November 25, 2003

Indies Sue MPAA To Block Screener Ban, Nov 24

Every time I think we’ve gotten out, they pull us back in…

I was really miserable when I heard about the lawsuit. I spent considerable time wondering why and eventually, I came up with an answer… I hate to be forced to respond to stupid choices made by people for whom I otherwise have enormous respect and good feelings. I don’t like the feeling that they might think worse of me for what I write and I don’t like that they might think the discussion means that I do not respect them. The whole thing has gotten too personal. And taking sides has become more important than seeking truth.

That said, this lawsuit is a dangerous and selfish act based in belief and not fact, which dooms it to a quick dismissal, unless there is some crazy, attention-hungry judge out there who is dying to meet Hilary Swank. The simple fact is that they are suing the wrong organization if they are legitimately seeking a remedy.

If the well-respected Ross Katz argued that he contracted with Focus Features with a reasonable expectation that if critically successful, his movie, Lost In Translation, would be promoted with awards screeners, then he would have standing with which to sue Focus Features for breech of contract. Katz would have to prove his damages, which would be based on expert testimony long after the awards season ended, so that it could be reasonably determined whether his film’s revenues were damaged.

But Ross Katz is not going to sue Focus Features. He is in business with Focus Features and wants to remain in business with Focus Features. By turning his attention to the MPAA, an organizational front with virtually no autonomous power of its own, he and his suing pals can cause a ruckus without, they think, costing themselves the relationships they value.

But they forget… as the independents have become dependent (or “captive,” as this idiotic lawsuit would have it) and money from Japan and Germany has dried up, the major studios have become the primary source of finance for “independent” film. Not only has this made them dependent, it has allowed them to spend a lot more money than has ever been spent in pursuit of these “art” films. Focus Features made two films that cost more than $25 million apiece in this, its second year. Fox Searchlight regularly is party to budgets in the low teens. Miramax, of course, is making numerous films greenlit in the $50 million - $80 million range every year now.

Have these independent producers convinced themselves that the $300 million a year or so laid out by the majors for captive arthouse subsidiaries - about to become $400 million with Warner Independent joining the ranks - is easily replaceable? Because if Bob Altman is worried about some producer trying to muscle him to cut his next budget by 10% because of the screener ban, just wait until that produced can’t lay off $3 million at a captive because annual budgets have been tightened up like a major’s legal counsel’s sphincter after a look at this lawsuit.

There is also a very serious problem caused by traveling down this road of restraint of trade accusations. The film industry is guilty of collusive business practices. It’s not even a question. It is the nature of the beast. Entry is prohibitive on a financial level. The expense of operation at a major studio is so high that the ancillary forms of income, which are in-house for most of the conglomerate-based studios, have become a necessity in order to be competitive. Distribution beyond a handful of screens for any brand new company is virtually impossible and getting the 2500-3500 venues that are now standard for big releases… forget about it. And even a former indie, like Miramax, would have a serious financial problem if untethered from a major distributor, as it would lose all the operational advantages in both operational finance and distribution tools, particularly in home entertainment.

But ultimately, my biggest concern is the long-term implications of this internal battle, this civil war, inside the studios. There is only one potential victim… independent minded film.

Ask yourself the key question here… why would the heads of major companies choose to continue to finance independent film inside their gates if it is going to cause this much aggravation? Where is the balance between prestige and some financial upside against ongoing internal battles in which financial partners feel they have the moral high ground?

We have passed the point where any of this is really about screeners or any specific movie. This is now about a bunch of kids in the back of the car who would rather cause Big Daddy to crash into a wall rather than give up on the notion of getting a pair of new yellow Nikes to match their new Kill Bill tracksuit.

After all, the most prolific and best respected of the indie producers in this suit, Christine Vachon, has made 37 films. Only two have ever gained an Oscar nomination, six nods in total, in the era of the screener. Is that going to change in the era of no screeners beyond The Academy? Not this year. None of her three 2003 titles, including Altman’s The Company, has an ounce of Oscar traction… and it has nothing at all to do with screeners. There is some chance that Vachon’s Camp will find some love at the Independent Spirit Awards. But if it doesn’t, it won’t be for lack of screeners.

It’s 2am in Los Angeles and I am going to stop for some sleep. But today’s column will continue, with a more detailed look at this lawsuit (which can be read in its entirety on Movie City News) by noon PST.

I can’t believe I’m still writing about this shit…

PART TWO

"Pitch camp on the high ground facing the sunny side; and joining battle in the hills, do not ascend to engage the enemy."
............................................ - Sun Tzu, approximately 500 B.C.

Perhaps it is the nature of the indie mindset. Fight those battles, move along, fight the next battle.

Say what you will about Harvey & Bob or Michael & Tom or Bingham Ray or Jim & David or Ruth & David or Peter… you are not going to find a much smarter or tougher group. Still, this fight is about what is right in front of them and, unfortunately, there seems to be an inability to put a limit on the flow of testosterone.

If one of the producers who are party to this suit - the "captive" distributors are not, even if many of them they are quietly and aggressively supporting it - really had the courage of his or her claimed convictions, they would sue their business partners and ya' know what?… they would break the embargo for this year. There is a legitimate legal remedy to be found in the individual relationships between these distributors and the producers of their award-level films.

However, they do have this much perspective… they realize that not only would they stop being financed by the companies they litigated against, they realize that a real win this year could well lead to a complete shut-down of indie screeners in the future for most of the captive distributors. After all, in most of these business relationships, the parent corporation owns the copyright and/or controls the distribution of the films.

The agreement inside the MPAA is not one that has legal weight, as far as I know. It is an agreement to honor a group decision. But there is no business I know of - no legal one, at least - where one's word holds as much importance.

Publicists and others are expected to lie to the press. But if Sony Classics takes action that flies in the face of the MPAA, there is an understood agreement all the way up the Sony food chain. Michael Barker was standing next to Howard Stringer when Stringer first signaled some flexibility inside of Sony regarding the ban. Now, if SPC undermines the ban, the buck stops not with Barker & Bernard, but with Stringer.

"Break up the MPAA" may be an amusing cry to be made by independent producers but, when pressed, they can't really mean it. The internal self-regulation of this industry, which has been the primary purpose of the MPAA, from lobbying efforts to movie ratings, has been absolutely critical to the success of the industry. The independent film movement has benefited immeasurably from that structure.

I have great respect for the bare-knuckle brawling that allowed indie distributors to transform themselves into well-fed captive studio chiefs. But the idea of rebels in Armani is best left to satirical cartoons.

As for the details of the lawsuit:

There is a fascinating reference that suggests that one purpose of the screener ban is "to inhibit competition in the market for television broadcasts of motion picture awards shows."

Obviously, that was a bone to the IFP. But isn't it interesting that the IFP Independent Spirit Awards are actually getting more coverage this year, playing live on IFC and then being rebroadcast on big brother network Bravo. BFCA is also going live for the first time in its history, on E!. Where is that damage again?

Item 63. "Moreover, the screenings being utilized by the major studios to "replace" the use of Screeners are not only ineffective marketing tools--they are also not any less likely to result in piracy, even with increased security."

Actually, this is an extraordinary ignorant comment. For one thing, the cap-coding movement is fully underway. For another, the history of off-screen piracy is in flux, as studios take measures, including cap-coding, to change the dynamic. But most disturbing is the idea that screenings of feature films in a movie theater, on a big screen, in front of an audience is an "ineffective marketing tool." Think about that for a second.

Item 68. "Recent entertainment news accounts have revealed that the Ban on the use of promotional screeners is likely to be extended to use of screeners for purposes of sending "shopping" films to retailers and obtaining pre-release critics' reviews, which are customary today."

There is no indication that I know of that the MPAA Screener ban has any specific effect on the process of sending out screeners specifically for critics reviews or in anticipation of feature interviews. In fact, I have gotten a few myself in recent weeks. The major difference between these screeners (as well as the retail video pre-release tapes) is that they are aggressively marked with anti-piracy images that make them less attractive for buyers.

I can't say that I know the details of every captive distributor's home entertainment sales process. I do know, however, that they are all connected to their parent companies' home entertainment deals and that most benefit from that relationship. Customs are not all good. If there is a major retailer in America who has purchased a studio film based on a screener at this time, I would be more than shocked. And of course, there was the suit by Blockbuster against Miramax for abusing Disney's deal with the rental/retailer, which forced Blockbuster to buy large numbers of unreleased Miramax titles that were bought only for that profitable pipeline.

Item 84. "Defendant and its members have monopoly power in the relevant markets and aftermarkets in the motion picture industry. Defendant's signatory members control approximately 96% of the theatrical release market and hold captive a substantial portion of the film distribution market in the United States."

According to Len Klady's market share reportage at MCN, this year non-MPAA-signatories and "captives" make up 24.7%of the market this year and that is before New Line's Lord of the Rings: Return of the King hits theaters. Remember, this lawsuit is allegedly an effort to free the captives to make screener decisions without direction from their captors. (Think about that business concept for a sec…) So the captives can't be part of the monopoly, can they?

Even if you remove the captive distributors, the completely independent companies still make up 14.5% of this years market to date.

Want to say that non-signatory New Line is captive by association, then 7% of the market is "non-captive."

To get to the 96% captivity of the domestic movie world, you have to take Lions Gate, which has .7% of the market right now, as the top independent studio and the others who have even smaller shares as the only free companies… even though that includes DreamWorks, which had every right to pass on the ban, and whose market percentage is probably the lowest since their first year in business.

Lies, damned lies and statistics…

Item 90. "The Joint Ban on the use of Screeners as marketing tools during the awards season was not announced in time to make any feasible adjustments--if, indeed, there are any to be made--to compensate for the unavailability of independent film distributors' most valued marketing tool."

How is it that Fox Searchlight, DreamWorks and others have managed to make "feasible adjustments?" If In America gets nominated for Best Picture, does that mean that the captives have been freed? If Thirteen does not, does that mean that the brutal monopolists have changed the game?

Every year, there are companies who choose to push the boundaries of good taste and the rules of various groups in order to get better footing on awards season mountain. While I agree that the ban was unfair because people had already made marketing choices, the resilience of the studios, captive and parental, that have restrategized has been breathtaking. It is almost as loud as the whining by those who have not.

Item 93. "The Joint Ban on the use of Screeners as a marketing tool interferes with Plaintiffs' future prospective contractual relations with distributors, by collectively and unlawfully eliminating a method of marketing from consideration as a contractual term. The elimination of the use of Screeners as a term in contracting with distributors forces independent producers to either accept Major Studios' terms, which increase promotional costs and decrease the likelihood of exposure and critical acclaim, or be excluded from well over 80% of the distributor market."

There are some truthful ideas mixed in with an awful lot of hooey here.

The reason why studios could sign off on the screener ban was that the distribution of 15,000 free copies of these films was not a contractual term that any of them had agreed to in contracts. As I wrote before, there was, in some cases, an inferred agreement in that regard… in some case, I'm sure, a verbal one. But again, the remedy for this is specific to each contract.

The idea that studios have a literal responsibility to their producers to send screeners in an effort to market for awards is bizarre. Screeners are a marketing tool. Every single day in Hollywood, decisions are made about how dollars will be spent on marketing tools. The fact that screeners have become as ritualistic as Oscar trade ads does not make them critical to the success of any film. To suggest that a studio HAS TO send out screeners is as wrong headed as suggesting that there has to be a cap on trade ad spending so that smaller studios can compete.

The simple fact is that if the producers of Thirteen or American Splendor or any other small movie has contracted with their distributor to guarantee screeners, there would be screeners. It's no different than contracting for any other perk, except that producers didn't think to include it on their perk list until they lost the perk.

The snowball effect is that producers at Sundance, for instance, will take screeners into consideration when choosing a distributor, if they are so lucky as to find more than one (or any) with interest at the festival. The complaint will be that, say, Focus' inability to send screeners will make them a less attractive distribution partner and somehow make the pool of potential distributors smaller.

But the simple truth is, every distributor has good and bad sides. Anyone can tell you that signing with Miramax is a gamble, since if they go cold on your movie, it may not even get theatrical distribution, much less an Oscar campaign. On the other hand, if they stay hot for your movie, there is no more aggressive awards marketer. Screeners are just another factor. For every The Pianist, there is a Blue Car. Really.

Item 97. "Defendant's actions toward Plaintiff were outrageous and were taken with evil motive and/or reckless indifference to the rights of others."

And your mother dresses you funny!

Remedies, Item 3. "An order temporarily, preliminary and permanently requiring the MPAA to allow distributors to make screeners available to all awards-granting trade associations, critics organizations and similar groups on the same terms as were offered to the Academy."

So now, a court is supposed to force studios to make certain marketing decisions. Interesting. And what if Michael Eisner tells Harvey Weintein that they can go ahead and break the screener ban, but there will be a 40% cut in Disney's contribution to the 2005 budget because, ya know, we just think it makes sense strategically. Is the IFP going to try to take that to court too? What if Sumner Redstone says, "Ya know… we just don't feel like being in the art house business anymore… after all, it's less than one percent of my company's revenue stream." Sue?

This lawsuit is really just a bunch of showboating. And I guess showboating has its place. But when you start eating away like termites at a business that is already built on paper mache, you have to question the wisdom. And I do.

The tremors that will result are not in the control of the instigators. They underestimate their power and also overestimate their power. They had the high ground. But instead of using that position - especially in a year when by absolute coincidence, indie nominations are likely to be at a low - to build for the future, they had to go back into battle, giving up the high ground to do it.

This way, nobody gets to be right…. except at the cocktail party.

E ME: My apologies to readers who are just not interested in all of this. But it is a very important industry story and it is my responsibility to be on-the-record about its significance. Reviews tomorrow and the "Things I'm Thankful For" column will be up on Thursday.

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