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PART 2: SALES AGENTS ON MARKET VOLATILITY AND DEALS

Screen Australia is an investor in many of the Australian feature films that find their way into cinemas. The agency requires a sales agent – among other things – to be attached to each film so it has the best chance of being pushed out onto the world stage.

When a deal between a producer and a sales agent comes into Screen Australia there are key elements that head of production Sally Caplan examines as part of her overall deliberations on what films the agency will invest in.

These elements include the:

  • minimum guarantee (MG) against future international sales revenue that the sales agent will be paying (also called an advance)
  • commissions that the sales agent will charge on sales
  • expense caps and any marketing fees that might be applied on top
  • ability of the sales agent to bring finance to the project
  • sales estimates
  • marketing strategy and
  • reputation of the company

Screen Australia’s attitude to each element depends on the nature of the film and its reasons for being tempted into supporting the film. Caplan gives this example: “We might not insist on an MG if a film is low-budget, without name cast and with a promising new director if we feel the sales agent is likely to get the film into an A-list film festival. Most films we back that are budgeted at less than $2 million fall into this category”.

In contrast, on a film with high commercial aspirations and a much higher budget, Screen Australia would expect a significant MG that demonstrates the sales agent’s commitment and gives investors comfort that the film has commercial potential. But every case is different and each element of a deal can’t be examined in isolation. If an MG is not required in order to complete the finance plan, for example, the producer may make a deliberate choice to forsake the MG and negotiate for lower commissions.

Screen Australia has invested in 94 films since it was established in 2008 to June 30, 2015. Putting aside a handful of films without MGs or with complicated deals, the MGs rarely dipped below $50,000 on individual films. About 30 per cent attracted MGs of more than $250,000 and in half these cases, the MGs were worth more than $500,000, two of them exceeding $3 million. Recently a film secured a $2 million MG because a high number of sales agents were vying for the title. Competition counts in this game.

Caplan notes that commissions are generally less on films that have high revenue expectations and these films usually have high expense caps and marketing fees.

The ability of a sales agent to bring finance to a project, directly or indirectly, is often critical given the challenge of closing financing deals. But in the current environment, Caplan is very alert to the terms. Some financiers seek very high interest rates and set up fees. Others, particularly those in the US, do not recognise the producer offset (PO) as intended, that is, as the producer’s equity, which gives the producer a recoupment position commensurate with that equity. (See clauses 4.3 and 5.2 of Screen Australia’s Terms of Trade.) Others try to claim a proportion of the “back end” (a share of net profits – broadly revenues less commissions and expenses once a film has recouped its investment) despite their contribution being gap financing or an MG rather than equity. She has coined the word “gapity” for this kind of behaviour.

“Screen Australia has a good record of quarantining revenues from Australia and New Zealand (ANZ). By that I mean it has fought to prevent rest of world (ROW) investors and lenders from having access to any revenues that come from ANZ and we intend to keep it that way. This is sometimes hotly contested but not crossing ANZ and ROW significantly improves the producer’s chance of getting some money back should the film over-perform in Australia compared to abroad,” says Caplan.

“We walk a fine line. We say that the cost of getting Screen Australia money is that the deal has to be fair. However, to be too hard-assed, especially when large sums of money are committed, may mean killing off films.”

Downriver

Hilary Davis, Bankside Films;  |  Charlotte Mickie, Mongrel International  |   Anick Poirier, Seville International 
Naima Abed, Memento Films International  |  Tine Klint, LevelK

What are the lessons from recent markets?

Naima Abed, production and finance executive, Memento Films International: “New players on the US domestic acquisitions scene such as Amazon Studios, and Netflix of course, have consequences for rest of world because the question is always asked: ‘who is releasing this film in the US?’ But in fact, discussions over the release strategy and the number of prints a film is going out on in the US, are still central questions.

“The biggest properties have the biggest cast but at the end of the day what is important is to identify what the film is and who it is for. We always have to keep in mind what buyers can best reach that audience.”

Hilary Davis, co-managing director, Bankside Films: “There’s no middle ground. A film either sells very very well to all territories or very little – and you know at the first market. The window for selling is much shorter than previously. There are more players but more films being made.

“All of the successes in my career have been totally left field. You never see them coming. You get lucky, the timing is right or there’s a zeitgeist effect.”

Charlotte Mickie, president, Mongrel International: “The marketplace is spooked for a few reasons, only indirectly related to Netflix and Amazon. Admissions have fallen off and European television used to be a big source of revenue but isn’t now. It’s why I worry about distributors. They may not be able to maintain territorial integrity due to new murmurings from the EU (European Union) and I can’t see how they will reinvent themselves. A lot of them are hard-assed and crabby but they really love cinema. Sales agents are tied to distributors’ rights but we have a role sourcing, curating and presenting to companies such as Netflix. Netflix is not replacing (all the lost) revenue but is turning into a godsend. If Netflix becomes the only player the pricing will fall of course and it may in any case as their pipeline fills and they stop expanding geographically. But that’s just one possibility. It may be impossible to figure out how this is all going to turn out until it’s over.”

Anick Poirier, senior vice president, international sales, Seville: “The market is constantly evolving and times are more challenging than ever. Distributors are very careful, the market is shrinking, the windows are shifting and buyers are pooling budgets into ‘sure hits’ – although we know no film is a sure hit anymore. Films either sell well or don’t at all; films we thought would go gangbusters don’t, and visa versa.

“What sells is a great story. Start with a well-written script that can stay in people’s minds. Then there’s the hook, whether it is a book, a true story, or something that is original.

"Fashion or music themes, if done well, can get mileage. Biopics are never easy. There still seems to be a steady market for genre films, but they need to be original. The market is very volatile and Netflix is not the “all purpose” solution. If you’re making a film for them, why make something that is theatrical? Then again, I’m a person in love with the idea of the big screen.”

Do you put up development money? Do you help with casting?

Generally the sales agents shied away from the idea of putting in development money and helping with casting, saying both were the responsibility of the producer. That said, all provide market intelligence on the value of individual actors in the international marketplace. This helps the creative team to prioritise who to approach. Cast is an important variable, affecting the budget, estimates from the sales agent and how a project is perceived.

Every deal is different and everything is negotiable but …

ADVANCES How often do you pay them? What’s the range? To what extent are they budget based?

EQUITY To what extent do you help producers raise finance? How? Do you provide equity yourself? Do you have partners who do? Who lends against your sales estimates? Is 50% of the lowest estimate a rule of thumb?

COMMISSIONS What determines them? What do you charge?

EXPENSES What do you expect re expense caps? What marketing fees might you charge on top?

TERMS How long do you generally acquire film rights for?

Naima Abed, Memento:

ADVANCES | “We do pay advances, but rarely on films by first-timers. They are hard to quantify and depend on the producers’ needs. Sometimes it’s just to help with post. Where you are not doing volume, like Memento, the film in itself is a motivation to work hard because every film is important regardless of the advance. Obviously the higher the budget, the higher the expectation on what we might put on the table. It’s a risk assessment and we draw on the experience of our sales people. We’re rational rather than speculative. We understand that some producers need MGs and we have the comfort at the moment of being able to provide them for the right project if it makes sense. Often we provide the last piece of finance.”

EQUITY | “Memento is in a privileged position: it has access to its own equity and has acted as an investor numerous times. It enables us to be a different kind of partner than simply a sales agent.”

COMMISSIONS | “Like advances, commissions are a matter for negotiation and there is more and more pressure to reduce them. For big companies there are economies based on volume but for a sales agent like Memento, we are reliant on commissions. It is the only money we keep.”

EXPENSES | “There is also pressure to contain expenses but you need the freedom to develop an effective campaign. We expect to have sufficient caps for our marketing and sales needs and also for it to be understood that there is in fact always costs attached to handling films, even just for storage and related costs.”

TERMS | “The duration of rights is flexible and also depends on the advance and other factors. We tend to do long term representation with projects rather than short licenses, because we need to be able to give that to distributors as well.“

Hilary Davis, Bankside:

ADVANCES | “It’s been enshrined by Screen Australia that Australian films (with Screen Australia investment) require a sales agent with an MG and a local distributor. We will provide five to 10 per cent of the budget, depending on necessity.”

EQUITY | “We invest from nought upwards, depending on the finance plan and the other sources of investment. Generally, we don’t need to put equity in Australian films. I hope that one of the things that sets us apart is having access to funds via our major shareholders. You need that in today’s market. It’s very flexible money and can be used as cash flow, presales or equity. The numbers have to make sense. There are a lot of factors. It’s a calculated risk: nothing is sure-fire. We do an analysis, look at comparable films, discuss audience potential. You always have to mitigate risk.” (Bankside co-managing director Phil Hunt is managing director of the film investment company Head Gear Films, which provides the finance.)

COMMISSIONS, EXPENSES, TERMS | On all these I don’t want to comment as they vary from film to film and I believe this is confidential information.

Tine Klint, chief executive officer, LevelK:

ADVANCES | “One or two films annually we advance an MG. It can be anything from US$50,000-$500,000 (AUD$66,000-$660,000 All currency converstions as of November 1, 2016). Most we do on a commission basis. We work for free until we make a sale. Because of the Australian financing structure we understand the MG requirements, however this is not the structure in many other countries.”

COMMISSIONS | “Our commissions are 15-30 per cent depending on the structure of the financing, investment and estimations, budget, cast and competition. We often work with a decreasing escalator commission, which is fair for all involved.” (This means that the commission goes down when total sales revenue reaches certain benchmarks.)

EXPENSES | “We might reserve EUR20,000-30,000 (AUD$28,700-$43,100) for advertising, screenings, marketing and publicity, and digital costs. We prepare the budget with the producer and stay within it (unless otherwise agreed with the producer).”

TERMS | “The minimum is eight years. It always depends on the overall agreement.”

Charlotte Mickie, Mongrel:

ADVANCES | “We often put up MGs. The range is wide but we would not go beyond six figures currently. MGs are budget based but other factors include director, subject matter and cast.”

EQUITY | “We help to provide financing by preselling and helping producers with potential equity/gap/mezzanine/loan partners. We do not put in equity nor do we have a specific and contractual equity partner. We do have companies that we like and who like us. Re sales estimates, putting in 50-75 per cent of the lowest estimate is usual – never 100 per cent.”

COMMISSIONS | “It’s a fairly wide range from 30 per cent to much less. I’d prefer not to be specific for obvious reasons.”

EXPENSES | “We do not currently charge a flat marketing fee. This could change. Our expense caps range from US$20,000-$100,000 (AUD$26,000-$130,000) and exclude participation in major festivals and deficient deliverables.”

TERMS | “Fifteen to 25 years but we are flexible.”

Anick Poirier, Seville:

ADVANCES | “When necessary we will step up but we will of course ask for a higher commission.”

EQUITY | “(Parent company) Entertainment One is able to help. We are also working on alternative solutions.”

COMMISSIONS | “This is related to whether we put up an MG and for how much.”

EXPENSES | “The cap can vary. It depends if travel for talent to attend festivals is included. It also depends on elements provided by the producers and if we can work with these materials internationally. If trailers and artwork are useable as is, we can go lower.”

TERMS | “It varies. We will request a clause that will enable us to contract beyond the term as some distributors will ask for a longer term on their distribution agreements.”

How important are festivals in sales?

"It is not a good sign if I’m not getting attention from significant festivals..."

Festivals are a fundamental part of their business, these five sales agents say. They get exposure for directors and talent and provide a platform for launching films to buyers. Says Mickie from Mongrel: “It is not a good sign if I’m not getting attention from significant festivals. Festivals are all taking more commercial films, so attention from festivals does not mean a movie is too esoteric.” Festivals also generate revenue, although festival fees are reportedly falling. Part of what sales agents bring to a deal is their festival contacts and their ability to set up and control a festival strategy.

What’s worth saying about financing of Australian films? How does Australia’s soft government money impact on you? Does it relieve the pressure to presell and sell for example?

Naima Abed, Memento: “Financing films in Australia is definitely less painful than in territories such as the US where private finance is a big part of things. Coming from Europe and France, which also depends on the public system, Australia doesn’t strike me as more reliant on government money than anyone else. We’ve heard that Australian financing has been reduced but it has not eased the output. We have a great partner in Screen Australia: they are involved in the international career of the film and understand the financial constraints we sometimes face in the market.”

Hilary Davis, Bankside: “Producers in the UK and Europe are more adept at putting the financing pieces together, US producers too, who are more reliant on rich investors. Canada is like Australia in that there’s government money, plus they do a large number of co-productions. Many Australian producers don’t know how lucky they are to have the public funding they do.

“Budgets are too high in Australia. It’s why the sales results on some films are decent but not outstanding. (Too much investment needs to be recouped.) If you were making the films elsewhere you’d be forced to bring the budgets down. With great cast, director and script, you can get presales and sometimes finance plans require presales.”

Charlotte Mickie, Mongrel: “We do low budget, say US$500,000 (AUD$666,000) up to US$12 million (AUD$16m). Budgets in the US$4-7m (AUD$5.3-9.3m) range are the most difficult in terms of recoupment and sales and that’s where Australian films often are …  We appreciate soft money. Sometimes the pressure of private financing results in deals that are not in the best interest of the movies.”

“In both Canada and Australia the funding is sometimes taken for granted..."

Anick Poirier, Seville: “In both Canada and Australia the funding is sometimes taken for granted. It’s really hard for talent in the US, where the government is not involved in filmmaking. Private funds and investors expect filmmakers to make money. Film is art. Soft money is crucial to getting projects made …. If I was an Australian producer I’d be very pleased to have 37º South. (Part of the Melbourne International Film Festival.)

How can producers help you sell their film? Or what should they not do?

Two of the sales agents said producers should trust them and not interfere. “Constantly being challenged on X, Y and Z can be very time consuming.”

Good communication, a great unit publicist and excellent stills were all mentioned as important. One sales agent was highly critical of how some Australia producers did not take the provision of stills seriously. “Distributors usually expect 30 plus stills,” she said. “Sometimes we get only a couple of useable images. I’d love better marketing packages but I understand that local material differs from international and timing is often an issue.”

Producers were advised to get access to US marketing materials if possible and to never allow a director to edit a trailer because he or she is too close to the material and doesn’t necessarily know how a film will or should be sold.

But the key thing? Make a great movie.

Which territories or platforms deliver well for you right now?

Hilary Davis, Bankside: “Our strongest territories include the US, UK, Australia and NZ, and airlines.”

Charlotte Mickie, Mongrel: “There is still vitality in the US market but there’s caution about mid-range films. MGs from small distributors can be very tiny, that is, as low as US$10,000-$20,000 (AUD$13,000-$26,000) or they go for straight distribution deals.

“Pan Latin American deals can be good but are becoming harder to make. France, Germany, Scandinavia and the UK are the best markets in Europe. Eastern Europe has a good cinema culture.

“China is still a conundrum for the films that I sell and, from my point of view, not worth spending a lot of time agonising about. Yet, if we get a decent offer from a reputable company we are happy to work with them.

Anick Poirier, Seville: “If a film is strong it will travel. Sometimes selling a film worldwide for US$150,000 (A$197,000) is a huge success if you have no expectations because it’s a challenging film or it’s in a foreign language. It might not make anyone a billionaire but it might open up a career for a new director.”