17 Nov Film Fund-amentals: The Chaos of Opportunity

That dang glass always seems to be either half-empty or half-full. According to last Monday’s edition of The New York Times, now is a marvelous moment for investing into the movie industry. Well, sort of. Actually, the news article is invoking a very precise type of investor (ideally the millionaire/billionaire type of guy), preferably with no experience in the business whatsoever, and a deep desire to blow money that has otherwise been burning a hole in their pocket.

Admittedly, this flies in the face of conventional wisdom (though this appears to be a young century in which both “conventional” and “wisdom” are somewhat lacking in their common application). The fact that many of these newly emerging investors have experience in anything except making movies sounds like an invitation to disaster. OK, there have been some notable successes, especially such movies as The Blind Side and Precious (both of which had investors with unorthodox backgrounds). There have been a few so-so results (for example Machete). Mostly, there is a line-up of movies waiting to come out that will test this new investment approach.

What is notable is that every one of these films is flying in the face of the current Hollywood model. Aside from the increasingly odd range of the investors’ backgrounds (grocery store magnate; concrete tycoon, etc., etc.), the movies are largely low-budget productions (base average budget of $1 to $4 million per film) with serious themes and off-beat subject matter. Almost all of them have been dependent on the various tax incentives offered in many states for movie productions. At least some of the movies (such as Precious and Machete) are geared toward so-called niche markets (urban African-American and southwest Hispanic in these two cases). Almost every one of these films has ignored the standard teenage boy demographic model currently favored by the major Hollywood companies. Many of these movies are actually focused toward an older audience (an audience whose rising importance is just now being recognized by the major studios).

What is most interesting about this new business model is that it isn’t even new. It is actually a return to a pretty old standard model that has largely been forgotten about. At its core, the model is about making a pretty basic investment in a financially well-managed production that can be expected to deliver a reasonably basic core return. If it does better than that, great. If not, then the movie can still cover itself. The method is very straightforward and extremely obvious. And it is still very difficult to get this kind of simple logic across to some of the folks out there.

Meanwhile, the Hollywood model is just bubbling along. MGM is setting new standards in corporate collapse (though to be honest, MGM took off on the road to total self-destruction quite a few years ago). Disney has found some odd way to split hairs, since their fourth quarter report is somehow both a plus and a minus, depending on which way you hold the glass. Good thing an independent news service like ABC was able to shift through the data and present it as both.

Though the major shake-up going on at NBC Universal is primarily on the TV side of the operation, the movie side has had a really bumpy ride as well. Time Warner Inc. has had a reasonably steady increase during 2010, but this is largely coming from their various cable television operations. Despite some successful movies, Warner’s theatrical revenue has largely been flat.

Which means that we are back to the half-empty/half-full glass idea. Except in Hollywood, the glass doesn’t even exist, as a lot of suits are spending a lot of time attempting to ignore anything to do with the condition of the dishware. Even the recent shake-up at NBC Universal is due to the direct intervention of the financial folks back in New York (who actually own the company). Los Angeles is not called La La Land for nothing, and the hard-edge financial issues of real business do not exactly factor into the sun-bleached dreams of L.A.

Which is part of the reason why investors would be seeking the potentially more business-rational zone of indie cinema. It is actually structured into a model that makes sense. Even the accounting system for a $5 million dollar indie film makes sense (unlike a tent-pole extravaganza in which the accounting system is a work of fiction). That is both the strength and the weakness of indie filmmaking.

It is a weakness for the simple reason that a lot of folks in Hollywood love to play with large sums of money. They like the sound of big figures. They love numbers that have more zeros than Sarah Palin’s report card. Large fat wads of money (mostly on paper) that they can move around in strange and magical ways. Heck, it’s almost a substitute for creativity. The account sheets for some major Hollywood movies contain more imaginative feats than any of the stupid movies. These are amazingly elaborate and fantastic sums full of passion and whimsical desire. Oh sure, a lot of it is bogus but it is really quite thrilling. And the end results are always good, no matter how much the picture bombed.

Of course, this may be why a lot of new investors are looking at the indie cinema. Sad to say, but some of these new folks are accustomed to real business models and just maybe are not into the stormy romance of good old-fashioned bull. Heck, they may even be looking to make a basic profit (rather than gamble on an elusive hit). A few of them may even be looking to make a good basic movie.

So maybe the glass really is half-full.

For more on the financing of indie films, watch a November 16 interview on BNN’s SqueezePlay with R&R principal Sylvain Raynes.