US Filmmakers Hindered, Not Hobbled by Asian Crisis
As Korean money dries up, Hollywood's independents scramble for investors.
Coping with crises is nothing new to Academy Award winning film producer Saul Zaentz.
When 20th Century Fox suddenly pulled its multi-million dollar backing out from under his movie "The English Patient" in mid-production, he simply found the money elsewhere.
Now with the Asian financial crisis putting large holes in the budgets of hundreds of Hollywood's independent film producers, Mr. Zaentz, with his white beard and smiling eyes, is counseling his colleagues to remain calm.
"We hear about crisis after crisis for independent filmmakers and distributors," he says. "But think about it, when in your life haven't you had one or two crises ... every day?"
The collapse of the Asian market is rattling American film producers and financiers, but it probably won't affect what Americans see on the silver screen. That the industry can withstand such a blow is testament to its robustness and the global appetite for American-made films.
Overall, revenues from the foreign sales of independent films jumped more than 11 percent last year, despite a drop of almost 10 percent in Asia. This year, sales in the region are expected to plummet further. Meanwhile, dozens of producers have been left empty handed, with Asian buyers no longer able to fulfill big financial commitments made prior to the region's collapse.
But instead of pulling out, canceling contracts, and abandoning Asia, most of Hollywood's producers are opting to negotiate compromises.
"It's the only fair way to do business to keep the relations good," says Julie Savay-Ross of Initial Entertainment Group, a Los Angeles-based producer. "All of the economies are going to rally, so we'll just wait and hope the rest of the world will follow suit and be as supportive."
The biggest financial hit is coming from Korea. Once one of Hollywood's hottest growth prospects, it generated nearly a $100 million in ticket revenues last year, second only to Japan in the region. At the annual American Film Market here this week, 300 independent producers are hawking their wares to buyers and distributors from more than 60 countries. In the past five years, Korea has become a powerhouse both as an investor in new films and as a distributor.
BUT with the country's economic collapse and the devaluation of the won by 50 percent, it's proven to be a paper tiger. This year, Korean attendance at AFM is down by 90 percent from last year. Those buyers who did come aren't expected to make many purchases.
The impact of the economic collapse is twofold. The first is on the producers like Savay-Ross who had large financial commitments from Korean and other Asian distributors. Generally, distributors will agree to pay a minimum guarantee a year or more in advance to pay for the film's production. For instance, they might have committed $1.5 million to help finance the production of a new Steven Segal thriller a year ago. Since the won is now worth half of what it was then, that same commitment today would cost a Korean distributor $3 million.
"So on top of their regular economic crisis, they also have a situation where their costs are suddenly enormous," says Lewis Horowitz, one of the first independent-film financiers in Hollywood. "But the Koreans aren't saying they don't want to pay, they're saying they can't pay now."
So they're asking to renegotiate deals and most producers here say that is the best, and only, way to deal with the crisis. But it can hurt.
"If you thought you were going to get $1.5 million from Korea, but you settle for only a quarter of a million, you're going to be in big trouble," says Tim Kittleson, executive director of AFM.
The second group that could take a big hit is the banks. They make motion-picture production loans based, in part, on the percentage of pre-sold international rights. Many banks also provide what's called "gap" financing to producers who run out of money mid-production. Those loans, too, are often based on foreign promises.
"Some banks, those who've indiscriminately made gap financing deals, are going to be severely hurt by this crisis," says Mr. Kittleson. But Mr. Horowitz says it's not all "doom and gloom," because motion-picture production loans are inherently safe loans.
"We don't have just one source of revenues to pay the loan off, Korea is only one territory," he says. "There are dozens of others around the world which could make up the loss."