With challenge comes opportunity.

Execs seek opportunity in challenges
By DIANE GARRETT
With challenge comes opportunity.

That was the mantra at Variety's Future of Film Summit in Santa Monica on Tuesday. Panelist after panelist invoked the aphorism in between talk of broken business models and the need to trim costs accordingly.

"We are in the middle of a seismic revolution, not evolution, in the film business," said Paula Wagner, now an indie producer with Chestnut Ridge Prods., during her keynote conversation with Variety prexy Neil Stiles.

Wagner stressed the need to rein in development and marketing costs to adjust to the new realities of distribution. "We're in that place that we knew was coming," she said of the technological changes transforming Hollywood.

She said mid-tier movies have an especially tough time breaking through the clutter of entertainment choices and therefore require sizable marketing expenditures. "If it's not a brand or franchise, youmight be spending as much if not more on marketing," she said.

"The economic model isn't changing fast enough to enable movies to be made across the broader spectrum," concurred Morgan Creek Prods. chief operating officer and co-chairman Rick Nicita in the game changers panel later in the morning. The exec, a longtime agent and spouse of Wagner, observed that smaller movies and bigger tentpoles have been able to succeed in this climate, but "movie economics have malfunctioned in the middle."

The problem, he said, is that it's impossible to quantify marketing campaigns. There's no way to tell whether extra coin poured into marketing made the difference. When in doubt, studios do not cut marketing budgets, he observed; they make them bigger. "It's fear," he said. "CYA -- cover your ass."

Nicita, who nonetheless remains committed to mid-tier films, predicted that there soon would be an all-platform day-and-date release of a major title. Comcast's acquisition of NBC Universal should speed that up, he added.

IFC exec veep Lisa Schwartz noted that there was a lot of resistance to the company's day-and-date strategy when it began releasing movies on multiple platforms simultaneously four years ago, but filmmakers have grown more accepting. The company distributed more than 200 pics, many of them with smaller budgets, last year over its various platforms. Five of them ­ -- including "Che," "Gomorra" and "In the Loop" -- generated more than $1 million at the box office.

"Four years ago we saw things were changing and frankly were a little broken on that sort of film," Schwartz said.

The problem with simultaneous VOD, however, is that many investors and filmmakers still insist on a theatrical release as an indication of quality. And major exhibitors resist such simultaneous releases.

Schwartz's co-panelist Oren Peli admitted he refused VOD and home entertainment distribution offers because he believed in the theatrical potential of "Paranormal Activity," a movie that cost him $15,000 to make.

"After I saw how the movie played on bigscreen at festivals, I rejected those offers," said the writer-director, who's now busy on his second movie, "Area 51." "We pushed really hard to get a theatrical release."

Peli naturally felt vindicated since his movie, once slated as a direct-to-video release, has made more than $100 million at the domestic B.O.

Panelists outlined a chicken-or-egg scenario with financing and domestic distribution. Without domestic distribution, it's difficult to get financing, but financiers want to know that the project has that distribution before they fork out coin.

"Without having that domestic guarantee, you have a lot of questions," said Rena Ronson, co-head of UTA's independent film group at the afternoon session on overseas markets.

"The biggest challenge right now is the domestic theatrical piece, which has become a really empty, funky place," said Groundswell Prods. founder and CEO Michael London in the finance session.

Bill Block, founder and CEO of QED Intl., noted there are 25-30 big projects now in production with major movie stars that don't have domestic distribution. He said the indie community is rooting for Bob Berney's Apparition Films and Mark Gill's Film Department to pick up some of the slack now that studios have scaled back their specialty arms.

The key to survival, Block reiterated, is to cut those costs.

"If there's any path for all of us, it's bringing those costs down," Block said. "The revenue has come down. That's OK. We'll bring costs down."

In case of "District 9," he points out, Weta did not do the special effects even though the project was backed by Peter Jackson. "It was too expensive."

He said that producers must "give talent a fair shake with a real transparent backend. We need to find our way to a better model that rewards today's box office performance."

Adding to the financial pressure: Foreign coin has dried up due to the economy and shift toward local productions. According to Stuart Ford, founder and CEO of IM Global, international coin that once would have made up 40%-50% of box office now accounts for 10% "on all but the most slamdunk commercial movies."

"I think for the last five years there were a lot of free lunches," said Ashok Amritraj, chair and CEO of Hyde Park Entertainment, alluding to Wall Street coin that pumped biz coffers for a spell. "But that has stopped."

He said international companies are afraid to step up with "stupid money." And they've gotten choosier about which projects they will buy in pre-sales.

"We would like foreign companies to come in," he said. "We love it when a 'Twilight' happens, because it keeps the foreign guys happy and in business."

The good news, panelists said, is that agents and talent have become more aware of how different the environment is today and have reduced expectations accordingly. The growth of VOD domestically and internationally was also cited as an encouraging sign by financiers.

"The toughest moment was six to eight months ago, when there was a lot of denial about what was going on out there," London said. "Now there are a lot of green shoots out there."

London said indie producers and financiers are "all scrambling to find out what whether the answers lie in VOD or home entertainment."

"As all that happens, the movie business will move back to much more rational process," he said. "Audiences are still really hungry for good movies," he said.

Separate panels touted technological advances in 3D and home entertainment delivery as other developments that will energize the business.

The 3D format "provides us an opportunity to reinvigorate the experience in the theater," said Ed Leonard, chief technology officer of DreamWorks Animation. "3D done well is an incredible tool for our creative teams -- not as a gimmick, but as a vehicle to really pull you into the story."

(Cynthia Littleton contributed to this report.)

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http://www.variety.com/article/VR1118012437.html