Off the Fence, Amsterdam
We can put up advances on projects. When a producer says, ‘I’ve done my homework, I’ve got my home market behind me, and I’ve got 50% of the budget together,’ then we can be quite interested. If there’s a financing gap, we would put up about 20% (which has equaled more than €100,000 (US$122,000) per hour in some cases).
Distribution advances are exactly what have caused a number of distributors to bite the dust. If you look at the history of distributors in the high-end business, you’ll see that as they widened their reach, they became more confident. Inevitably some of them overstretched and started investing insane amounts on spec as production advances or minimum guarantees. That financing strategy left a bloody trail, so we have pretty stringent rules: the production has to be very strong; the producer has to be innovative and willing to share the risk; and they must have exclusive access to the subject. Plus, we really have to believe they can deliver.
Investing substantial money leads to a creative collaboration on the project, because just giving someone funding and waiting for the completed program is ruinous. Another reason we work this way is because we say, ‘Here’s your 20%, now we’re going to go and pre-sell the project as widely as we can,’ which raises far more money than distributing a finished film.
It would be very sad if distributors weren’t able to take this risk, because then the only prodcos that could cash flow themselves through coproductions would be very large ones, so you’d get mass-produced fare by very few players. Also, those companies generally have to allocate more of the production budget to overheads, so you get programs with lower production values.
I think more and more people are reluctant to give distribution advances. It makes sense to take risks as a producer, but not as a distributor; it’s not worth it because the commissions don’t pay.
About a year ago, we decided not to give distribution advances [because most of the projects] didn’t do well enough to cover the advance. You’ve got all the marketing costs, the expenses to put the project on the market, then you’ve got the advance – we used to give about €20,000 (us$24,000) an hour – so you frequently end up losing money. Even if you recover the advance, you need a number of years before you get the cash flowing. Usually the cost of the cash flow over the first years is higher than the commission.
The problem is, when producers get advances they never get any revenues from their catalogs because the revenues cover the advance. So, I suggest producers start production when they are fully financed. That’s what we’ve done with our own productions – most of the time we’re covered by financing and the sale is profit. If all of your sales are going to cover an advance, then you have a doc that hasn’t made money at the end of the day. It’s not a good business model.
If broadcasters aren’t willing to pay much [for license fees] and they want high-quality productions, it won’t work – they need to spend money for quality. Distributors can’t cover the gap for producers and receive very little from the broadcasters.