UK, EU, US: Multi-layered, Multi-dimensional approaches to manage persistent risk.

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Introduction

The UK sales company HanWay Films was recently celebrated in the UK trade press for an outstanding year of achievement, including 10 Oscar nominations and 15 BAFTA nominations.

The short article provides an extremely helpful case study framework for thinking about the concept of risk in film, how a company has been successful in managing it, and what its current position indicates for wider industry trends.

HanWay (High Rise; God Help the Girl) is integrated with producer Recorded Picture Company (Sexy Beast; Pina) and is engaged in production development, finance, sales and marketing.

 

A network of various ties with different kinds of strength

A proportion of HanWay’s success is allocated to its strong relationships: with talent, with finance, and with distribution.

These relationships can be conceptualised as mitigation against various kinds of risk inherent to the film industry. Both the kinds of relationship (legal / organisational, personal) and types of risk (creative, supply chain, market access) vary, and benefit from extended development over time. They layering together of such strategies

Integrated Business Operations: HanWay was developed from RPC, and as a result benefits from a steady stream of production with known characteristics (auteur cinema), providing a source of product for HanWay to bring to market, generate churn and thus fees / commission. This plays a part in covering costs (as well as the shared overhead benefits of an integrated company), and mitigating the risk of insufficient volume of projects to sell.

Established Creative Partnerships: further the same agenda, although not contractually or organisationally bound, repeated links with production companies such as Number 9 Films and Wildgaze provide continued access to quality material. These links have benefits on a number of levels – creative risk is assuaged as talented individuals are likely to fully realize a script / idea, and this feature can be re-used to mediate relationships with other market actors. Financiers and distributors can review the track record of such companies’ output, and thus the risks of finance falling through / estimates not being achieved are managed.

Personal Ties: The Screen article cites a running relationship between HanWay’s MD and a Paramount SVP as helping the sale of Anomalisa (Oscar Nominated for Best Animated Feature). The revolving and returning relationships between networks of key talent is a feature of research examining how the industry is organised.

Much academic literature investigating various aspects of the film industry, be it focussing on Box Office returns for particular film types, repetition of labour arrangements at an individual / network level, or the organisation of practice and capital allocation through project-based work across temporarily affiliated firms, can be considered to address the core notion of risk management.

The three kinds of relationships mentioned in reference to HanWay are analysed in accounts of how such strategies impact industry organisation.

Hadida’s 2009 review paper, esp. pp.298/9 provides a succinct summary of the interrelation of project organisation, and firm / film performance understanding with regard to management and economics views of the sector.

Hadida, like many foregrounds the project oriented nature of film research, and Natividad’s paper on multiple divisions within an integrated company complements that approach. De Vink and Lindmark (20154) summarise the current FVC fundamentals understanding with an EU policy background esp. from p120.

In DeFillippi & Wikstrom’s 2014 edited volume: International perspectives on business innovation and disruption in the creative industries, the editors, Ferrera-Roca, and Lau & Kwok examine innovation in the Film Value Chain in different contexts. HanWay benefit from both vertical integration with RPC and the stability that brings, whilst also employing the defined operations of a company in the sales segment – i.e. not being responsible as a firm for the majority of any one film’s finance, and diversification of revenue streams across multiple projects and markets.

Cattani and Ferriani and co-authors have published a significant body of work on the network structure of film projects. They examine the role of stars within teams; core-periphery intermediary positions as beneficial for achieving creative results; survival of production companies as linked to degree of connectivity and repeated interaction with distributors; they add network capital analysis to human capital in a multi-dimensional understanding of creativity and performance.

 

A little patience – staying in the game

The above combination of approaches or business elements can be considered in terms of both cause and effect in relation to a company’s ability to remain in business long enough to benefit from rare hits.

Companies must have sufficient through-put / flow of projects such that basic fees / commissions are incoming to cover overhead costs. Thus strong networks of: individual buyers, external and internal suppliers of content can prove vital. As the HanWay article notes, projects can take extended periods to reach fruition and require constant marketing to engage buyers year-round. Patience is necessary, but also costly and thus scaled operations to maintain turnover are key characteristics of a sustainable film business.

Naturally the longer a company stays in business, the greater the opportunity it has to develop its networks, although originally a company may begin with only a few such assets.

Sales / Distribution companies are often created to serve a production company’s need (HanWay/RPC) and as such have a built-in head-start in terms of self-sufficiency and growth, whilst most production companies struggle to bring product to market quickly enough. However, amongst the sales sector HanWay is still certainly an exception (and hence rightly celebrated). As an established and well renowned company it is able to attract, and finance / arrange high quality projects and defend / improve its position. A recent period of consolidation amongst international sales reinforces the difficult market environment practitioners must deal with. It is important to address the stark regulatory uncertainty the international film business faces with regard to a key risk mitigation strategy in independent film finance: territorial rights.

 

Testing the environment: protecting a core component of risk mitigation and risk-taking – territorial rights assignment and exploitation.

As covered in multiple posts on this blog, the threat to sales agents’ core business, the business of national distributors, and the key means by which producers finance film projects has been placed under threat by DSM proposals. The strength of this threat has lessened with EU pronouncements that audio-visual industries can be exempt from full territorial openness, and a concentration instead on portability of content.

This has not stopped the industry continuing to make a strong and unified case against potential threats to territoriality should legislation not be sufficiently clear or robust. In this matter of protecting traditional modes of risk management both the US Studios, and European art-house cinema are together. As Börje Hansson, FIAPF Vice‐President Europe argues, the ability of national distributors to invest in films at any stage, without fear their future revenues will be undercut by EU wide access from another provider, is crucial for investment – especially in films that require extra expertise to market.

“Europe’s policy framework should promote investment in the production and distribution of creative content, and ensure the best possibilities for recoupment of investment and a fair and adequate reward to all right holders and parties.”

The MPAA takes a similar position – with Senator Dodd’s remarks at Berlinale 2016 a helpful summary of the issues from the US / International perspective.

As can be expected the status quo is heartily defended by incumbent mainstream operators. Despite there clearly being significant points of conflict between EU independents and US Majors (e.g. 30% EU film market share on VOD platforms, radical disparity in levels of investment for release), the two market sectors share common positions on this issue.

There may well be a case of “my enemy’s enemy is my friend”, the threat of pan-European SVOD services in a full DSM would challenge both sides. Competition between Studios and SVOD services for acquisitions has been well documented, however the impact on independents’ business management operations is less discussed in trade publications. A recent article on Berlin / Sundance pick-ups did include the quote: ‘“If you go with Netflix you are eliminating any upside on your film, you have zero visibility into your film’s performance and they have yet to prove themselves in the awards arena,” said one source.’ The under explored implications for long-term business viability are that a simple fee – “eliminating any upside… zero visibility” (rather than royalty per transaction as with traditional DVD revenue streams) means that licensors are unable to exploit the rare hits in the same way as historic precedent. This radically undermines the strategy of companies staying in business until their rare, extreme event can provide some corporate finance solidity. 

More discussions and data in time for Cannes I am sure.

 

Notes

I have had limited interaction with the HanWay personally, they provided excellent input to a recent research project. However, I don’t consider this positive engagement to have unethically influenced my reading of their operations or my selection of the case, which was simply prompted by the chance coverage in Screen and functioned as a useful framework around which to organise some thinking.

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