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Movie
Stars come in Two Flavors: $20 Million and Free
The
crucial difference between independently-produced and studio-produced
movies is the timing of their distribution deal. Unlike
their Hollywood counterparts, indies rarely have American
distribution deal when they are green-lit for production.
Indeed, it often takes many months, if not years. of screenings
and treks to film festival, before an indie gets distribution.
This reality makes raising money for them a truly daunting
obstacle.
One
ingenious way some in die producers get around it is to
recruit Hollywood stars who will work for them on the cheap.
They then use their names to pre-sell the movie abroad.
The same actors and actresses who quote Hollywood studios
$20 million per movie will work on in die films for a small
fraction of that fee. Often they accept “scale,”
as the Screen Actors Guild’s minimum wage of $788
a day is called, or “near scale” of about $10,000
a week plus overtime. Instead of requiring private jets,
luxury suites, and multimillion dollar perk packages as
they do in studio films, the stars will fly on commercial
flights, stay in inexpensive condos, and get the same per
diem as the rest of the cast. Instead of receiving a sizable
chunk of the gross receipts as they are accustomed to on
studio films, for in die films stars will accept “net
points” (even though they—or their agents—are
no doubt familiar with David Mamet’s famous observation
that in Hollywood, “There is no Net.”) “The
total cost of a star can be less than that of running the
office Xerox,” explained one knowledgeable producer.
The willingness of top stars—including Keanu Reeves,
Mel Gibson, Jim Carrey, Will Ferrell, Drew Barrymore, Al
Pacino, Angelina Jolie, Pierce Brosnan, Leonardo DiCaprio,
Charlize Theron, Tobey Maguire, Demi Moore, Sean Penn, and
Julia Roberts—to work for near scale in the parallel
universe of in die films allows in die producers to take
advantage of a star’s cache to finance the movies.
Ironically, in the era of the moguls, the Hollywood studios
gained a similar advantage over stars by locking all their
actors and actresses into long term contracts in which they
were paid a specified weekly salary regardless of the success
of their movies. Since the stars could not work for any
other studio, the studios who employed them could create
PR images and reap all the benefits of a star’s cache
for themselves. After the studio system collapsed in the
late 1940s, the stars, represented by powerful talent agencies,
quickly turned the tables on the studios. Now, no longer
under studio contract, the stars auctioned off their services
to the highest bidder from film to film. The studios still
paid for their films’ publicity, but the stars now
reaped the benefits of their cache via product endorsement,
licensing their images for games and toys, and a raft of
other celebritized enterprises. So, for example, while Warner
Bros, Sony, Fox, and Universal collectively invested over
a half billion dollars to hammer the super-hero image of
Arnold Schwarzenegger into the public’s mind in a
dozen different action movies, Schwarzenegger himself got
the rewards of his cache, which included a record-breaking
$29.25 million fee for Terminator 3, a personal licensing
empire, and the Governorship of California.
Despite the lure of enormous compensation from studios—which
now include perk packages and cuts of the gross receipts
that can easily exceed $30 million a film –stars find
occasional satisfaction in working for coolie wages in in
die productions, making a distinction between, as one top
CAA agent put it, “commerce and art.” Some stars
may find that roles in studio comic-book movies (that they
share with live stuntmen and digital doubles) do not provide
the acting opportunities, award possibilities, prestige,
camaraderie, or even aura of coolness of in die productions.
Others may want to work with a particular director, such
as Woody Allen, or burnish their fading image as an actor.
They might also need to fill a hole in their schedule—since,
PR hype aside, there is not an endless cornucopia of $20
million parts in Hollywood. Also, when stars do “artistic”
films practically pro bono they do not lower their $20 million
quote.
Whatever the star’s motives, the in die producers
get, if not a free ride, a means of financing their movies
through a 3-step process called “pre-sales.”
Here is how it works:
Step One. The in die producers makes a “pre-sale”contract
with a distributor overseas. In such an arrangement, he
usually turn over all rights to exhibit the movie—including
selling DVDs and TV licenses—in a particular country
in return for a minimum guarantee of money once the film
is completed and delivered. The catch-22 here is that a
foreign distributor often will not commit to a pre-sale
contract if there is no American distributor or unless the
film has a recognizable star (with a star he has at least
a chance of selling the DVD and TV rights). So in die producers
must persuade or seduce a star into joining the movie—and
here is where the genius comes in—for practically
no money. With a star in tow, he can often make enough pre-sales
to cover most, if not all, of the budget.
Step 2. Since pre-sales are no more than promissory notes,
the in die producer must borrow against them from banks
to pay for the movie. Before he can do that, he needs to
guarantee the banks that the movie, once begun, will get
finished and delivered to foreign distributors. So he needs
a completion bond, which guarantees the banks that it will
pay all cost overruns necessary to finish the movie and
if the production is abandoned, it will pay all the money
lost on the venture, which means that one way or another
the bank will get back its money. Two companies, Film Finance,
Inc and International Film Guarantors, provide almost all
the completion bonds for independent productions. (Studios
that internally finance their own movies do not need completion
bonds.) Before either company will sell a producer a completion
bond, he has to meet its requisites, which include buying
full insurance for the star (so if he is injured or quits
the completion bond coverer gets all the money back from
the insurer) and turning over to the completion bond company
the ultimate control of the budget (including the right,
if anything goes wrong, to take over the production and
bring in its own director to complete it.) He also has to
pay the company about 2 percent of the budget.
Step 3. With the completion bond in hand, and the pre-sales
contracts as collateral, the producer then borrows the money
from a bank or other financier. Since the completion bond
companies are themselves backed by giant insurers, such
as Lloyds of London and Fireman’s Fund, the banks
take only a very limited risk in making such loans. John
W. Miller, the head of J.P. Morgan Securities’ movie
financing unit, which last year had $7.5 billion in movie
loans outstanding, told me that he does not even “reads
the scripts” of the in die films he finances. “My
bet is on the solvency of the distributors.” When
these pre-sales contracts are with established international
distributors, such as Sony Pictures, Canal Plus, ToHo Films,
or Buena Vista International, that risk is, he said “negligible.”
Even after scaling all these hurdles, securing the money
and making the movie, the in die producer faces one further
challenge: getting the movie into American multiplexes.
Even with a completed movie and star, finding a distributor
requires going from film festival to film festival, an odyssey
that often proves unfruitful. (ore than 2,000 in die films
were submitted to the Sundance Film Festival in 2007 , for
example, of which about one percent were accepted.) However,
the presence of a star greatly improve its chances, especially
in those festivals, such as Cannes, Berlin, Venice, and
Toronto, that depend on stars for publicity and photo-op.
As one highly-successful in die producer explains, “it
gives the acquisition executives there more of an incentive
to give the film a chance with distribution, because they
figure that even if the film is a hard sell, they can always
promote the star. Selling the film ultimately is what it’s
all about.” So the Hollywood star as homo ludens,
or at least seeking some kind of non-monetary gratification,
winds up as the crucial element in a business model that
in recent years has sustained a large part of independent
films—and, for that, we can all be grateful.
But, alas, by 2008, this business
model became a victim of its own success. The result
of more and more In die producers adopting it, seducing
more and more second string stars into signing on, was that
the competition so intensified that they can today
longer rely on pre-sales to finance their projects.
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