Private Equity Follows Quality Not Quantity Into Fickle Indie Market

Private equity investors in indie movies “might as well throw their money down a rat hole.” Those words of warning from the late Jake Eberts (“Driving Miss Daisy”) continue to send a shudder down the spines of the unrecouped. Indeed, the industry motto that “you never get net” remains as prescient as ever.

As industryites takes meetings and nosh in Santa Monica during the AFM, they acknowledge three key factors that have dented the prospects of recouping equity: The first is the demise of previously semi-reliable ancillary revenues via DVD and free TV since the financial crisis of 2009. The second is the disappearance of any back-end sharing of platform profits given the SVOD business model; and the third is less choice due to the steamroller of original commissioning by the streamers. Talent is being signed up at such speed and scale that slim pickings remain for indie producers to put their best packages forward, let along bring equity partners along for the ride. 

According to industry analyst Stephen Follows, between 1999 and 2018 just 3.4% of independent films in the U.S. made a profit; 90% never got a theatrical deal, and that’s before factoring in COVID and the pressure on cinemas’ release patterns post-2020.

Yet despite the evidence, when analyzing both larger and smaller equity-backed outfits, some results have been seismic. Take A24, now valued at $2.5 billion after a $225 million investment led by private equity firm Stripes this summer. Backed with “a few million” dollars of seed cash from co-founder Daniel Katz’s former employer Guggenheim Partners, A24’s diverse distribution and production formula has more than repaid its capital partner’s faith.       

A focus on quality, not quantity, is in vogue. Niels Juul, who runs indie No Fat Ego (“Killers of the Flower Moon,” “Ferrari”), suggests that today’s market offers rich rewards for those that are prepared to be different, and not part of the mass market.

“The openings for quality indie fare are there, but you need to team up and create a level of trust and professionalism. But rather than focus on project-by-project funding, we’re raising equity across a slate model and making sure each campaign, starting with theatrical, offers a real lifespan of value, which is completely different to the short-term streaming mentality,” Juul says. 

He’s confident that equity investor appetites are primed for new material, noting that “nothing original never came out of an algorithm.”

Taking a fresh and genuinely innovative approach to content can resonate with committed private capital investors. Dancing Fox Entertainment, launched last year with the blessing of Anglo American backers, is a strong case in point. Founded by producer and writer Sonia Guggenheim and social entrepreneur Hadley Greswold to tell entertaining and socially provocative stories, the U.K.-U.S. shingle is developing a range of material across TV and film, driven by activist and social justice themes but mindful to avoid falling into negative memes and dead ends so often served up by socio-politically oriented fare. 

“Young people are overwhelmed and horrified by the world they’re inheriting. And rightly so,” Guggenheim says. “At Dancing Fox, we want to speak to these anxieties — challenging the status quo and offering hope with thoughtful and entertaining stories.” 

Beyond its own original IP, the company is flying in the face of the current equity aversion and actively seeking film and TV projects needing combined producer/equity partnerships at around the $10 million and below budget level.   

The overall shift from equity project financing to company backing, in turn enabling independent shingles to invest in IP, writing and packaging before going to market (with or without co-investment) is notable. One of the most globally active is Stampede Ventures, founded by Greg Silverman, Gideon Yu and Jaeson Ma in 2018 and backed by a host of international venture capital investors.

Stampede Ventures has more than 100 projects in active development and ties with various studios, platforms and networks including CBS Studios Intl. across international content.

Recent fare includes Emma Roberts’ vehicle “Space Cadet” (in production) and HBO Max’s “Naked Mole Rat Gets Dressed: The Underground Rock Experience,” based on IP from noted children’s author Mo Willems. 

“We spend a lot of time sourcing material and developing our IP and can work around the world packaging, co-funding and at times 100% deficit financing, which marks us out as pretty unique in the market,” says president Chris Bosco.  

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