Why the Credit Crunch has been good news for indy filmmakers

The banks aren’t lending, the Film Council has been scrapped, the Regional Screen Agencies will be no more, replaced instead with generic creative industries quango’s. The financial markets have been burnt and retreated back into their core business – and their core business is not film investment.

What does that mean for us as independent filmmakers and the wider filmmaking community?

The biggest aspect for the film market is that on the lending side we are dealing with tight credit and that could be for a good five years. Five years of tight credit changes the way everything works.

It changes for the better.

If you look at the years immediately prior to the crash – 2005-2008 –  the amount of films that were released in the US each weekend were 6 or 7 major new releases – how does a market sustain that level? There was a film for every age group, for every taste. Just as the viewing figures for TV have declined with the proliferation of channels, so the grosses for movies declined with the level of supply. It’s been getting harder and harder to gross big money – £75m and up – on a picture. It’s been getting harder and harder to gross good money on the vital opening weekend. The reason for this was too many films in the market place, and that was a direct result of too much capital in the system looking for a home.

The industry just couldn’t handle that level of production. One good thing of the lack of capital is the contraction of film supply and that has to be a positive. We are also seeing some declines in the cost of talent. All the oversupply meant trying to correlate the cost of product – given the increase in budgets alongside what the buyer thinks it’s worth. In a competitive environment the cost of talent therefore inevitably rises, with the lack of liquidity and the resulting lack of competition, costs fall.

Another way in which the financial crisis effects everything is the structural nature of the major studio producers. The Hollywood studios are not stand-alone companies, they are part of huge multi-national media conglomerates. The problem at the parent level of these companies is such that they have to be aware of all the divisions of the company – TV, cable, other entertainment outlets. In contrast to purely movie companies, these conglomerates had to scale back all their operations, all the capital budgets got scaled back.

So they looked at the movie division and said we want you to make more movies with partners or we want you to make the same movie but on a lower budget, we want money passed back to us so we can support the rest of the group. All this happened at the parent level and was then passed down to the motion picture unit. They therefore made fewer movies and were more cautious with the spend they did make.

People often ask why studios don’t compete at the lower end of the budget scale especially when these films can be so much more profitable, even taking into account marketing, these films can have a much higher profit contribution than bigger budget films

Independent producers can work on smaller resources, develop projects over longer periods, get the script right and consider the profitability in terms of much smaller numbers.

The studios however, have to consider more than profitability. They have to think about their share of the box office, vital for their relationship with exhibitors and to continue to operate businesses of scale efficiently. When you’re an indy producer with a single film the better bet is the lower end of the scale and you don’t have those kind of concerns.

As indy producers however, we have to think much broader now than simply the movie itself.

You used to be able to sell a smaller budget film with the premise, that it had a great actor, a good director and it wasn’t that expensive anyway so just buy it. It was a labour of love. Now it’s a case of well, how’s going to open, where is the P+A coming from, is it targeted, what if it gets lost in video? All of  that gets factored into the pricing of movies and inevitably means less for the independent producer.

As a producer you have to think carefully about what you’re making and what it costs, what’s included in the budget, who’s going to buy it and for how much. These are all questions that we should be asking ourselves all the time but maybe in the last few years it got too easy. Now we have to work for it. What does the audience want? Is there a market? We always said we want to tell a story or I love this actor but not the hard commercial planning that most other industries take for granted. Well now we have no choice. If we want to make movies the get seen, have some kind of longevity and consequently make money, we have to think like every other business has to.

However, it’s not as bad as it seems. We are now seeing the benefits of all this correction. We are seeing the market for films swinging back to filmmakers.

Rather than 6 or 7 movies a weekend,  we’re getting 2 movies. That means grosses going back up and spends will make sense again. We’ll also get longer runs of audience attendance. We’ve had movies opening every weekend and competing for the same audience segment, so unless you made it on the first weekend you were struggling. Hopefully now we’ll get 2 or 3 weekends where a movie has a chance to gross and get a good audience attendance. That’s not just true for the majors but for small producers as well and that can only be a good thing.

That opens up some real possibilities for smaller independent producers to get their films seen theatrically and therefore develop the required long tail. But operating under tighter margins, indy producers are committing to better quality films made on more sensible budgets. They are also allowing time to find the right deal without resorting to the sense of panic to sign a deal that characterised the crazy years.

One key driver of this has been the amount of business being done at the major festivals. 2010 saw a return to some modest dealmaking at Toronto and Sundance. This has linked well to the appearance of some new or resurgent distribution entities focussed of independent pictures – ATO Pictures, Wrekin Hill, The Weinstein Co. Relativity Media and Liddell Entertainment. 2011 promises to be better still.

There is always going to be money coming into the system to make movies. Whether it be hedge or insurance or whatever. The next bunch of money will come into the business, we just need to have a tight business with a plan that makes sense. If you can show value and if you can make money – people will invest. The key now for indy producers is to build the next sustainable model for low budget film production. How much and in what form the kind of centralised government investment in film we’ve been used to over the last few years will now take, no-one really knows.

To some extent we have to move on from the crutch of Film Council subsidy and create a truly dynamic, profitable and sustainable industry that we all want.

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