Tuesday, August 05, 2008

CHAPTER #45: FILM MARKETS (8/5/2008)

Chapter #45

“Foreign Sales”

Film festivals and film markets are like night and day. Festivals are about fluff and awards. Markets are about foreign sales. You go to a festival to win awards and attract a North American distributor. You go to a market to sell (proper word is “license”) your film around the world, nation-by-nation.

Festivals have reviewers and moviegoers, and under the surface, Acquisition Executives. Markets have buyers and sellers, and under the surface, Foreign Bankers. Where there are 300-600 film festivals/year, there are just 3-9 film markets/year, with each market having over 1,000 buyers and about 100 sellers in attendance.

To Hollywood the world is divided into two territories—(A) North America and (B) Foreign. And, where North America is comprised of America and Canada, Foreign is sub-divided into 30 nations (Japan, Italy, Thailand, Brazil, South Africa, etc) and 5 territories (Middle East, Scandinavia, East Africa, etc).

Each of the 30 nations and 5 territories has companies (theatrical distributors, cable networks, video/DVD distributors, etc) that make feature films, in their own language, for their nation but also buy (aka: license) the rights to American films, for their nation. Thus, each company sends a buyer(s) to a film market to look for American movies to bring back to their respective nation or territory.

There are 40-50 buyers (employees of film distributors, cable networks, broadcasters and video distributors) from Japan attending a film market. Plus, 40-50 buyers from Germany; 30-40 buyers from France; 15-20 buyers from Spain; 7-10 buyers from Portugal; etc. If you add up all the buyers, from the 30 nations and 5 territories, you will discover over 1,000 buyers.

The 100 sellers at a Film Market consist of 6-7 Mini-Major Distributors, 20-25 Independent Distributors, 25-30 companies that specialize in foreign sales (no North American distribution), 25-30 foreign distributors, and 10-15 filmmakers with a “Split Rights Deal”.

And what are you? You are a seller, with a “Split Rights Deal” and will either join the market to sell your film globally or license a distributor to do it for you.

Let’s talk a little bit about deal making. When you obtain a distributor (usually at a film festival), after how much-money-up-front, the second item you negotiate is what territory the distributor is acquiring the rights. It could either be:

If you get a distributor who purchases the World Rights of your film, then there is only one deal. However, if you get a distributor who only wants North American Rights, then you’ll get a second distributor for Foreign Rights. This becomes a Split Rights deal, in which you’re splitting the world into North America rights and Foreign rights.

Every year, there are three large film markets, spaced four months apart, lasting ten days each, which the 1,000 buyers attend. Thus, no matter when you finish your film, there is always a market coming up in the next couple of months.

The Big-Three markets are:
1. American Film Market (Winter, Santa Monica, California, 310-446-1000)
2. Cannes (Spring, Cannes, France, 33-1-4561-6600)
3. MIFED (Fall, Milan, Italy, 39-2-4801-2912)

The secondary markets, with foreign buyers in attendance, are:
4. IFFM (Spring, New York, 212-465-8200)
5. London Screenings (Fall, London, 44-181-948-5522)
6. Raindance (Fall, London, 44-207-287-3833)
7. Munich (Summer, Germany, 49-89-38-1904-0)
8. Berlin (Winter, Germany, 49-30-254-890)
9. MIP Asia (Fall, Hong Kong, 33-1-4190-4400)

The secondary markets are hybrids, part festival and part market. They are festivals in that they screen films and dispense awards. They are markets in that foreign buyers attend in search of product. Cannes is also a hybrid in that it is both a festival and a market.

You’ve been excited about going to Cannes, getting a $15 cappuccino and participating in the glitz and glamour of this seaside resort. Did you know that the same 1,000 buyers and 100 sellers attend the AFM (American Film Market) in Santa Monica, CA, where just as much money changes hands and a cappuccino only costs $5? Why go to France, when you can save money, hang out with stars and get a tan in sunny California?

The AFM takes place at the Sheraton Loews Hotel in Santa Monica over the last week of February and the first week of March. It is free to anyone. Have a valet park your car (please make a grand entrance), enter the hotel’s courtyard, dress in black and gray, stroll to the pool, saunter to a chaise longue, order a cappuccino (big tips impress) and have yourself paged for the remainder of the day. (SECRET) All the sleazeballs in the film industry hang out in film markets’ hotel lobbies.

When you attend a market, you’ll notice that the Big-8 (Warner Bros, Paramount, MCA/Universal, Sony, Disney, 20th Century Fox, Dreamworks/SKG and MGM/UA) are not there. They don’t have to be. Warner Brothers is so large that it has an office in Berlin to distribute its films in Germany. Likewise an office in Tokyo, in Sydney, in Johannesburg, in Buenos Aires, in Rome, in Bombay, etc. The major distributors are so large that they distribute their films globally themselves, nation-by-nation.

However, the Mini-Majors, which are large North American distributors like Miramax and New Line don’t have offices in foreign nations. They attend a market and sell the rights to their films to a foreign distributor (buyer) in each nation. Thus, the Mini-Majors and the Independent and Exploitation Distributors, who likewise have no foreign offices, band together for ten days, rent a hotel and hold a market.

During the market, each of the distributors (now called foreign sales agents) books a room or suite in the hotel and uses it as a temporary sales office (take out the beds and replace them with large, HDTV monitors and a small buffet) and plasters the room with posters of his films for sale. The foreign sales agent then stands at his hotel room’s door, waiting to collar any foreign buyer walking through the halls. “Come on in. Let me show you what I have.” The potential German or Korean buyer walks in, the seller plucks a tape into the VCR, screens a trailer and peddles.

IMPORTANT POINT: If you want to license your film to a foreign country, join the next market, rent a hotel room and/or exhibit booth and sell. Anyone can join if you write a check.

To join AFM, as a seller, costs $15,000. Then you rent a hotel room ($250-$2,000/day) for 10 days; rent monitors and VCRs ($3,000); provide a daily buffet ($2,000-$5,000); design and print posters ($3,000-$5,000); take out ads in the trades ($5,000-$20,000); book screening time ($1,000) and throw a posh party ($10,000-$100,000).

In the hotel room, if the foreign buyer wants to purchase the rights to your film for his nation for a small amount of money, then the buyer is satisfied with viewing only a couple of minutes of the film on tape. However, if you want a large sale from that buyer, he’ll want to see the entire film projected in a movie theater.

When the big markets take place, the local cinemas in Santa Monica, Cannes and Milan are closed off to the general public and are made available only to market members for screenings to foreign buyers. You could have a screening, on the second or third day of the market, in a theater that seats 400 people, for 5 or 6 people --a German buyer, a French buyer, a Mexican buyer, a Korean buyer, a South African buyer, and a Brazilian buyer. Remember, they are not in competition with each other.

Then, after the screening, you and your salesman immediately turn to each buyer, and try to close the sale. If they buy, you sign a contract giving them the exclusive right to exploit your film in their nation or territory for a period of four-ten years --Remember, there are 30 nations and 5 territories for a total of 35 potential sales.

What do you do once you’ve made a sale? Paperwork. Lots of paperwork! Let’s say you are successful and made 20 sales at either AFM, Cannes or MIFED for a total of $4,000,000. You are now in the import-export business. Each buyer is afraid that if he just gives you a check, you may never send him a print (second generation negative) with a M&E track.

Therefore, the buyer only gives you a 20% down payment with the signed contract. Then upon returning to his country, deposits the remaining 80% into a bank escrow account, or establishes a Letter of Credit (LC), with instructions to release the money into your bank account when your second generation negative and M&E track clears customs in his nation. This entails a lot of paperwork.

Do you really want to handle your own foreign sales? It’s expensive to join a market. Plus, you must be an excellent salesman. And, if successful, you’ll deal with a ton of contracts and international banks during the collection process.

The second, and simpler way to sell your film’s foreign rights, is to make just one sale to a distributor who specializes in the foreign market, and walk away. To do this, rent a screening room ($75-$200/hour) in New York or Los Angeles one month before the market and have the distributors, who specialize in foreign sales, look at your film. After the screening, they will be polite and tell you they’ll “run-the-numbers” and get back to you. Here is what “run-the-numbers” means.

The Acquisition Executive, now acting as a foreign sales agent, asks his fellow employee who handles European sales, “If I pick up this film, what can you get from England? From France? From Germany? From Spain? From Portugal? From Greece? From Turkey? From Scandinavia?” And so on. He asks his Asian salesman, “What can you get from Japan? From Taiwan? From Korea? From Singapore? From Australia? From the Philippines? From China? ....” He asks his South American and African salesmen the same questions. They run-the-numbers.

Let’s say they run-the-numbers on the 30 nations and 5 territories and tally $4,000,000. The distributor, feeling comfortable that if he buys your film’s foreign rights for 50% of the $4,000,000 his salesmen will generate a healthy profit and he’ll probably offer you $2,000,000. If this happens, take the check and walk away.

The third way to sell foreign rights is when a foreign sales distributor runs-the-numbers and is not comfortable with the projected sales. However, if he knows your film has been accepted at a popular festival (Sundance, Toronto, Telluride), where it’ll get critical acclaim and exposure, he’ll offer you a commission deal. He’ll represent your film at the market and get a commission (30%-40%) from each sale. Sometimes it is actually more lucrative to take a commission deal, rather than a one-shot cash sale.

So, there are three ways of selling at a film market. First, join the market and sell your film yourself. This is expensive, but if you succeed you will be wealthy and return to the market the following year with a slate of 7-10 films. The second way is to screen your film for foreign sales agents, who run-the-numbers and give you a cash offer (a single check), and walk away. Third, and most common, is to get a foreign sales agent, who represents your film at film markets on a commission deal.

What you have discovered with the last two chapters is that Film Festivals and Film Markets have nothing in common. Film Festivals are about awards and securing a distributor for a North American Distribution deal and Film Markets are about licensing your film around the world. Next, to further put together the film business puzzle for you, let’s take a deeper look into the distribution deal and discover what “windows” are.

1. Call AFM and get a list of its member companies.
2. Name the top 7 nations, with their buyers, that you’ll sell to