The once promising indie film industry has all but disappeared from Hollywood in recent years. Author Edward Jay Epstein explores the complicated finances behind why Hollywood is abandoning the indie films in favor of big budget spectacles like Avatar.
Edward Jay Epstein is author of The Hollywood Economist: The Hidden Financial Reality Behind the Movies you can also see Epstein in Oliver Stone’s forthcoming Wall Street 2: Money Never Sleeps wherein Epstein plays the head of the Fed.
Edward Jay Epstein talks with Bloomberg’s Betty Liu about the role of film libraries in the financial health of movie studios and the outlook for independent filmmakers.
Excerpt: ‘The Hollywood Economist‘
The Hollywood Economist: Can Indie Movies Be Saved?
by EDWARD JAY EPSTEIN
The Achilles’ heel of the independent movie business is American distribution. No matter how brilliant an indie movie may be, and no matter how many awards its wins at film festivals, it needs to get into theaters to be seen. That feat is no longer easy for an indie movie.
The Big Six six studios–Disney, Paramount, Universal, Warner Brothers, Fox, and Sony–are also distribution juggernauts. They dominate both American and foreign distribution . Each of them employs a small army of salesmen, publicists, media buyers, theater-relations liaisons, merchandising specialists, and lawyers to get its movies and coming attractions on the best screens in theaters, its stars on the top TV shows, and its DVDs in the prime space at video stores. Because of their enormous clout with theater chains, the Big Six can open their movies on 4,000 screens in the US and thousands of additional screens overseas. They also have long-standing merchandising deals with fast-food chains, toy companies, and other mass retailers to assist these global openings. Since their distribution machines have enormous overhead, the Big Six studios need to confine their releases to potentially huge grossing movies. The size of the gross is crucial–even if there is no net profit–because studios, take a hefty cut of it off the top in the form of a distribution fee (typically, on movies that studios finance, it is 30 percent) which helps offset the overhead. The requisite, however, often leaves producers of smaller films out in the cold. Consider, for example, the sad story told to me by one of the most successful indie producer. In 2009, he brought to a major studio a project that had a budget of a mere $20 million with a well-regarded director and stars. After running the numbers, the studio estimated that its potential box-office was $100 million, which would yield it, just from the distribution fee and the output deal with HBO, a 100 percent profit on its investment. Yet, it flatly turned down the project because, as its executive told the producer, “We don’t do films that do not have a projected box-office of at least $150 million.” The reason is that each studio has only a limited number of slots for their releases, and they have to fill them with so-called “high value” films with a potential to generating hundreds of millions of dollars in revenue to pay their overhead. Indie films, even if they return a profitable on a relatively small investment, cannot be counted on to do that job.
So how does an indie producer get an American distributor?