Thursday, January 16, 2014

You're Killing Me

Ted Hope posted about the poor state of indie film distribution, his frustration with deals that pay out so little that screw indie producers, and how he's decided to stop producing. This marks a turning point. I had to respond with this comment:
The main reason indie films have distribution problems has to do with compulsive behavior to take whatever deal you can get. [Distributor-Sales Agent] Lists are good, if they are vetted. There are a lot of unscrupulous players out there. And even with good distributors and sales agents, you have to hold out for the terms you want.
If indie filmmakers keep signing all rights deals, then that becomes the norm. If we give distributors 20% off the gross, or add P&A expenses first, then that becomes the norm. These things kill independent film.
I'm pretty sure that in any other industry, the manufacturer is paid a wholesale price for product. If it's not all sold there may be some return. But you don't see retail outlets deducting advertising costs from sales or taking 20% off the remainder sales gross before the manufacturer sees a dime. No manufacturer would agree to those terms. Why do we?
I'm pissed that the guy who produced 21 Grams doesn't want to produce more films, and because I
think it's the fault of most indie filmmakers who take bad deals. 

Every time a producer signs an all rights deal without a six month performance agreement, or with a back-end 20/80 split after unaccountable P&A (publicity and adverting). they are hurting all of our chances to make a sustainable living with film. Maybe filmmakers need more education.

It's just my opinion (see others here), but filmmakers should always retain rights. For example, sign limited rights for a limited period of time, such as six months for foreign territories (performance agreement), while retaining the right to separate domestic distribution, and direct website and digital. If a distributor can't get you a deal in six months you need to move on to someone else or do it yourself. Films age fast. Some are even more timely than others.

You need foresight when you write a screenplay or start a production. I started filming health care reform protests in 2009. I didn't know anything about health care reform. All I knew was that a lot of people were gathering in the streets to complain about it. And it was completely ignored by the news media.  If there's one thing I hate it's the news media ignoring people.  I will not be ignored.

Out there I learned through interviews what it was all about. My questions were as much for me as for my audience. I was amazed to find doctors and nurses out in the streets in these protests. They were (and are) besides themselves helplessly watching people suffer and die, for lack of health care, at the hands of insurance companies who make insurance unaffordable, or even deny claims when people do have insurance. The statistics are outrageous. 48,000 Americans die every year for lack of health care. This happens in no other industrialized country where health care is considered a human necessity, like food, water, police, fire protection, or the golden military. America ranks 37th in healthcare performance and 51st in healthcare fairness among other countries of the world. Cuba has a more fair system than America does. So this got me passionate enough to see through the making of a feature documentary over the next four years.

But the film was not marketable (as Maureen Cruise, my exec producer, notes here). You could assume that distributors did not want to promote a film counter to the healthcare industries (insurance, pharmaceuticals, cancer, hospitals, medical devices) that comprise one-sixth of the American economy (with a 30% overhead), despite the fact that 16 times the number of Americans killed in 9/11 are effectively killed by these industry lobbies every year. So when I was offered an all rights deal at a 40/60 back end split, if I would change the title of my film, my answer was no deal. They offered better terms. But I didn't like the company, nor three others as well. Never heard of them. No deal is better than a bad deal. Post that to your wall. So I decided I would stick to self distribution on my website and Amazon. Maybe I'll go up on Vimeo.

The point I'm making is that you can't take the first deal that comes along, nor the second, third, fourth, nor any, if they aren't good deals. However, most first time filmmakers jump at bad deals. It is almost unheard of to pay an indie filmmaker upfront for their hard work (especially without stars). In the indie world there are rare cases of the MG (minimum guarantee), which means a distributor will agree to pay a minimum amount of maybe $20K for example (usually a paltry sum like that), for the acquisition of your film. There are also rare cases of pre-sales, which means the distributor finds foreign territories that agree to pay a certain amount (usually totaling between 20% and the more unlikely 70% of your budget) for the acquisition of your film. I wouldn't mind some pre-sales and MGs if I could get them. Add 30% pre-sales to 30% in tax credits and you have funded 60% of your budget before the start of production. With that, you can likely easily find investors to back the rest of your budget. But you'll have to finance that 60%, because you don't get it all back until well after the film is finished. If your budget is under two to five million, you likely have to have private investors do that financing for you. A bank or bond company will not be interested otherwise. Regardless, you have to add around 10%-20% of the financed amount to your budget for interest, plus maybe 2% for a bond. That's the way to get a film financed. Also with pre-sales and a signed on distributor, assuming they are credible, you have built in distribution to your project before you even start. Then after production you move on to the next project instead of spending a year or two to find distribution deals or to self distribute. Nice work if you can get it.

If you can't get pre-sales or MGs, then you are left with the tax incentives (up to 30%) and the rest has to be from private investors. On a low budget film, that's doable. But without the MGs or pre-sales, you don't have skin in the game from any distributor. So I think it becomes more likely you'll see bad deal offers, which you should refuse, or revise the terms of. Of course, your investors may pressure you to take them, because of the false perception that having any distributor is lucrative. There are all kinds of distributors and all kinds of deals. Odds are you'll see nothing at all from them. It's likely you can do better to self distribute, especially with the advancement of internet digital distribution.

Self distribution can include self-theatrical (as with Tugg), and digital platforms like Fandor and Vimeo. There are others that you really need to have an aggregator for, like YouTube, Distrfy, Hulu, Roku, iTunes (which I think includes Vudu), and others. An aggregator is a digital distributor that does not deal with theatrical or other things that traditional distributors do, such as P&A.  Indie Rights is an aggregator (and production company) that will give you some great information even if you don't sign with them. They'll tell you where you can easily distribute on your own as opposed to where you need an aggregator. Distributors have to market your film, which is why they want a take, right off the top, to recoup their expenses. So you have to decide if their services are really worth you and your investors making nothing for you effort. But a lot of indie filmmakers and their investors are star-struck and will sign any deal they can get. Without MGs, pre-sales, or contracts that stipulate VOD, cable, TV or theatrical, distributors can take you for a ride. They can go to the aggregators and keep 20% plus the 20% they pay the aggregator as an expense, plus their possibly non-existent unaccountable P&A, leaving you with nothing. If you go direct to an aggregator, they take a straight 20%. But I would want to have some transparency in their accounting as well.

All these numbers vary by film and with time. Things change. A film with names may be more marketable and draw more interest. Splits and interest charges change. You have to talk to a working sales agent or aggregator that has the pulse of the industry to find out what your film can do, and you should do that before shooting one frame, and before booking one actor.  [More on this process information on Stacey Parks's FilmSpecific and Adam Cultraro's Million Dollar Blueprint]

When most filmmakers take bad deals from distributors they make it bad for all of us. It is now the norm to get an initial offer from a distributor for a 40/60 split after P&A or even nothing. In other words, it is now standard practice in the industry to take indie films from filmmakers for nothing in return.  The reason this happens is because indie filmmakers agree to these deals. We give away our films for free. Our $3 billion indie film industry makes a 2% profit because of our bad star-struck habits. Two years after you make that deal, you're frustrated with the business, bitching about festivals and how you can't get a deal, or if you get a deal, how you can't make any money, and so you quit and become an accountant or you make reality shows or you make wine. You're killing yourselves. You're killing the industry. You're killing me.

You may say, well that's the way the business is. If I don't take that bad deal, I won't get any deal. Good. No deal is better than a bad deal (Peter Broderick).  If no one takes bad deals, bad deals will cease to exist. If you keep taking bad deals then don't whine and moan about how bad the industry is, or how it's a boys club, or how the studios screw you over. They screw you because you agree to let them. Think before you sign. Research. Vett. Get an attorney. Where will you be in two years? Will you pay back your investors. Will you be able to say you made a profitable film? Will you be able to find funding for the next one? Will you spend two years at film markets selling instead of making movies?

Capitalism works by supply and demand. Wait for a good deal. Starve the supply. Create demand. The market can't sell films without films to sell. We see the markets manipulated. But as a filmmaker, you are part of it. You can agree or not agree to deals. The market is what we collectively make it. Every time a filmmaker makes a bad deal it hurts us all. It is better to make your film on the cheap with no intention of distribution or sales. If you need investors tell them, this will not be distributed. No money will result. At least then you are free to make your movie and it will add to your experience and repertoire. It will gain you some respect, colleagues, and contacts. It will be the making of a movie and not the selling of stuff at the market. What am I missing?

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