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Getting Real with Indie Film Finance and Distribution...Part 2

Expert Witness: Kathryn Arnold
In Part I, we talked with Financier/Producer Michael Mendelsohn about Hedge funds and what they are looking for in terms of financing films. They prefer slates, which create a portfolio effect with which they can amortize the risk across a variety of film, genres and budgets. If that’s the game Hedges funds are playing, what are equity/wealthy individuals looking for?

MM: I don’t think wealthy individuals or equity investors are looking to be in the movie business to make a profit necessarily. They are looking to talk about an issue, or a socially relevant subject matter. Many of them want to be heard.

A perfect example of this is Participant Media, headed by Jeff Skol, internet entrepreneur and former President of Ebay. “In January 2004, Founder Jeff Skol brought together a handful of entertainment industry executives who shared his interest in creating quality entertainment that would engage the audience, generate awareness of topical and interesting issues and inspire
individuals to take action. Participant Media was born.”

KA: Michael, you’re both a producer and a financier…so what do you look for in a project to make a financing decision?

MM: I look for the same things as a producer and as a financier…I need the same elements to be there. Although, big elements aside, I’m starting to get more “issue oriented.” What I mean by that is a project that can have an impact on people, or change people’s minds about an issue or idea.

KA: So you’re looking at issue oriented projects because that’s what you’re more passionate about, or that’s what the audience wants?

MM: Well, I think both. And as an indie producer, I can’t really do a $250 Million SPIDER MAN. But I can do $30 million and under picture, and that’s where we look for big stars….But now the definition of big stars has changed….it used to be Al Pacino and DeNiro…they used to be considered big stars, but now that’s changing…..

KA: Who are the big stars now?

MM: I don’t know anymore…(laugh)… it’s George Clooney, Brad Pitt,

KA: What about the kids?

MM: Taylor Lautner….Robert Pattinson…

KA: Is there a sweet spot for budgets now?

MM: Well, issue oriented movies that are done for under $5 M, action movies that are done for around $30M…with the right cast.

KA: So is the mid-zone kind of a danger area?

MM: Yeah…the only thing you can do for the middle zone, is a British movie that is an adaptation or remake of a modern day take on a Shakespeare story like Romeo and Juliet. For instance, ANONYMOUS cost $30M…KING’S SPEECH cost $15-16M. Both dramas in that mid-zone…but British oriented.

KA: And why do they seem to be British films?

MM: They just seem to be the ones that the Weinsteins will distribute. (Laugh)

KA: So what would you say has been the biggest change in film financing in the last 5 years?

MM: What’s missing is the lack of educated film financiers. No longer are there independent financiers that are willing to fund smart indie pictures. They’re funding BATMAN, they’re funding 300…Outside of the issue-oriented film, financiers are independently funding major studio pictures.

KA: Do you think that VOD and digital downloads are a significant revenue stream now?

MM: Absolutely.

KA: How does it monetize in your financial formula?

MM: We put it into the section of Home Video rentals and we split the number with DVD rental and sales. VOD takes a piece of what used to be DVD. DVD got weaker, and now VOD and downloads are getting stronger.

KA: We’ve been reading that Netflix is going through some growing pains and possible hard times. The studios are holding back their movies or asking exorbitant prices. Are you hearing that the studios are doing their own streaming deals?

MM: Yes. They’re distributing through ITunes, or through Microsoft, or through 3rd parties. The Studios never like to let any company get too powerful.

Examples: Vongo and Movielink. These services offer thousands of titles around the clock, from recent blockbusters to Hollywood classics. Some for as little as $1. “After spending the past few weeks trying them out, I've decided they're compelling alternatives to both video stores and DVD-by-mail services. Now it doesn't matter where I am or what time it is. If I have Media Center and a high-speed Internet connection, I have a movie theater.” Michael Stroh/Microsoft

KA: Are investors’ expectations higher or lower than in years past?

MM: Higher. (Why?) Because many of them made a lot of money in the real estate debacle, so they think they should make a lot of money in film….

KA: What keeps you making movies?

MM: The passion that I have about storytelling…Sometimes I wish I didn’t have the disease… (laugh) and I could do something else…but people keep coming to me to make their movies and I get inspired. And when they hit, and you make a difference…it’s very exciting.

Michael Mendelsohn is the Chairman and CEO of Patriot Pictures, and currently manages senior and mezzanine debt portfolios for banks and financial institutions specializing in entertainment. Michael has arranged production financing for over 258 films, including “Lord of War,” starring Nicolas Cage and Ethan Hawke; “Material Girls,” starring Hilary Duff, and “Holy Cross,” executive produced by George Romero. Mr. Mendelsohn has also arranged financing for such films as Beacon Pictures and Wolfgang Peterson’s ”Air Force One;” Lakeshore Entertainment produced “The Mothman Prophecies;” the Wachowski Brothers’ “The Matrix;” Icon Pictures produced “What Women Want;” and Quentin Tarantino’s “Reservoir Dogs.”

ABOUT THE AUTHOR: Kathryn Arnold, Michael Mendelsohn
Ms. Arnold has over 15 years of hands on experience in the film production and distribution arenas. Having produced, directed and overseen the production of over 6 feature films, dozens of corporate videos, commercials and events, as well as working in both the studio and independent film environment, Ms. Arnold understands the inner workings of the entertainment industry, its hiring practices, business development and the economic complexities and nuances involved in a world that very few understand. Working closely with each client, she brings the full benefit of this valuable experience to bear on the client's unique case.

Copyright Kathryn Arnold

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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