreign buyers are beginning to seek equity stakes in companies. Kasanoff urged the audience to stop thinking solely of film production and begin to exploit other markets by thinking and looking for equity financing "outside of the theaters." Solomon revealed the catalyst for his avoidance of the business of film was a sole condition placed upon him when he accepted a $75 million equity investment in his company by a venture capital firm: "Don't go into the movie business."

Gallegos, whose American Film Services had invested heavily in Reny Harlin's Cutthroat Island believes high budget independent film financing is not likely to permanently disappear. With each big loss comes a few months of conservatism that rarely lasts. East believes that $15 million budgeted films will sell very well internationally as long as the movies are good. East believes such films are good bets because even if they perform poorly at the box office, investors would prefer to make four million dollars off a $15 million film than only one million dollars off a $60 million film. As examples of such success, East cited To Die For, Driving Miss Daisy, and The Piano. Reuther took issue with East's premise to the extent that it fails to recognize the difference between what budget level provides profits for studios and what budget level provides profits to the producer. Reuther explained that it is getting harder and harder to successfully open a picture and that prerequisites to success are not only a great movie, but tremendous attention focussed on the opening of the film. This phenomenon acts to remove middle budget range pictures from the marketplace each time an "event" film gets released. Middle range films thus have less time in theaters to recoup their not insubstantial production, prints and advertising costs, as well as other costs of distribution, all of which must be first obtained before overages (profits) payable to the producer appear.

For the remainder of the Market, the Internet Entertainment Network will profile an assortment of international distributors/sellers as well as buyers and bring you short takes on each of the five seminars at this year's market, each focusing on Realizing the Independent Vision; Strategies to Survive and Prosper in the Age of Mega-Mergers.

If you have any special requests for information from the market or would like us to profile any particular buyer or seller, please email us at producing@hollywoodnetwork.com

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