Even Hollywood Studios That Churn Out Hits Use Pre-Sales to Minimize Downside
When DreamWorks Studios decided to start pre-selling international territories one year ago, some observers took it as a sign that its main financier, India’s Reliance Entertainment, was scaling back. DreamWorks insisted the strategy just helped the studio make better use of the money it had. A year later, one thing is for sure: Even companies with pedigree, equity and studio distribution need to hedge their bets.
“People used to be walking a tightrope when they acquired a movie, (but) with the knowledge that there was a safety net underneath them,” says David Garrett of London-based Mister Smith Entertainment, which is handling DreamWorks’ presales in Europe, the Middle East and Africa. “Now it’s a bit like walking a tightrope knowing that if you fall off the tightrope, you die. … That makes the whole business much more precarious than it used to be.”
DreamWorks is backed by Reliance’s $550 million equity investment in the company, committed back in 2008. When the studio inked its presales deal with Mister Smith last year, it effectively gave away the upside in certain markets in exchange for covering more than half the negative cost per film, according to an insider.
And while some might say that you don’t give away the upside unless you have to, others would argue that today’s financial climate requires a prudent approach to spending the money you already have.
According to DreamWorks prexy Jeff Small, it’s not smart to fully commit all financial resources at once without some hedging. “There is an optimal amount of movies that the company can make,” he says. “If you take any kind of financing and (you go ahead and make 10 pictures just) because you have the money, that’s really short-sighted.”
DreamWorks, according to Small, aims to make four to six films per year under its new strategy — about the same, on average, as what it was producing before. So far, the company has two films slated for release in 2014: “Need for Speed” and “The Hundred-Foot Journey.” Small adds that the company is likely to put two additional pictures into production for next year.
“I think that every company in every business in every industry wants to find ways to use their capital efficiently and to stretch it out as far as possible,” Small says. “It helps (DreamWorks toppers) Steven (Spielberg) and Stacey (Snider) have more flexibility to make what they want to make.”
Garrett, a co-founder and former president of Summit Intl., believes that effective use of capital is necessary even for companies that churn out hits. Summit sold international rights to juggernaut “Twilight,” but kept North American. That liberated more cash for the company to invest elsewhere.
“If we had put ‘Twilight’ through a studio worldwide, we would have been an awful lot richer, but we would have never got all our other films made. We wouldn’t have gotten the third ‘Twilight’ made without the other independents supporting it,” says Garrett, referring to Summit’s distribution partners. “There’s synergy there.”
Pre-selling certain international territories can also help hedge against regional instability in a way that doesn’t happen with a studio distribution deal. If a film earns $1 million in South Korea, for instance, but loses money for distributors in France, the losses in Gaul don’t cancel out the surplus.