Surprising, right? Everything you read is that presales are a dying business, but according to Jonathan Wolf, AFM’s Managing Director, about 60% of the business done at this year’s AFM was in presales. This means more than half a billion USD in presales alone.
According to Mr. Wolf, the market for foreign presales came back by 2010 or 2011. The biggest reason for the initial decline was the glut of equity financing that entered during the economic boom that preceded the 2008 recession.
Presale financing has an enhanced degree of risk, and the biggest reason most buyers take the risk is the fact that they can get the content they need for their distribution platforms need and they can be assured that they’re content pipeline has what they need it to be.
However given how many films were being made, the price for finished films began to drop due to increased competition in the marketplace. Due to the abundance of similar films and filmmakers needing to get something for their projects. Since there was such an abundance of content, buyers were far more likely to have options to find what they needed to fill their quotas without having to buy pre-buy. With that, as well as the inherent risk involved in buying something before you can see it, the presale market dried up.
When the recession hit the equity dried up less films were being made, so the market shifted from being a buyers market to more of a balanced market. So presales became viable again.
That said, it’s not an easy business to be in. It’s only really viable for films over 500,000 in particular genres, with some talent or at least a tested franchise, and a tested director. Without those factors, the glut of content still exists due to the lowered barrier to entry to make a film. Rich Klubeck, a partner at UTA said the following at the finance conference. “A lot of the best movies are execution dependent, and that means presales are just not viable.”
Dramas just aren’t pre-sellable because even with the best script, talent, and director; there’s no real way to tell whether the film will be sellable to a wide audience. A film like Expendables 4 or Sharknado 3 is going to be sellable in many markets regardless of execution. However, a film like Brokeback Mountain or Her might not be sellable depending on it’s execution.
According to the finance conference, while presales have come back, they’ve taken a little bit of a different form. According to this year’s finance conference, instead of letters of credit directly from international buyers being taken to banks and backed to finance part of the film, Reputable sales agents are issuing MGs at an earlier stage that can be taken to the bank. Keep in mind that not all sales agents at AFM would be considered reputable enough for a bank to back the presale on letter of credit alone.
If you want to find out which ones would be, the best course of action would be to talk to some of the banks providing presale backed loans in their Los Angeles branches.
Stay tuned tomorrow for a follow up article on “4 industry trends Revealed at AFM 2014.”
Ben is the Author of The Guerrilla Rep: American Film Market Distribution Success on No Budget, Founder and CEO of Guerrilla Rep Media, and Founder of Producer Foundry. Formerly, Ben was the Chapter Leader for the Institute for Ineternational Film Finance for San Francisco, Vancouver, New York, and Los Angeles and screened business plans for the Film Angels. Follow Ben on Twitter at @TheGuerrillaRep.
