Slava Vladimirov: How indie films are financed in the USA

Вячеслав Владимиров

Slava Vladimirov is partner at Aperture Media Partners – the company which helped finance a lot of successful films like Now You See Me 2, Mother’s Day, John Wick and Triple 9. In an exclusive interview to Сut Insight Slava Vladimirov explained how independent films are financed in the USA, how these investments pay off, why only one out of ten films made in the USA, CIS and Europe hits the cinemas and what role online cinemas play in the modern society.

Vladimirov has also acted as executive producer of such films as A Walk in the Woods, Marauders, Alien Abduction and Ratchet & Clank.

The very definition of “independent cinema” is quite blurred. What kind of films, in your opinion, fall under this category?

Many people assume that “independent” cinema is synonymous to art-house films, i.e. a short film with a highly creative concept. In reality, many successful big-budget commercial films are independent. Think of such famous high-grossing blockbusters as Twilight, The Expendables starring Sylvester Stallone, Olympus Has Fallen that stars Gerard Butler, John Wick, The Mechanic – all of these are independent films that borrow little from the art genre. As a matter of fact “independent” cinema is not something that can be explained in artistic or genre terms. To put it simply, an indie film is a movie made outside of the major film studio system or by a studio that is not a major one.

Because such films are made outside of the studio system and its many controlling factors, the director has a freedom of expression and can choose various themes to play with. That’s why people usually think that indie and art-house films are the same thing. Even though artistic experiments and freedom of expression are not prohibited within the major film studio system, it mostly favors established film directors, who have a stronger leverage with the studio management. At the same time, indie films often lack artistic value.

The main difference between studio and indie films is how projects are financed. The studio system itself finances the development, production and distribution of their films in various markets across the world. And the budget for an independent film is formed from independent sources: bank loans, private investors, public funds, etc. Such films are distributed in various territories by independent companies. Sometimes a big studio acquires rights to an independent film, and then it can’t be distinguished from the one created by the studio.

From what I’ve gathered, all American films fall under either of these two categories: studio and independent. Is this so?

In business terms, probably yes. But there’s also a less commercial segment. Let’s call it opportunistic. Think of a well-to-do person who wants to make a film, which has a strong social message, or they want to help close to them launch an acting or film directing career. Sometimes such cases are not defined by business logics only, and often such projects do not enter the distribution system but end up gathering dust on the shelves.

Back on the subject of studio produced and independent films. How to raise money for an independent film in the USA?

There could be various ways to do that, but speaking in very general terms and from a professional perspective, filmmaking process looks something like this: a producer comes up with an idea for a new movie, either based on a preexisting story or an original concept. If the story is already written, the producer must acquire rights for it. Then he enlists the help of a screenwriter. Once the screenplay is written, the producer enlists the agreement of a film director and a number of key actors to support the project.

Thus a so called “package” is formed. Then the producer hires a specialized company – a sales agent whose work is to sell rights to this package. The agent promotes this project in film markets. The largest film markets are held in Belin in February, in Cannes in May, in Toronto in September, and in Los Angeles in November. We are taking about large fairs where distributors from various countries of the world can acquire rights to films. Some of these films are completed, but big-budget productions are often sold as packages.

Having purchased the film rights, the distributor does not pay the agreed amount of money at once, but rather makes a small deposit. The rest of the sum is paid once the film is finished. In return for this fixed sum of money, the distributor attains the right to commercially release the film within a certain territory. Many independent American films are financed by means of such pre-sales as well as government grants.

Let’s say the film’s budget is about $20 million. However, the rights to release the film in other countries may already have been sold for $12 million even before the film went into production. Some money may be returned through government grants in the country or jurisdiction where the largest part of the budget has been spent. But it is not cash we are talking about, but rather money pledged for the future. It’s for the hard cash secured by these obligations, that the producer comes to a company like mine. And once we have a full agreement, the filming process begins.

It seems that financing studio films is easier…

Studios are usually big companies with access to large amounts of cheap money. That’s why major studios can finance films from start to finish on their own. Besides, major studios have their own system of distribution throughout the world, which allows them to handle film releases in many countries. Once an independent film is made, it can also be distributed in select territories through a major film studio system.

European film producers quite often go for state money. How about American film producers? Do they use money from the state budget?

It’s true that in Europe, state and quasi-state funds and grants make up a substantial share in financing films. In the USA too there are local government sponsored programs that support the industry by means of tax deductions. But in the United States they are more formalized and do not set specific conditions for the film content. There are similar programs in Europe, as well as those with stricter requirements as to the film content. There’s a kind of cultural filter there.

How about such Spielberg’s films as Saving Private Ryan or Lincoln which provoke in the viewer overwhelming patriotic feelings? In Europe films like these are not only financed but initiated by the state.

There’s a natural demand for patriotic films among American audiences. This kind of cinema is not commissioned by government but rather is driven by business logic, since the viewers vote with their dollars for films glorifying national heroes. Naturally, U.S. Navy (think of Top Gun starring Tom Cruise) will grant access to their aircraft carrier, provided that the military are portrayed in a favorable light. For the all-volunteer U.S. Armed Forces (with no mandatory conscription) this provides an additional means of promotion. But a film like this will not be commissioned by the military. It’s just that a film telling a story of people on the aircraft carrier is very likely to appeal to the audience. It will be the cinema businesses that will finance such a film.

The best contribution the state can make to promoting patriotic cinema is to create good living and working conditions for every citizen of the country. Then each citizen (who is also a viewer) will be proud of it and be willing to see films about the country and its people on screen.

What does an independent American film production budget look like?

To a large extent it depends on the budget size and on how appealing this project is for the market. An exciting project with a reasonable budget could be one hundred percent funded with bank loans.

Opportunistic cinema is often one hundred percent financed by private investors. In general, professionally made films are from sixty to eighty percent financed with debt resources using rights and government grants as collateral. The rest are financed with capital investments from film companies or investors which specialize in film industry.

Many people believe that the main source of returns on the money invested into a theatrically released film is the box office revenues. But what share of a film’s revenue comes from the box office in real life?

It depends on the project. Many films do not get a theatrical release at all. Each year more films are made than people can possibly see in the cinema. Viewers are physically constrained by the amount of time they have. Very few people go to the pictures even once a month. There are 52 weeks in a year, and usually every weekend sees a simultaneous release of 3-4 films. Therefore only about 200 films, in theory, stand a chance of getting a theatrical release. This being said, in the USA, CIS and Europe alone, around two thousand films are probably made each year.

To sum up, most films earn money outside theatre system in other so called “distribution windows”. These include home video (DVD, video rentals, online purchases), pay and regular television, and video on demand (SVOD). Special distribution rights are also sold to hotels, cruise liners and mobile networks.

Speaking of films with a wide theatrical distribution, very schematically it can be said that in developed countries films earn one third of their revenue from theatrical release, about one third – from home video release, and another third – from television and other mediums. But it’s an overgeneralization. It may happen that a film, which has tanked at the box office, earns a lot of money from DVD releases or TV showings. Films that fall under this category are often called “cult films”. Examples include Fincher’s Fight Club or Kelly’s Donnie Darko.

In recent years online services have been acquiring rights to films like crazy, and so have conventional distributors. A striking example of this is Netflix, which acquired rights to a whole series of films that premiered at this year’s Cannes Film Festival.

Is a festival film’s revenue coming from its online release really comparable to that from a theatrical release?

Each film is unique, so it’s hard to compare revenues from theatrical release to that from online release in general. A film can become a flop in either case, or achieve huge success. I think that many filmmakers want their films to be seen by as larger an audience as they can possibly attract. They enter the filming process driven by this wish and invest years of their lives into creating their products. But, as I’ve already said, many more films are made than the number of people cinemas can accommodate.

At the beginning, Netflix, Amazon and other online platforms hosted films that didn’t make it to the cinemas or were out of theatres. In a way, this stigma remains to this day. For instance this year Fox Searchlight has wrapped up a $17.5 million deal to acquire rights to Nate Parker’s The Birth of a Nation. Yet, rumor has it, that Netflix bid $20 million for the rights to the film. The producers, nonetheless, went for a conventional distributor hoping for a wide theatrical release, and thus a larger audience. A wide theatrical release also implies bigger promotion costs, massive media coverage and billboards promoting the names of the film’s creators. The film industry is often driven by big egos and desire for self-glorification – these are very important factors that should not be disregarded.

Yet, one’s perception of digital distribution is constantly shifting. The surge in the number of subscribers enables leading online companies to spend on content as much money as regular film studios do. The quality of films has increased dramatically, and so have the marketing costs. Today Netflix and Amazon produced TV series (House of Cards, Narcos, Transparent) and films (Beasts of No Nation) are nominated for Emmy and Golden Globe awards. Netflix is investing $90 million in David Ayer’s upcoming film with Will Smith in the leading role. If you drive around Los Angeles, you’ll notice a large number of billboards promoting films available only on Netflix. The scope of marketing campaigns is similar to that developed for blockbusters. Therefore the prestige of alternative distribution channels will rise steadily.