MAY 2009





Photo of Greg S. Bernstein



In his annual article for The Business of Film during the Cannes Film Festival, Greg S. Bernstein looks at the impact of the recession on the indie film industry.

Greg S. Bernstein

They say the film business is recession proof, but they certainly never considered anything like the current recession, nor thinking about indie films. While the studio box office is increasing, all is not good for film.

 As we hear on the news, US box office is up this year. But that is misleading, especially for indie films.   Most pundits point to this increase in box office as historical in recessions, as with more people going to the theater to escape their worries.  They then conclude that the film business fairs in tough times. But if that is the case, why then are all the studios cutting back on their film production, closing divisions and letting staff go?  Why then are indie films not selling, even at deep discount prices? And why is it that the financing for indie films has dried up, if films are such a good investment in tough times?

 Most of us forget that box office today only amounts to a little more than 20% of a studio film’s gross revenue, and accounts for a substantial net loss when you weigh the share of box office the distributor receives to the releasing costs. Theatrical, for the most part, is a losing venture, and has become just a big promotion for DVD and other distribution streams.  For most indie films, theatrical is generally even a smaller portion of total revenues.   Statistically, only a handful of indie films released each year have any level of theatrical success. And the roster of potential theatrical distributors of indie film has shrunk significantly in the past year, making it even harder to even get a decent theatrical release.  Not only have the studios cut their releases slates and pretty much stopped buying indie films, they have also closed or reduced the operations of their indie film divisions.  Further, many of our favorite indie boutiques have closed are rumored to be close to closing. 

 But if theatrical is up for the studios, should not other revenues? Not quite.  For the studios, video has been the largest revenue, and profit, generator, accounting for more than 50% of average revenue.  Yet while studio box office has been growing, DVD sales are down substantially in this year, with consumers deciding to forgo that luxury in these tough times (while rental is up, not all rental is shared with the distributors, and as far as film revenue goes, it’s not up enough to make up the decline in DVD sales).   We have seen Blockbuster rumored to be close to bankruptcy, and many retailers and distributors of videos around the world closing or going bankrupt; with those closures and bankruptcies having a ripple effect up the film distribution food chain.

 TV, which on many indie films account for a disproportionate share of indie film revenue, has been hit the hardest.  Most TV is ad supported, whether basic cable or broadcast. Even much of today’s internet based programming is ad supported.  When there is a recession, one of the first things a company starts to cut is its marketing budget.  And that means not buying as many TV ads.  If the TV networks are not earning as much in revenues, they start to cut back on their programming acquisitions (pay less for what they do buy, and buy a lot less, rerunning programs that they already have under license to save money).  And that has been the case worldwide. Ad revenues are down significantly.  And so too is program (film) buying. 

 If selling your indie film was not bad enough, getting it made (financed) is harder than ever.  Equity, bank financing and soft money have been the key components to indie film financing the past few years, and all are suffering from the recession.  Many banks have closed their film lending divisions, not necessarily because they were unprofitable or had big losses, but because lending on film appears risky to management, and when it comes to trimming costs, since the film lending divisions tend to be a very small component of a bank’s operations, it’s an easy one to cut.  Even those lenders that retained their film lending practices have, as banks have overall, cut their lending out of caution. Very few banks are doing any gap, and many have not made many, or in some case any, traditional presale loans over the past 6-9 months.

 Many states and other governmental agencies have had their budgets slashed as tax revenues have fallen, resulting in no funding, reduced funding or freezing of the film production incentive programs. And with investors having lost fortunes in the stock and real estate markets, they are no longer willing to risk their capital, if they still have it, on film.

 And what if you are able to pull the financing together, will the film markets be better in six months or a year? Assuming the economy rebounds in late 2009 or early 2010 as anticipated, with so many films currently in the market now vying for sales, the excess supply is not likely to dissipate in the short run, so while demand might increase, the supply will keep prices low for the foreseeable future.  Generally, it would take 6 months to a year of good demand for product before prices start to rise.  So that means we could be looking at Fall 2010 or Spring 2011 for any significant change in indie film sales.

 So what does an indie producer do? Close shop?  You could not call yourself an indie producer if you took that attitude.  Indie producers are resilient, patient, and determined.  The current market may mean putting aside that passion project for the time being, sucking up that ego about your film going “theatrical,” and going back to bread and butter productions.  With the theatrical market limited and DVD retrenching, the only current active (relatively safe) area is original programming for TV (telefilms commissioned , not bought after the fact as a finished film).  Most of the cable and broadcast networks in the US and Europe are still commissioning original movies, albeit with producers that they have worked with in the past, and a little tighter on how much they will spend.  By keeping the deficit down, making use of production incentives to further reduce net cost, and partnering on a co-production, official or not, to cover most, if not all the cost of production is the current formula. It’s not very exciting, a lot of work to pull it altogether, and there is not much profit in films like this, but at least it will keep the lights on till the storm blows over.    



Reprinted with permission by The Business of Film

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