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Streaming has turned film financing 'upside down': 'It's VOD or die,' says lawyer

·Senior Reporter
·7-min read
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Amid the fast and furious onset of streaming, amplified by COVID-19, Hollywood's entire ecosystem has been turned on its head.

Low budget films and non-blockbuster genres like the rom-com have disappeared from the box office, leaving independent filmmakers beholden to streaming platforms for support.

"Theaters are completely dead other than for blockbusters with $100- to $200-million budgets," Schuyler Moore, an entertainment attorney at Greenberg Glusker, told Yahoo Finance.

"Those types of films will go out to theaters, but no way the independent [films] will," he continued, emphasizing that film financing has turned "completely upside down" amid the streaming boom.

"It's streamer or die" in today's VOD-focused world, Moore said. He added that virtually all streaming providers want to be heavily involved in the process from start to finish — a double-edged sword for creatives when it comes to control.

Anita Surendran, a partner at entertainment law firm Granderson Des Rochers, further explained the complexities of the current film financing process, adding streamers that finance projects at an early-stage "naturally want final cut and approval over the creative."

Consequently, many filmmakers prefer to go the independent financing route and then shop the project once it's completed; although, that way of financing is a dying breed amid the current media landscape, the attorney cautioned.

"It's much less common since the streamers now have so much to put towards original content and they're not limited on bandwidth— they're constantly looking for filmmakers, stories and things to produce," she continued.

"This is the golden years," Moore added, reiterating how producers and filmmakers have many different platforms to pitch to in order to get independent and non-blockbuster movies off the ground.

"You should be able to get a film sold somewhere if you've got a track record."

 

However, Moore also warned that the crowded streaming landscape — which includes Netflix (NFLX), Apple TV+ (AAPL), Disney+ (DIS), Amazon Prime Video (AMZN), and HBO Max (WBD), among others — won't last forever.

"Only a few are going survive...the growth party is over," he surmised.

He guessed that Disney and Netflix will be the only two streamers left standing, despite various hurdles the latter has faced in recent weeks — most recently laying off 150 employees in an effort to reduce spending and offset slowing revenue growth.

"The reason why is both of them have enough content to make it worthwhile to have a subscription. I don't think anybody else does," he stated bluntly.

Consequently, if and when that consolidation occurs, Moore revealed that it will be harder and harder to pitch projects "because you've only got two places to go. The prices will come down, the premiums will come down and only those select platforms will be left calling the shots."

"It's going to be a different world going forward in a year or two," he predicted.

Content is not king, distribution is king...Schuyler Moore, entertainment attorney at Greenberg Glusker

The marketplace, fueled by the streaming phenomenon, has already seen drastic changes.

"If you go back 10 years, the studios had all the power, because they controlled the distribution," Moore pointed out, underscoring that "content is not king. Distribution is king."

Now (with the exception of Disney) studios are largely "just production houses for the streamers."

"Studios are on their knees. They got no clout at the table because anybody can produce. The whole world is upside down, particularly for the studios," he continued.

Streaming has turned film financing 'upside down,' says attorney
Streaming has turned film financing 'upside down,' says attorney

The attorney added that film festivals like Sundance, Cannes, Tribeca, and others are essentially "moot" in today's streaming-first environment, revealing they do not offer the same kinds of incentives compared to prior years.

"Overall only 2% of films get sold at the market," Moore revealed.

He called out films like "Coda" — which Apple TV+ paid a record $25 million to secure the distribution rights for after it premiered at Sundance — as an incredibly rare occurrence.

"Nine times out of ten, you're not buying a film you saw at one of these film festivals. Now, people are going directly to streamers who are then financing from there," he continued.

Surendran agreed, although she argued that festivals still serve a certain purpose for creatives.

"Certainly, from the perspective of critical acclaim, it's still any filmmakers' goal to be recognized at one of these festivals — but the marketplace is different," she explained.

"Festivals aren't necessarily there to serve as part of the marketplace. No one's buying these films, but they do serve a purpose from a reputational standpoint," she continued.

How films are financed in VOD-age

Moore advises his clients to team up with the producers who have a direct line to streamers (he refers to them as "the anointed ones.") They are often the most successful at getting films made, the attorney said.

Surendran added that sticking to a realistic budget is key, as well, explaining "a lot of times we mistake that the bigger the budget, the better the movie. But that can be a really difficult place to be."

"You want to make sure you're in a good position to actually sell the movie [without] a deficit," she continued.

Once a film is green-lit by a streaming platform, there are then two ways that a film is typically financed.

Model one is considered a "cashflow" arrangement where the streamer pays for production costs upfront.

Model two hinges on the delivery of the project, so a streamer provides a contract that says it will pay after the film is complete. The producer will then ask for a bank loan to finance until that time.

Alternative forms of film financing have also emerged in recent years — like NFTs, or non-fungible tokens.

"I've seen people actually start to finance films by selling NFTs upfront," Moore said, explaining that producers will sell clips of a film as an NFT with some projects raising their entire budgets solely through NFT sales.

However, the attorney cautioned that that was at the height of the NFT boom and the market has "radically cooled down." Another issue lies in the SEC's inquiry into treating NFTs as securities under federal law.

As a result, "I don't think this is going to continue for long," he surmised.

Most films lose money...Schuyler Moore, entertainment attorney at Greenberg Glusker

Overall, Moore says the industry has drastically changed — and that he wouldn't exactly encourage his clients to get into the filmmaking business.

"I tell everybody that most films lose money. This is a losing business, don't do it, especially if you don't have a pre-sale to a streamer," he said.

"But if you can sell to a streamer, then you get your premium. You're not going to get a share of the net profits. There is no back-end payment, but you'll get a significant premium and will walk away with some cash."

Surendran agreed that the process has become harder to achieve due to the sheer volume of content, and the fact that streamers now have their own original content departments.

"There are thousands of movies that are made and only a handful are sold at a profit," she said. "And then of those movies, only a certain amount go on to receive universal acclaim."

In order for independent filmmakers to get recognized, their movies must have something special, the attorney said, citing the unique plot lines of Oscar winners "Parasite" and "Coda" as examples.

"This is hard...it's way harder to get independent funding and, unfortunately, it's becoming way harder for independent filmmakers to see their film on a big screen," she concluded.

Alexandra is a Senior Entertainment and Food Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 or email her at alexandra.canal@yahoofinance.com

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