Historical Context

To understand the historical context and the devastating blows to the independents and free enterprise that the blindly naive U.S. government continues to allow, consider the following. In the 1940s, the studios indirectly controlled almost all independently owned theaters. They did this by selling “blocks” of their films (usually ten) to the theaters, which was known as “block booking.” If these theater owners didn’t accept the blocks (which could comprise several B as well as A movies), they got no films at all. That would mean no star talent to attract audiences. What resulted was the legal case United States v. Paramount Pictures, Inc., et al., in which the U.S. government filed an antitrust suit against the studios and alleged that studio control over distribution and exhibition was, according to the Sherman Antitrust Act, an illegal restraint of trade. Basically, the government gave the studios an ultimatum: they must divest themselves of either their distribution arms or their theaters.

There was also, until recently, a federal mandate that required broadcasters to air a certain portion of independent programming. But that mandate eventually expired and nothing replaced it. At the time of writing, there was no requirement for independent programming in the United States, and just six major conglomerates owned every conceivable form of production and distribution, on a global scale. Think of this. What is more onerous and devastating to the restraint of free trade: the studios that owned a chain of movie theaters or the conglomerates that today own the studios, networks, and international distribution in most major territories worldwide, television stations, radio stations, and all of the major internet search engines and websites?

How much more devastating to small business and independent production could these behemoth monopolies be? The “conglomerates,” as they exist today, are so much greater and more powerfully glaring monopolies than any studio that owned a chain of cinemas, yet our government has turned a blind eye, at the expense of free enterprise and the protection of small businesses and individuals, as antitrust laws are violated. Washington is a corrupt place where you have to “pay to play,” which means that lobbyists are paid to bring issues to the attention of congressmen and senators, who, in turn, expect political contributions when they devote their time and energy to a concern.

The Independent Film and Television Alliance (IFTA), whose board I served on for almost a decade, is a trade organization that fights for the rights of independents. It is up against the conglomerates, which have huge budgets for their lobbyists in Washington, but hopefully there will be governmental intervention sooner rather than later. Interestingly, in industry vernacular, the studios used to be referred to as the “majors.” Now the Hollywood trade press refers to them, more fittingly, as the “conglomerates.” The six major vertically integrated conglomerates are Viacom (which split from CBS in 2005), CBS Corporation, the Walt Disney Company, 21st Century Fox/News Corporation, Sony, and Time Warner. (A list of these major entertainment conglomerates and their holdings, as of 2013 writing, can be found in Appendix A.)

Monopolies versus Independent Free Trade

Even more frightening is a specific breakdown of what the conglomerates actually own. As an example, I offer a list of Time Warner’s assets in 2013.

• Cable channels:
  • Adult Swim
  • Boomerang
  • Cartoon Network
  • CETV
  • Cinemax
  • CNN
  • CNN Headline News
  • CNN Mobile
  • CNN Radio
  • GameTap
  • HBO
  • iN Demand
  • Metro Sports
  • New York 1 News
  • Peachtree TV
  • Pogo
  • Road Runner
  • TBS Superstation
  • Time Warner Cable
  • TNT
  • Toonami
  • TruTV (with Liberty Media)
  • Turner Classic Movies

• Film/TV production and distribution:
  • Castlerock Entertainment
  • The CW Network
  • Hanna-Barbera Cartoons
  • HBO Independent Productions
  • Kids’ WB!
  • New Line Cinema
  • Telepictures Productions
  • Turner Original Productions
  • Warner Bros. Studios
  • Warner Home Video
  • WB Domestic Pay-TV
  • WB International Cinemas
  • WB Interactive

• Online services:
  • Adtech
  • Advertising.com
  • Amazon.com (partial)
  • AOL.com Portal
  • AOL Europe
  • AOL Instant Messenger
  • AOL MovieFone
  • CompuServe Interactive Services
  • Digital City
  • GameDaily.com
  • iAmaze
  • ICQ
  • Lightingcast
  • MapQuest.com
  • NASCAR.com
  • Netscape Communications
  • Netscape Netcenter Portal
  • PGA.com
  • Quack.com
  • Relegence
  • Spinner.com
  • Tacoda
  • Third Screen Media
  • Truveo
  • Userplane
  • WBshop.com
  • Weblogs, Inc.
  • Winamp
  • Xdrive

• Other entities:
  • American Family Publishers (partial)
  • Turner Home Satellite
  • WB Recreation Enterprises Theme Parks

• Magazines:
  • 4x4
  • Aeroplane Monthly
  • Amateur Gardening
  • Amateur Photographer
  • Ambientes
  • Audi Magazine
  • Balance
  • Beautiful Kitchens
  • Bride to Be
  • Caravan Magazine
  • Chat
  • Chat – It’s Fate
  • Chilango
  • Coastal Living
  • Cooking Light
  • Country Homes/Interiors
  • Country Life
  • Cycle Sport
  • Cycling Weekly
  • DC Comics
  • Decanter
  • Entertainment Weekly
  • Essence
  • Eventing
  • EXP
  • Expansion
  • Family Circle
  • Fortune
  • Golf Magazine
  • Guitar
  • Health
  • Hi-Fi News
  • Hippocrates
  • Home and Garden
  • IDC
  • Ideal Style
  • InStyle
  • International Boat Industry
  • Life and Style
  • Mad Magazine
  • Manufatura
  • Money
  • Mountain Bike Rider
  • MiniWorld
  • NME
  • Now
  • Nuts
  • Obras
  • People
  • Pick Me Up
  • Practical Parenting
  • Prediction
  • Quién
  • Racecar Engineering
  • Real Simple
  • Rugby World
  • Ships Monthly
  • Shoot Monthly
  • Soaplife
  • Southern Accents
  • Southern Living
  • Sports Illustrated
  • SI for Kids
  • Sporting Gun
  • Stamp Magazine
  • Sunset
  • SuperBike Magazine
  • The Railway Magazine
  • Teen People
  • Time
  • TV and Satellite Week
  • TV Easy
  • TVTimes
  • Vertigo
  • Vuelo
  • Wallpaper
  • Web User
  • Wedding
  • What Digital Camera
  • What’s on TV
  • Who Weekly
  • Wildstorm
  • Woman’s Own
  • Woman’s Weekly
  • Yachting World
  • Yachts
  • Your Yacht

The stance of IFTA—as it fights for the rights of the independents, free trade, fair trade, and free enterprise—is paraphrased below (but most of the original language is used).

The freedom to create and distribute movies and TV shows is threatened by a handful of giant media companies that want to control both programming and all the distribution channels in order to protect their own marketplace positions.

From 1995 through 2010, the share of independent TV production on prime-time television fell from 50 percent to 18 percent. Why? Because a few giant media conglomerates—News Corp., NBC/Universal, Disney, Time Warner, Viacom—combined TV and cable networks, movie studios and distribution channels to control as much of our entertainment system as possible, leaving independents gasping for air time. The result: less quality programming for the public and fewer options for creative, talented people across the world.

While independent producers and distributors have been pushed out of the marketplace, the Federal Communications Commission (FCC) has chosen not to address the issue, despite simple solutions for relief to ensure the survival of diversity in programming.

But the prospects for independents can be improved. The FCC can require broadcast and cable stations to air a minimum amount of programming from diverse sources, which would give independents the opportunity to break through the consolidated entertainment marketplace.

This doesn’t just affect television and film. Today, the history of television tells us that the future of the internet is also at risk as huge telecom and cable companies strike deals to secure program supply for the broadband networks they control. Without help, this last open frontier for independent voices may also be fenced off to protect these giant companies’ investments.

Join the fight for independents! Protect the public’s access to challenging films and entertaining television in theaters, on TV, and over the internet. Write to the FCC, asking them to protect the public’s access to independent film and TV programs by requiring media conglomerates to air a minimum amount of independently created programming. Help preserve quality, creativity, and democracy in media!

More than just preserving quality, creativity, and democracy, divesting the conglomerates would preserve any individual’s right to create his or her own film, television show, entertainment project, or entertainment company, without being an employee puppet within the studio/conglomerate system.

Here is an even bigger travesty. After the conglomerates, unchecked by the federal government, were allowed to monopolize every imaginable form of media and distribution outlet, they fired their employees in droves, while CEOs and key executives continued to make millions per year in bloated salaries and stock options. The February 15, 2009, issue of the Hollywood Reporter stated that “Media and entertainment firms have continued to announce job cuts since the start of the year,” with the Disney/ABC TV Group cutting another 400 jobs, Warner Bros. another 800, AOL another 700, Clear Channel another 1850, Tribune another 300, Bloomberg another 100, and Warner Bros. Cable another 1250, all in the first five weeks of 2009.

Home Entertainment Consolidation

As Blockbuster monopolized the domestic video rental outlets and, concurrently, sell-through (the discount sale of videocassettes and later DVDs) evolved, it and eventually Wal-Mart became the major retail sales outlets for home video product. As all of the independent, straight-to-video distributors and retail stores were put out of business one by one, Blockbuster created an acquisitions arm called DEJ Productions. Its mandate was threefold:

• to acquire all the domestic rights for independent films that DEJ, a Blockbuster subsidiary, would own;
• to create its own library; and
• to promote and distribute these films through its massive chain and use its in-store promotional advantage to induce consumers to buy and rent its own acquired product.

In the same era, HBO acquired a certain number of independent films for “premieres,” meaning those films would premiere on HBO before they were exhibited anywhere else in the domestic territory (if not the world). HBO was very discerning and specifically acquired action and thriller films that were consistently true to the genre. Incidentally, out of seventy films that my company Royal Oaks Entertainment produced or acquired, only three sold as HBO premieres: Grid Runners, Crash Dive, and The White Raven, each of which I happened to direct. I sold many films to HBO as a producer at Franchise Pictures, from Mercy, starring Ellen Barkin, and A Murder of Crows, starring Cuba Gooding Jr., to The Confession, starring Alec Baldwin.

As Blockbuster was losing many of the best independent films to HBO, it created its own strategy to compete. For a brief period, Blockbuster and DEJ acquired independent films for “premieres” as well, meaning that the films would debut exclusively in Blockbuster stores before distribution in other markets. Selling a film as a “premiere” to either Blockbuster or HBO meant substantially more money for the producer.

One of the Blockbuster domestic “premiere” acquisitions was the popular cult film The Boondock Saints, which I executive produced (providing the financing and foreign and domestic sales for the picture). It was never released theatrically in the United States; instead, it was acquired as a straight-to-VHS/Blockbuster world premiere for a one-year term. The film was extremely successful for Blockbuster, and when the one-year term expired, I offered the company an extension, as well as DVD rights. Blockbuster’s executives declined to extend the term, saying that they believed that everyone who would ever want to see the film had already seen it. Similarly, they declined to acquire DVD rights, stating that they were not in the DVD business. (The DVD format was in its infancy at the time. Players cost $1200–$1500, the image was often pixelated and erratic, and the discs would frequently freeze.) Consquently, a small, domestic home video company bought the DVD rights for a minimal sum, because there were no other offers. That company held off on the distribution of the film until DVD matured as a format, then it released it through Fox, making millions of dollars that Blockbuster could have had.

By 2001, HBO had stopped buying premiere movies from independents, focusing instead on original content and series events for its network. By 2005, after several poor management decisions, falling stock prices, and failure to meet its bank covenants, DEJ was sold. Blockbuster stopped paying to acquire independent films and began a revenue share model with studios. This approach has subsequently allowed the company to stock more copies of new releases. By 2003, fueled in no small part by the dramatic drop in the retail price of DVD players, DVD became the viable successor format to VHS, and by 2006, as announced by the Hollywood trade publications, the demise of VHS had become official.

Major television networks have rarely bought independent films for network broadcast. Over time, the cable networks increasingly curtailed their purchase of independent films in favor of studio output deals and original programming. As described above, middle-tier buyers for independent product in the domestic market, who previously were the mainstay for independent film sales domestically, have decreased substantially or ceased to exist. The few survivors have been the very smart DVD distributors, genre arms of the majors and mini-majors, and the innovative independents who have figured out new models of distribution strategy, such as the enormously successful “faith-based” films like Facing the Giants and Fireproof.

While the above events were happening in the United States, very similar circumstances were unfolding abroad.

The Independent Film & Television Alliance (IFTA) has taken the following stance on behalf of its members:

Keeping Abreast of the Changing World

The terrorist attack on U.S. soil on September 11, 2001, was a seminal event worldwide, and nothing in the entertainment business has been the same since. The early 2000s saw a series of calamities that affected the international independent film-buying marketplace. Leo Kirsch, who was the largest media mogul in Germany (at that time the most lucrative territory for U.S. independent film sales), and his Kirsch Media companies went bankrupt. For at least a couple of years, Germany virtually ceased buying independent film product for its domestic television service. (German sales have since resumed, but to a much smaller degree than before.)

Silvio Berlusconi’s last two tenures as prime minister of Italy and his legal indictments for fraud and embezzlement had an extremely detrimental impact on U.S. independent film sales in Italy. Italian television is a very difficult sale in today’s market, leaving much smaller dollars, if any, for an initial Italian video sale and the hope of a future television sale.

For years, the competition between the leading satellite networks in Spain kept the prices competitive for independent films, but the prices dropped considerably when these stations merged.

Korea, which had a large but short-lived home video boom during the 1990s, was a huge market for American-made independent films during that decade. A few years later, though, the Korean home video market crashed. With the exception of very low-level genre films, the country stopped buying almost all straight-to-DVD films and focused instead on purchasing major studio theatrical releases with large P&A to support their domestic theatrical releases.

Japan, which has always been a mercurial market, started garnering better box office and generating higher returns on local Japanese product, and even Korean product, than American films, with far cheaper acquisition prices than it had been paying for U.S. movies.

Also bear in mind that costs are incurred for dubbing into the local language for every sale to a Western European territory. Smaller territories incur lower costs for subtitling into the local language.

Coupled with all the above, reality programs saturated the world in the 2000s. As successful as Big Brother, The Amazing Race, Survivor, and numerous other reality shows have been in the United States, they have been equally successful abroad. Foreign countries began producing their own reality programs in their own languages, with no dubbing or subtitling necessary, and these were not dependent on traditional stories or screenplays. Such shows can be shot quickly and cheaply, without the costly cinematic production values of feature films. These foreign territories now own the productions outright, and they often attain higher TV ratings than U.S. movies.

In short, over the past fifteen years, the global marketplace has shrunk and consolidated, making it all the more critical for independents to produce cost-effective pictures with the right cast and of the right genre for the global marketplace.

In previous years, an independent producer could often make the right film for the wrong price with the wrong cast and get away with it (or the wrong film with the right cast for the right price and get away with it). Today, however, all three elements are critical for the independent producer. One must make the right film for the right price with the right cast or run the risk of losing money. This means that maximizing production values and recruiting a star-name cast within the most cost-effective budget is essential for the recoupment of investment and profit. (I will discuss finance based on the current global marketplace in a later chapter.)

The April 10, 2008, edition of the Hollywood Reporter stated, “The dead zone for single-picture financing lies in the $3 million–$10 million budget range. Once a budget increases beyond $10 million (‘more money, less risk’), paradoxically, it gets easier.” Again, the domestic studio theatrical release is what the foreign markets key off of for larger films, and it only gets easier if it happens to be the right picture, and if a studio happens to pick it up, and if it supplies the P&A funds, and if it distributes the film in a meaningful way. And if not, guess what? In 2016, the dead zone was more like the $1 million–$3 million budget range. This means even the larger independent film companies need to make movies more cost-effectively than ever before and/or make them larger, with studio release commitments that expand the potential return globally.

The specialty film market, also known as the art house film market, has changed as well. In the past, specialty divisions of studios, dubbed “independent studios” (such as Fox Searchlight; Sony Classics; Paramount Vantage; Focus Features), known for producing or acquiring low-budget art house, or specialty films which are marketed to the intelligent and more discerning adult moviegoer have also cut budgets and reduced costs. “In 2004, the average cost of producing a specialty picture was $40.4 million. At the end of 2007, this number had shot up to $74.8 million with P&A spend; a change of 85 percent. This huge change can be attributed to the fact that specialty division films are more directly under the purview of the parent studio. In contrast, since 2004, the average cost for a major studio picture has remained relatively stable, rising only 6 percent between 2004 and 2007, from $100.5 million to $106.6 million. (Source: Pamela McClintock, “H’wood’s Niche Reach: Cost to Make, Market Specialty Films Soaring,” Daily Variety, March 6, 2008). Since then, specialty films have, by necessity, dramatically lowered production costs, and several studio specialty divisions, such as Warner Independent Picture and Paramount Classics have been dissolved.

From 1997 through 2002, I created Franchise Classics, a division of Franchise Pictures, which produced and distributed many specialty films that appeared in such major film festivals as Cannes, Sundance, and Toronto. I think we did it right, by green-lighting the pet projects: The Big Kahuna, starring Kevin Spacey and Danny DeVito, which was made for under $2 million; Things You Can Tell Just by Looking at Her, starring Cameron Diaz, Holly Hunter, Glenn Close, and Calista Flockhart, for under $2.5 million; and Green Dragon, starring Forest Whitaker and Patrick Swayze, also for under $2.5million. The pictures sold well worldwide and made money because, even though they were the “wrong” pictures due to their subject matter, which had limited commercial appeal, they were the “right” pictures at the time because of the star casts and were made for the right price.

During this time I also co-founded a sister company, Phoenician Entertainment, which produced many genre action/adventure films but also such specialty films as The Third Miracle (starring Ed Harris and Anne Heche), Entropy (starring Stephen Dorff and U2), and Woman Wanted (starring Kiefer Sutherland and Holly Hunter). If these three films were made today, their budgets would have to be cut by more than half, as noted earlier, in order not to lose money. Due to the consolidation and changes in the marketplace, today’s independent producer must be more skilled than ever before.