Note: All comments by the hosts and panelists are paraphrased and not verbatim unless indicated by quotations.

What is the long-term vision of the business from the point of view of the indies, especially those who are associated with major studios but still want to release independently? While the studios concentrate on event films - the summer of 1997 will see 16 $100 million+ budgeted studio films released - what is the outlook for indie distribution?

Panelists:

Mark Damon (Chairman & CEO MDP Worldwide) Damon, who has produced and distributed over 250 films overseas, began his comments with "I'm going back to acting!" (he began his movie career in Hollywood and Rome over 20 years ago). Damon recently produced LIAR on a relatively low budget, and has a small part in the film. He says the script is "brilliant.". Once he attached Tim Roth, it helped sell the picture. He attracted other important talent, with the directing team of the Pate brothers (THE GRADE), Chris Penn, Ellen Burstyn, and Rosanna Arquette. He presold the budget of the picture overseas, and the picture got a green light when MDP had to sign a pay or play deal for Tim Roth. Damon says he always looks at worst case scenario in domestic marketplace, and concentrates on the foreign marketplace. BUT, banks need colateral and they want to see U.S. domestic distribution. Producers have to cash flow while waiting for a production loan - this can be a problem. We can cash flow which is why producers work with us. We've been involved in big budget pictures and had home runs but also lots of home runs making indie films. Dark films are not doing what they used to, the future is for happy pictures - romance, comedies, family stories. Difficult to pre-sell unless major stars are attached. We only have about 6 buyers in the domestic marketplace but they won't pickup in prebuys because they want footage + stars. We merged with OSSG (stock symbol), a special purpose acquisition company (involved in insurance and finance industry). One provision for raising money is that the money must be returned if the shareholders do not approve. It's a fairly secure blind pool arrangment. $3-$7m is safe budget range for us. JUNGLE BOOK II cost us $10 and looks as good as $30 m movie would. $10m of title is pre-sold. We are now producing TOM THUMB.

William Lishak. COO & CFO Overseas Filmgroup Overseas started as a foreign sales company in 1980 and later expanded to the financing of films through pre-sales with established credit lines for financing and production. Overseas then created its domestic releasing arm with First Look Pictures. Two weeks ago, Overseas became a public co. "We operate in both the domestic and foreign arenas on small scale compared to studios. Our success is with art house films - SCENT OF GREEN PAPAYA, ANTONIA'S LINE, SECRET OF ROAN INISH. We like to work with resourceful producers. There are distributors who will take equity positions in films. Some govt subsidy programs, UK lottery, other $ for investing in industry. Some private money is invested in entertainment industry. Trend fo building of theaters should give opportunities to indies. Find creative ways to get value, cooperation. Our budget range can be from below $1 million to $6 million. We are involved with a $15 million picture now. It costs about $300-$400,000 to open a film in NY. We spent about $2 million to open SECRETS OF ROAN INISH.

Randolph Pitts CEO of Lumiere Lumiere, whose principals are Jean and Lila Cazes, started as a European prod company, then added a library, and expanded to a production/finance company with offices also in Los Angeles. Lumiere looks to its past to see what has worked, then looks at the market to see where the holes are. Lumiere has focused on niche market films - urban, young, or educated audiences - many films released in the U.S. specialty market where British and foreign films used to dominate. But now, lots of niche market films crash and burn. So studio and higher budget films are in development. The key to our business is foreign sales, pre-sales and 60/40 or 50/50 financing. $5-$8 mill and films up to $30 are what we are developing to produce now. We are not domestic distributors. MGM spent a lot on p and a for LEAVING LAS VEGAS. "I see a crunch coming in indie market because of p & a costs."

Russell Schwartz, President Gramercy Pictures Gramercy Pictures, a domestic distribution company (I'M NOT RAPPOPORT, PORTRAIT OF A LADY) is wholly- owned by Polygram. Polygram, a European company , has been aggressively pursuing its place in the global film entertainment business. Polygram may create another distribution entity for films with titles costing over $50 million. In the fall of 1997, THE GAME, starring Michael Douglas will be released. Polygram has distribution of films in 6 markets around the world. The international market is lucrative not only because of more and more screens, but normal studio release is now broader in terms of number of screens. There is a Euro screen boom and Euro audiences are going back to the movies, all theaters upgraded as has happened in U.S. The studios have been focusing on summer and Christmas, they are now encroaching on our turf of the mid-May and Thanksgiving slots. Our films do well on their own, but there is no such thing as a clean clear weekend anymore. It's about creating awareness. A few years ago good reviews and word of mouth could get an audience, today smaller films fade because they need p and a to support them. The indies may make films for less cost but the cost of media is same for the indies as it is for the studios. It's all about creating awareness. If subject matter is of limited appeal, do it for low budget to make financial sense.

Robert Simonds, Producer of Comedy Films Bob Simonds, who developed and produced his first film, PROBLEM CHILD, at the age of 26, sticks to what he likes and does best, making low budget high concept comedies for the majors. "I stumbled into this and it seems there is a heyday for these $10-$12 million budgeted comedies now, and I have deals all over town." With comedy it doesn't have to cost a lot to make people laugh, I believe a joke (my movies) can compete with special effects (movies). The studios can't get hurt with these comedies, they are huge profit centers." These films are huge in domestic video, they don't do well in foreign theatrical or video. Foreign is not the issue. Strategy is don't be an independent. With HAPPY GILMORE the video distribution paid budget of film + p and a. "Everything I do is sold with poster first." "Give me $10 million, you can't lose on your first week of opening the film." Simonds' most recent productions are LEAVE IT TO BEAVER for Universal, and THAT DARN CAT for Disney.

By 1997 international distribution will represent the largest revenue streams for the motion picture industry, a pattern which will probably continue for the forseeable future. We assume DVD will be incremental to home video domestically, ditto pay per view. Which international markets are poised for the biggest growth?

Panelists:

Chris Arpas, President, Scott Free Productions, Los Angeles, (formerly Head of Acquisitions of Disney, Island ) The Scott Free Productions business plan includes producing 1-5 movies per year in the $5-$15 million range, and one TV series per year. The company principals, brothers Ridley and Tony Scott, who are British film directors, would each direct 1-2 movies per year. Arpas said that there is an apparent increase in the demand of movies abroad, that this represents a huge untapped theatrical market - it has been largely fueled by the privatization of European TV. Arpas added that he believes the American motion picture will always be in demand because it cannot be duplicated. He looks to the record business model as an example of success in which distribution is a monolith of marketing. His goal is to build a library of product the company believes in. Arpas is also outsourcing, working with other partners. Scott Free is presently structuring a co-venture financing arrangement with Guy East's new company Intermedia, and it has distribution deals in North and South America for its product with Disney.

Jeff Dowd, Producer's Representative (and producer of FERN GULLY, ZEBRAHEAD). In the introduction, audience told Dowd has raised around $26 million for indie pictures. Dowd said he feels it is an optimistic time for indies even though tough things are happening simultaneously. For example, there are over 800 submissions for Sundance, and only 40 films will be played. So several hundred films are sitting out there without distribution. We are in the business of selling emotions, we are in word-of-mouth business. Video business in near depression now. We must underline need for good story which attracts cast, which makes project meaningful for foreign pre-sales, etc.

Robert "Chip" Harris, SVP International Business Development AMC International. (Harris previously worked for Carlteton Brown a diversified national trust, and as a consultant for AMC). Internationally, our focus is Asia. We've been in and out of Europe since 1986 when we built a multiplex in the UK. Japan is a sophisticated market, we built theaters there 4 years ago, movies are about the 20th favorite activity for the Japanese. Taiwan and S Korea have sophisticated audiences. 200 million admissions last year in each country, we want to double amount. Portugal, Spain, and Italy appeal to us. France difficult for us. Not opening 8-10 plexes anymore, we're opening largest plexes for future. 16 screens and above are much more profitable for us. Public just gets to theater and can decide there where to go. Japan in 1962 standards, opened in Kyushu island, 6th largest city, with one theater and it jumped to no. 3. Convenience, cleanliness, and service are the things all Asians want. 1700 yen, $16 is average ticket price. We tried to lower prices to 1000 yen on weekdays at certain times and the Japanese come, they are price sensitive. There are three genres which sell well in Asia - action, action, action. American comedies very tough to release, but the Japanese do like to watch romances. Europeans do well with thrillers as opposed to action with thought.

William Shields, President, Dove International and Chairman of the American Film Export Association. (formerly President of New World Entertainment). There is an increased demand for product today BUT the marketplace wants certain kinds of product, particularly films with casts of known names. The German and French markets are expanding. The marketplace is expanding in all regions of the world legally and illegally. The demand will increase the profitablility potential. From a commercial standpoint the American influence in film is most important. No one wants to pre-sell or pre-buy a small film, it is easier with a bigger film. A film with a budget between $8-$30 million can pre-sell with the right cast and with a director who has a strong track record. $4-$12 m presales average. Doing homework is the best way to get any film made. The expansion and upgrading of theaters around the world has really made a difference.

How do bankers feel about what the studios and indies are saying about budgets?

John Miller, Managing Director, Chase Securities. The good news - Chase Securities has serviced the entertainment business for 27 yrs and today it is stronger than ever. The bad news - the economics of the film business are tough. There are barriers to entry. Our program for gap financing is basic - an insurance policy which protects the back end. Made deal with Phoenix Entertainment for delivery of 60% of pix - at end of 3 yrs if debt not paid, insurance policy paid. The policy is for performance. Phoenix will hold 40% of equity capital at the end of the day. Phoenix has a distribution arrangement with Sony with revenue sharing and first dollar gross. Mike Medavoy is sharing in the front end.

The bank is responsive to new deals. And the bank works with films of different budget size - $2 m, $12 million, etc. Generally finance a package of films, rarely finance a single picture because the insurance company is looking to cross-collateralize. Insurance is a last resort, it gives the bank an alternative. Equity required today increased so significantly in 10 years. Business plans require so much capital in order to execute them. Need lots of $$ to stay in business. Economics of entertainment buisness in eqiuty are very tough. Chase is also bank for Trimark, New Regency and has been a co-agent on a Disney deal, worked on a big DreamWorks transaction, and with New Line, All American and Hallmark (the Halmis). All these companies have different business plans, we try to come up with structures that protect the bank but sometimes we can't.

Russell Goldsmith, Chairman & CEO, City National Bank. (Goldsmith, previously resurrected Republic Pictures. As Kagan says, it's an example of how an old company could become a force in film and distribution business).

City National Bank has been in the entertainment business for 42 years and has made $ every year. Banks understand they are not entertainment companies. Banks do not read scripts. City National does some single picture financing. Our credit limits are smaller than those of Chase. Gap is not a bridge, gap can have holes in it, this is my cautionary note for banks. The success of the bank in the industry is built on relationships. Bank involved with every significant talent agent, attorney, below-the-line talent, everyone. What is criteria of bank in deciding which projects to finance? Bank looking at how it will get money back. Cost of movie ticket for SHINE or RAMSON is the same. Nature of pricing and radical escalation of production costs, distort what the independent can do or achieve.

Teckla Morgan, EVP & CPP, Cinema Completions International Banks require in 99% of cases, a completion bond for the company. If there is no gap financing, the bond insures the picture is completed and delivered, and will be distributed according to the specs (actor, director, etc in distribution contract). Bank is our client. You producer, at the end of day, you will produce in accordance and deliver according to specs and write checks in accordance to specs. We make bank whole if distributor does not pay at the end of day. Punishment for us being wrong, is that we pay at end of day. Which is why you have to document the representations you make to us. We have to make sure that everything works at the end of the day.

Morgan Rector, SVP Entertainment, Imperial Bank Entertainment Industries Group $1 million to $20 million average budgets for lending. Portfolio between working capital for companies with lots of films, to single film financing. Financing on one off basis, $5 million budget has to have $5 million contracts and buy insurance. Gap financing is where $3 m in contracts for $5 million budget, sufficient usold rights will come up to an amount over the budget. It's a safe business to lend only if sticking to practical, sound banking formulas on each deal..

Irene Speiser, SVP and Manager Entertianment Division, Silicon Valley Bank Started entertainment division this year. Single picture financing for films in the $1 to $10 million range. Two kinds of money, debt and equity. Not our job to be on creative side, but reality is you take box office risk even with estimates from sales agents. Is the film performing at the end of the day ? Getting a return for a producer is hard, most important is to build human capital and get their film made so sometimes their fee is deferred, until all is paid.

In conclusion:

Paul Kagan and his colleagues kept the discussions and interchanges on track. If you were already familiar with the topics, the observations and anecdotes of the speakers were worth hearing, reinforcing or contradicting your own theories and experiences. If the subjects were new, you could walk away with a better overview. All in all, a well-planned and produced event.

Note: Every Tuesday morning you can read Kagan's Movie Tracking report on the Internet at PKBaseline.com.