« In London... | Main | BYOB - 1012 »
October 12, 2009
The Devolution Of The Dependent
I know that everyone with a financial stake in indie film is darkening their diapers these days. But the drama is predictable and sadly, could be much worse before the end of 2010.
This is, simply, how I see it: Miramax under The Weinsteins built a viable business out of indie, maximizing small pick-ups into big dollars, in perspective. The grew from a $150m budget Dependent at Disney into a $700 million a year fat pig of a company, teetering dangerously on becoming a loser.
Meanwhile, other studios saw their success - and figured they could control the failure - so they all jumped deeper and deeper into the pond... except two... Sony Classics and Paramount Classics, the first restrained by the self-control of its operators, Barker & Bernard, and the second restrained even more that SPC by the tight fist of Jonathan Dolgen, who made sure the division always made a profit, but also assured that it would never fly too high.
Searchlight was always a hybrid, closely watched over by Fox studio heads, and allowed to produce product for itself, but until recently, with a vigilant eye to investments that never crossed the $13m barrier.
Focus was a creation of two true indies, bought by Universal and merged, somewhere between Miramax and Searchlight.
Warner Indie was an acknowledgement that a company focused primarily on blockbusters – more so than the other majors, even - could not slow its pulse to handle smaller films, particularly coming out of a relationship with Soderbergh and Clooney that was important on the blockbuster side and needed earnest support on the indie side. Alan Horn was, it seems, earnestly supportive of the division, but not enough so to allow it to grow much outside of in-house cash machine talent.
So…
It’s early 2005. Searchlight had a massively profitable surprise in the summer of 2004 with Napoleon Dynamite and follows it up with their first film ever to crack $45 million domestic, Sideways, which in 2005 also gets the company its first Oscar nomination for Best Picture. This would lead to a rather confusing success at the end of 2005… the #3 Seachlight grosser of all-time at the time, The Ringer.
Brad Grey has taken over Paramount and is toying with the future of Paramount Classics. But even there, Vitale & Dinerstein had their first two films to ever crack 4.2 million domestic in 2005, Mad Hot Ballroom and pricey Sundance pick-up, Hustle & Flow.
Focus, having had its biggest success ever in 2003 with Lost In Translation slides back a step with a somewhat disappointing gross for Eternal Sunshine of the Spotless Mind, but is moving forward towards The Constant Gardener, Pride & Prejudice, and their first film to ever gross more than $45m domestic, Brokeback Mountain.
Sony Classics, having had just one movie in its entire history gross more than $11m domestic (Crouching Tiger in 2000… Oscar nom), is about to have its second, Kung fu Hustle, followed by its third that fall, Capote.
Warner Indie, slow starting in 2004, had a big 2005 on the way, with a mega-indie hit, March of The Penguins that would win Best Doc, a modestly profitable drama (from Clooney) that would get a Best Picture nod, and a Best Foreign Language nominee.
Things were looking up at the Dependents.
But the Dependent that led the way, Miramax, was going the other way. Disney had finally had enough of The Weinsteins expanding its annual budget out to major studio size. Even with five $50m domestic grosser in 2004 and two Best Picture nominations, profitability on those high grosser was iffy. Harvey had dodged a bullet by splitting Kill Bill into two films, making the project profitable while it would have lost money as one title. And Hero, after taking years to get a release, was marketed into a top-line moneymaker. But The Aviator was, in spite of awards and being Scorsese’s highest grosser ever, not only lost money, but symbolized what Disney didn’t like about The Weinsteins. With Dimension (aka The Money) practically shut down in 2004, Disney went into negotiations with The Brothers trying to get them to scale it back. Disney had it thrown back in their collective studio face and in a heated exchange of public positionings, sent The Boys out to find the private funding that they kept telling the media was going to be a piece of cake.
But in typical Hollywood media fashion, we media idiots – well, not me – kept selling the story that The Weinsteins would be the winner in this showdown with Disney… Eisner was a lumbering moron and Harvey was the fat, but fast-fingered genius who would make letting The Weinsteins go look like the biggest mistake since T-W allowed itself to be absorbed by AOL.
Eisner was right… everyone else was wrong.
It’s 2006.
The Weinsteins can’t seem to get the machine rolling. The Oscar machine has stalled. The only real hit they have is a Dimension sequel that they share profits on with Disney (Scary Movie 4). And they have entered into a distribution relationship with MGM that is awkward, driven by a pay-tv opportunity, and not very successful.
Only Searchlight is able to keep up the pace of the year before, with The Hills Have Eyes, Thank You For Smoking, Little Miss Sunshine, The Last King of Scotland, and Notes on A Scandal.
Miramax, under Daniel Battsek’s clipped management, swings for the fences with The Queen, a modestly budgeted unexpected hit that would go on to get Best Picture nominated.
But really… Searchlight is moving forward and aside from that one title, everyone else seems to have cooled back to normal…
Enter John Lesher. Agent. And now chief of the newly formed Paramount Vantage.
His first foray into the game is a movie he didn’t make, but got made as an agent, representing Alejandro Gonzales Innaritu. His marketing team, led by Searchlighter Megan Colligan, takes Babel to the promised land, a Best Picture nomination, including very strong box office for a mostly foreign language film. But in the process, the film ended up being a money loser, not a moneymaker.
But Lesher wasn’t just raising the bar on spending to sell Dependent films. He was greenlighting films from former clients at budgets that he had not been able to get anyone to sign off on as a world-class indie agent.
2007.
Margot At The Wedding was an outright flop. The Kite Runner took too long to roll out and never became the hit it was expected to be, losing money. And There Will Be Blood, a love project from Paul Thomas Anderson, did great considering its content… but would also lose a good amount of money.
Lesher also spent on was The Coen Bros’ No Country for Old Men… but he gave domestic distribution to Miramax as the two split on that film and Blood. It was said that Lesher didn’t really like o Country and vainly decided to take on the more difficult sale of Blood. In any case, Blood lost money for both companies. And some would say that No Country was driven perilously close to being a red ink film by the award chase.
Miramax was infected by Lesher’s Vantage. So was Searchlight, as Peter Rice’s fiefdom was expanded into a new brand, Fox Atomic, after he turned down overtures from Grey to run things. So was Focus, where the budget level was rising on their spends, chasing Oscar and big money, as well as expanding into the genre game with a growing division in Rogue. Even Sony Classics was getting worked into a frenzy, spending money to produce movies for the first time in its history. Even Warner Indie, barely in business, chased Oscar with In The Valley of Elah.
2008.
Having lost over $100 million in a Dependent division, which is more than Paramount Classics had spent in their entire 7-year run at the studio, Lesher is kicked upstairs into the production topper job at Paramount. The Duchess, Revolutionary Road, and Defiance will add to his remarkable history of not turning a profit on more than one film in his short history at the division he created.
Fox Searchlight has released 3 films in the first 9 months of the year, grossing $33m total. They only have one more movie on their schedule – The Secret Life of Bees - but they have picked up a film from Warners that the closed Warner Indie could not release and the big studio didn’t see working… and as they watch Slumdog skyrocket at TIFF, they also pick up a little film starring a resurgent Mickey Rourke.
Focus only has five films on their entire 2008 schedule. They can’t find much of an audience for the well-like In Bruges, Miss Pettigrew Lives For A Day fails to find money in Enchanted lovers, and $12 million Sundance pick-up Hamlet 2 flops outright. The three films gross $25m total domestic. There is a reprieve in the form of the fast grossing Coen Bros film, Burn After Reading, which converts on star power (Pitt/Clooney) and the muscle of Oscar winner No Country. Still, there is only one film on the schedule in the last 3 months of the year… Milk.
Miramax has more product than the others – 8 films on the year – but can’t seem to convert. $9m each on a holocaust drama and a Sarah Jessica Parker comedy doesn’t make a dent. Two films get released on under 100 screens. A revisiting of Brideshead Revisited, TIFF hit Happy-Go-Lucky, and Blindness manage $13.3m between them. Those 7 pictures total will do about the same, as a group, as the studio’s Oscar movie, Doubt. That’s an entire year that grosses under $70m on new movies… while Lesher’s old division is still throwing movies that cost almost that to make at the market and Searchlight had its first $100m grosser in 2007 and is on its way to another with Slumdog.
Sony Classics, in the meantime, is back to doing what it has done for almost two decades… hitting singles and indie doubles with 19 releases in 2008, with ten of them grossing over $2 million, five grossing under $1 million, and the only film that could really be pegged as a financial disappointment being Rachel Getting Married, which was less painful as the studio cut bait on it when it wasn’t going their way.
In Conclusion.
Parent companies of The Dependents are not acting out against indies in some unpredictable way.
As you can, there are only two models that appear to be working in the last few years… and one of them has been discredited. That would be Lesher’s Bigger, Badded Indie approach. These divisions being in the $30m - $60m movie business is, as we have learned, insanity. For one thing, in a shrinking industry, pushed hard by the now-3-year-old DVD drop-off, the big studios want to get their programmers, both comedy and drama, back down into that budget range themselves. They don’t want their indie divisions doing it for them, in most cases limiting the upside by doing cheaper releases.
A tweener business, already discredited but a place that a few of these companies were drawn by the excess of others, is a death trap. Eeking out modest profits on a half-dozen movies only to gamble big on one last film that can eat all those profits and more… and which, on the upside, is only going to create profits in the tens of millions, is not a smart business model.
So you get the one that works… the one Sony Classics has been doing for 18 years.. the one that indie producers hate because it means bargains for SPC and less chance of making money for them… small.
Miramax being gutted… down to 20 or so employees… about the size of the staff at SPC (actually, in the range of 25 bodies, give or take)… leaning on the big studios machinery for some distribution muscle and a lot of Home Ent muscle… is a simple admission of learning from the last five years.
Focus is not that small yet… but don’t be surprised if it moves in that direction. The idea of shutting down the division is rather silly, in my eyes. Well run, there is no downside to NBC/U or any future buyer. There just can’t be any more big festival buys. What Focus has over Miramax – and may be its saving grace - is a more fully formed marketing team that can act as a place for smaller U films to land and get the attention they really need. Movies like Coraline, 9, and Burn After Reading – and now, A Serious Man – have an important place in a company like Universal. In fact, with studios very aware that family films are where the money really is, it must be noted that Coraline is easily Universal’s biggest animated hit ever and the only U-released animation to outgross 9 is An American Tale, from 23 years ago.
Vantage was closed because it lost more money in 2 years than any major can afford to lose without having its leadership changed. Warner Indie was never going to outlast Section Eight on that lot… the big studio just doesn’t care enough to be in a business that will never generate nine-figure profits in any year or, likely, in any 5 year period.
Even Searchlight is looking a bit off-balance these days. And I don’t blame that exclusively on Peter Rice’s exit, though he did carry more sway with Rothman and Jim G than his excellent team that now runs the place. But the market has changed dramatically in the last two years. And more projects that Searchlight considered too pricey last year and this will come back with lower budgets now… so there is an opportunity. But more than any of the other Dependents, the studio chief at the big studios is a hands-on player at Searchlight. And I scratch my head a little when I see dead division Fox Atomic’s Jennifer’s Body release by big Fox and big Fox’s The Fantastic Mr Fox being released by Searchlight.
This speaks to another phenomenon, which is most clearly manifested by Sony Worldwide Acquisition Group, which picks up films, offers them around the Sony stable of distribution arms, and then does theatrical deals for most with smaller indies before going to DVD with the films it acquires. Like the not-really-new trend of studios investing in foreign language product that is not meant for domestic release, but which creates opportunities (like Crouching Tiger and Kung Fu Hustle), it seems that all of the studios are heading towards being corporate machines that suck in product, figure out after the fact how the product can be best made profitable, and to use all their divisions – including The Dependents – to achieve those goals.
Ironically, that makes the people with the skill sets to maximize profit on these films all the more important. But it also suggests that the days of individual Dependent studio heads throwing money at a quality project on principle may be over. Small net profit movies is a good business to be in… but it is also a risk-averse business.
With due respect to Sony Classics, but can an indie industry of companies like that, which has an appetite that is driven in no small part by cost – even as they show excellent taste in what they pick up at bargain prices – survive? Is an industry of $2 million and $3 million cost films and industry… or a hobby? Obviously, non-US productions are often rolled out at those kinds of prices. But what is the American indie business at that scale?
That is the question of the moment… not “Wither Miramax?”
Posted by dpoland at October 12, 2009 01:49 AM
Comments
Interesting article, David.
But "Rachel Getting Married" isn't a financial disappointment; in fact, this film is very profitable for Sony Pictures Classics.
http://latimesblogs.latimes.com/awards/2009/05/sony-pictures-classics-buys-two-films-on-cannes-opening-day.html
In 2008, "Redbelt" is the the only real financial disappointment for Sony Pictures Classics.
Posted by: marychan ![[TypeKey Profile Page]](http://www.mcnblogs.com/thehotblog/nav-commenters.gif)
at October 12, 2009 07:45 AM
One more thing that Focus has over Miramax is that Focus has a very strong international division ; they have intensive knowledge on the worldwide marketplace.
For example, Focus financed a South Korea film called "Thirst"; while "Thirst" bombed in US, the film enjoyed big box office success in South Korea and the film will be very profitable for Focus. Focus also financed a Hong Kong film called "Murderer" , and the Hong Kong box office success of "Murderer" surprised many people in Hong Kong film industry.
Posted by: marychan at October 12, 2009 08:10 AM
I have a tough time believing Rachel Getting Married was profitable for SPC.
Posted by: NV at October 12, 2009 09:35 AM
I like Searchlight too, but in the interest of fairness, shouldn't you at least mention their underperforming titles like "The Namesake", "The Savages", and their mishandling of "Sunshine"?
Posted by: LFF at October 12, 2009 05:18 PM
I remember being confused why the Focus logo was in front of the remake of The Texas Chainsaw Massacre back in 2003.
Posted by: KamikazeCamelV2.0 at October 12, 2009 10:22 PM
Somehow DP left out Picturehouse, the New Line-HBO stepchild that lasted barely 2 years and got shut down at the same time as Warner Independent.
There was an omen that Picturehouse was ill-fated: The largest US theater chain (Regal) did not play the first Picturehouse release ("A Prairie Home Companion") for reasons that were not clear.
Posted by: Chucky in Jersey at October 13, 2009 10:11 AM
Great post, Dave. This is def your sweet spot.
But, do these grosses reflect revenues from all channels, or mainly NA theatrical...? And, is online channel/VOD making up for anything? I don't DVD any more, but I probably order more on-demand movies than I rented.
Record companies groused about drops in CD sales as iTunes and other online channels generated billions. Now, I know that, per artist, royalties have dipped because consumers can purchase a single for $.99 rather than the whole, bloated CD for $115 bucks, but...
iTunes also collapsed the space/time continuum, and today's youth are buying music by artists from the 70's, 80's & 90's that they may otherwise not have had access to before the age of digital (or, they may have found the CD at Tower Records, but not been inclined to spend $15 bucks on it).
Any chance that libraries of smaller, indie films will be worth something when they start to become routinely available in online channels?
I think the hope of indie filmmakers is that, okay, theatrical may be marginal, but between even declining DVD, VOD, emerging online channels, foreign, and TV, a smaller film can eke out a profit.
C'mon, give us the long view and, hopefully, some good news!!
Posted by: jennab at October 13, 2009 02:47 PM
LFF - David might be hard pressed to comment on Searchlight's underperforming titles as he is in London on their dime/junket for TCF/FSL's "The Fantastic Mr. Fox". The hand that feeds kind of thing. Anyway, all indies/studios have lots of misses over the course of a year, let alone their history, some worthy of critique/dissection and others not. Id wait until being back in the USA before mentioning some underperforming Searchlight titles...dont want to get bumped back to that middle seat on the flight home ;)
Posted by: indiemarketer at October 13, 2009 03:27 PM
@jennab
Anita Elberse at Harvard did a study about a year back and concluded that digital consumption is becoming much more concentrated in "hits" than it is for indies. While online media is growing in the double or even triple-digit percentages, the vast majority of that is directed towards major studio releases - hits are getting bigger, while alternative/indie releases are only enjoying moderate growth (although by any other standard it is still impressive growth).
The problem is, with distribution costs coming down and barriers to entry vanishing with platforms such as iTunes, youtube, or even MySpace, this means that the growth in competition far outstrips consumer growth in indie segments. So while you have many more profitable properties than before, you're getting even more losers. Where 5 years ago you may have, say, 50 films fighting for 3 million tickets you now have 200 films fighting for 5 million downloads.
(I should point out that I've just made those numbers up off the top of my head to illustrate the point, and they are in no way shape or form anywhere near resembling the actual market figures)
It's going to be rough, even more so when the lower barrier to entry means that films on the budget of a shoestring can be released where the filmmakers aren't even concerned with turning a profit in the first place. It's just a student film, or a side project because they're a dentist with a secret love of film, or they release it dirt cheap just to get a foot in the door - for whatever reason, these are now also going to be competing in many of the same channels as indie filmmakers who rely on the same consumers to earn their living.
Posted by: Foamy Squirrel at October 13, 2009 11:16 PM
Hey, thanks Foamy. Another coupla questions for you (or Dave): is day 'n date (theatrical + VOD) release strategy working for smaller indies? Has it been tried with any anticipated, high profile film yet?
For instance, I would have paid, I dunno, somewhere between $10-$15 to see It Might Get Loud opening weekend (it did come here, eventually, but I couldn't go that weekend and it quickly got relegated to 10:00 a.m. "mom's screening" and, um, I'm mom, but no, just...no).
Second question: How is the conversion to digital exhibition going? What percentage of theaters are equipped to beam their films in off a satellite...? Or, are the majority of theaters still screening actual 35mm prints, because that doesn't help smaller films improve their profitability.
Posted by: jennab at October 14, 2009 01:11 PM
Honestly, I haven't been paying that much attention - although Dave might have some info when he's finished annoying the Brits.
You could always try contacting Anita Elberse if you're REALLY interested, as she's probably one of the relatively few analysts on digital distribution without some form of commercial interest.
http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=pub&facEmId=aelberse%40hbs.edu
Posted by: Foamy Squirrel at October 14, 2009 08:36 PM
Post a comment
Thanks for signing in, . Now you can comment. (sign out)
(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)