An AFM Recap: Independent Film Financing in the Streaming Age, Part 1

Today’s dynamic film and television landscape is nearly indistinguishable from the one that dominated the industry ten years ago, with streamers staking their claim near the top of the mountain beside an annual studio portfolio consisting of (mainly) adapted IP and superhero fare. There is content everywhere; so much of it, it’s hard to know where to start. The COVID-19 pandemic accelerated many of these changes, adjusting audience behavior and encouraging the imaginative entertainment industry to think creatively in all areas, from planning to distribution. Inventive professionals across the industry are thinking outside the box, developing new technologies and practices that will carry film, television, and streaming into a new era. But where will the greatest number of opportunities be found in this new phase? The conversation around the theatrical experience has changed. What was once considered to be the standard release pattern for an expensive, A-list film with big-name stars has been inverted. Now, a theatrical run is anything but guaranteed. In fact, earning an extensive theatrical run has become the exception, not the rule, for most productions. But as one door closes, another opens. 

As part of these larger conversations, Cast & Crew was this year’s Presenting Sponsor of the AFM Sessions, participating directly in a panel discussion titled “Finance II: Strategies for Today’s VOD Dominated World” (moderated by Jeremy Kay, Americas Editors for Screen International, with Maxime Cottray, EVP of Production & Finance at XYZ Films, Peter Graham, Principal at 120 dB Films, Steven Farneth, Head of Finance and Senior Executive at Cinetic Media, and Deirdre Owens, VP of Production Incentive Financing at Cast & Crew). Along with the panel’s first installment, “Finance I: The Risk Takers” (moderated by Erich Schwartzel, Film Industry Reporter at The Wall Street Journal, with Joson Cloth, Founder and CEO of Creative Wealth Media, Laura Lewis, Founder of Rebelle Media, Erica Lee, Partner at Thunder Road Pictures, and Milan Popelka, COO of FilmNation), these discussions covered many compelling views of the industry’s current state and some of the best ways for independent filmmakers to make strides in uncertain times. We sponsored these AFM sessions to help ensure that the most relevant industry questions were being addressed, and through these two rich conversations, a number of important and intriguing thoughts were raised. 

There are many reasons this shift is being encouraged by decision makers up the ladder. Most obviously, VOD (video on demand) helps their product reach a significantly larger audience (and much faster). There is also the issue of overhead, with VOD cutting out the need for producing film prints, shipping reels, issuing expensive digital projection equipment, and so on. Many big studios also see an opportunity to circumvent the standard box office split they’ve traditionally shared with theater chains and small film showcases. The stigma of the “direct-to-video movie” is gone, and the streamers are attracting the top tier of industry talent. The Cohen Brothers, Martin Scorsese, Michael Bay, Steven Soderbergh, Alfonso Cuarón, Paul Greengrass, Bong Joon-ho, Guillermo del Toro … huge filmmakers you wouldn’t have fathomed working on the small screen twenty years ago. By its very nature, streaming has challenged traditional models of finance and exhibition, raising some very big questions about what the entertainment industry will look like going forward.   

A theatrical release is no longer a must-have for films seeking a wide audience, so what does make it into the cinemas these days? For better or worse, the AMCs and Pacific Theaters of the world have become a home for films based on pre-packaged intellectual property. That is to say that while it’s unlikely that 1985’s Back to the Future would be made in today’s climate based off a good pitch and intriguing script, a Back to the Future reboot, sequel, requel, or spinoff is almost certainly in the cards. Studios are less inclined to take chances, having seen the money that can be made from material with which the world is already familiar. By optioning the IP rights to things like comic books, video games, board games, and book series, producers can attract more financing, as well as bigger writers, directors, talent, and sales agents. According to Peter Graham, "We look at packages—what's going to grab someone in. Usually, it's going to be the talent or the genre ... when you have the right talent attached to it, that vets and validates [from a lender's perspective] that this is a decent project.” Ballooning budgets have essentially eliminated the “middle class” film tier, with hundreds of millions of dollars put into the production budgets of recognizable material in the hopes of earning blow-out opening weekends and kickstarting some (inevitable) franchises. Because of this, opportunities for more unique and original film concepts are more often found on the small screen. 

Today’s filmic landscape is all about library building. Regardless of genre or storytelling style, studios and streamers are putting their focus on boosting portfolios and planting the seeds for repeated viewership. It’s about ownership, opening a path for one’s content to have a “second cycle” by which to earn additional revenue. In that way, the film industry is largely being navigated as the television industry has always been, with each new Marvel film (for example) being more akin to an episode of a television series (in this case, the MCU) rather than a standalone cinematic experience. Aside from the obvious success of comic book properties over the last two decades, many genres have found success with this philosophy, including action, horror, and drama. These genres travel well across territories, whereas comedies tend to be a bit more region-specific. In fact, the swell of VOD content has allowed for some interesting genre-bending films to find their way. Even documentaries have been franchised with the success of the “docuseries” bringing audiences back to non-fiction stories from season to season. No longer beholden to the theatrical leg of distribution, they’ve managed to thrive at home. Similarly, nature-focused and travel documentaries are booming in popularity. 

Of course, the pandemic led to an array of increased costs to production. Everything from on-set protocols to interest rates, inflation, and market value have further contributed to the ballooning cost of making a film or show. Insurance costs related to COVID-19 are often more than small projects can bear, and they’ve also managed to strain larger productions with the financial strain of things like testing equipment, safety personnel, PPE, and lost days. Fortunately, these costs have diminished as cases have decreased, but their ripple can still be felt. As with the rest of the nation, the industry is also feeling the pinch of inflation, with the price of consumables skyrocketing. Meanwhile, interest rates have made debt funding and bank loans more expensive than ever. And as budgetary costs continue to rise, there doesn’t appear to be an increase in the market value for film projects. Simply put, movie tickets, streaming, ad revenue, and transactional price points have not kept pace with the cost of production. There is hope, however, that productions will soon begin to feel some relief from the strains that have been placed on them these last few years. Peter Graham noted that, "[COVID costs] are definitely coming down ... there still is a cost, in some cases, and unfortunately, costs aren't necessarily adjusting …  [Since people have been vaccinated and tested], it's not as bad as it used to be." 

Below the line, there are plenty of challenges being actively solved by creatively minded teams as well. Talent and crew availability have added another layer to the mix, making it difficult to hire and commit full production teams as needed. Across the board, major productions have completely booked up their schedules, straining the already reduced existing workforce. Just open any one of the major streaming apps and you’ll find a massive number of choices. From production to production, it has proven difficult for talent and crew to follow evolving COVID protocols, making it much harder to share workforce between projects as was once the way. This has led to a situation where crew availability is much more unpredictable. Independent filmmakers are always competing with studios and streamers with deep pockets—especially in states with developed workforces—so producers must be ready to accommodate the job market. The workforce is hungry and ready to work after a long pandemic, so the talent is certainly there to be lured. 

The limited (if any) theatrical windows for these projects are having unintended consequences on the purse strings as well. Since the box office bonuses top-tier talent have traditionally enjoyed are no longer a given, streamers have tried to attract stars to their projects with bonuses that bridge the gap. Sadly, this makes it even more difficult for independent filmmakers to secure talent for their productions without existing streaming deals. Even with the money in place, they are still competing with the far-more-lucrative television space, which is attracting a higher caliber of A-list talent than ever. As was discussed in our panel, it is wise to let the market dictate the cost of a film. One good practice for producers is to bring their film package to a sales agent and better understand the range for which it might sell. After doing that, they can make the film for less than the lowest estimated selling price, improving the project’s market value. 

Lots of changes and just as much opportunity. So, where do things stand with independent financing? Are pre-sales still the powerful filmmaking engine they once were, or is there a new model to consider when putting a project together? In part two of our recap, we’ll cover how things like regional opportunities and governmental incentives might change the way filmmakers put together their projects. Stay tuned!