Tonight, millions of viewers will tune in from home to watch the annual Oscar telecast, a cherished ritual of long standing for movie buffs the world over. A few thousand select and privileged few will join the festivities in person at the Kodak Theatre, honoring their peers and maybe sharing, even briefly, the glamorous limelight.
This year, I plan to be elsewhere. My wife and I will be joining an intimate and very special Oscar party hosted by entertainment industry colleagues Mike Fleiss, Graham Taylor, and Lynette Howell to honor our friend Nicolas Chartier. He’s the neophyte producer of Best Picture nominee “The Hurt Locker” whose overzealous indiscretion in lobbying fellow Academy members cost him his seats at this year’s awards, and dashed his lifelong dream of proudly strolling down Oscar’s red carpet with his 74-year-old mama on his arm.
Nic’s notoriety over his lost tickets quickly became well-known media fodder, but those in the film-financing business know there is a far more compelling story here.
Independent producers and financiers in the U.S. are painfully aware of what it takes to get a movie made in today’s economy. Banks aren’t lending, buyers aren’t buying, and Wall Street packed up and left our party long ago. Striving for safe and unthreatening commercial films is the order of the day. Moreover, there are deeply entrenched beliefs about the type of films foreign distributors and buyers will or more importantly, won’t buy from American producers: comedies, urban films, political films, or Iraq war films.
The year is 2006. “The Hurt Locker," an Iraq war script, is bucking the trend and seeking funding for a roughly $20 million production budget, modest – even humble – by today’s standards. But still, as a first step, it needs to interest a foreign sales company.
Voltage Pictures – owned by Nicolas Chartier – is among those receiving the script, and charged with making a decision on whether or not he and Voltage will roll the dice and rep “The Hurt Locker” for foreign distribution.
Producers hire foreign sales companies like Voltage to sell their films’ rights around the world (e.g. theatrical, DVD, television, etc.) Few people are better positioned than sales agents to know and understand who is buying and what they are buying. In addition to selling completed films, they pre-sell territories before movies are even filmed, and these presale contracts serve as collateral to help finance the script. They commit the buyer to paying for the film, regardless of how it turns out, or how it performs in their country.
Nicolas loves the “Hurt Locker” script, phones back and against all experience and precedent, tells CAA – the agency repping the film – that not only will he take on this Iraqi war movie to acquire the foreign pre-sales, but he wants to help in producing it. The subject matter, he tells them, speaks to him.
There is one small problem, Nicolas believes that, even at $20 million, the budget is too high — it must be lowered substantially, slashed by some 35% to $13 million, in order for him to be able to sell it and stand any chance of making a profitable film. CAA agrees. The budget will be lowered, line by painful line, in hopes they can still maintain the quality production values worthy of a theatrical release.
Despite the market’s skittishness over “hit or miss” female action director Kathryn Bigelow and lack of any star attachments, Nicolas starts shopping “The Hurt Locker” to international film buyers along with the dozen or so other films Voltage is selling this year.
For every indie film that heads to the film markets, generally 25-30% of the overall film’s budget must be pre-sold to avoid having to raise more equity. Competition is fierce to secure these foreign pre-sales. Hundreds and hundreds of film projects vie for a piece of the pocketbooks of fewer than a hundred premium buyers. For a bank to finance a film like “The Hurt Locker,” foreign sales reps like Nicolas must pre-sell at least two major European territories to secure a minimum of 10-15 percent of the budget. For the other 15 percent, he must also persuade some combination of the following: Eastern Europe, Latin America, Asia, Australia, the Middle East, Canada, South Africa and, of course, the airline buyers.
Nicolas implores his potential buyers to understand that this film is different, that they must set aside their preconceptions and realize that this movie is going to be amazing, that there is nothing like it. Unfortunately, there’s nothing new in that pitch: every agent says it about every film.
But this film is special, and Nicolas is willing to stake his reputation on it. He persuades enough buyers, and “The Hurt Locker” becomes one of the lucky few to attain the essential 25-30 percent in pre-sales.
Sales contracts in hand, Nic and the producers now turn to the entertainment banks, hoping to borrow against the contracts for a production loan to complete the filming – and are quickly denied, politely reminded that Iraqi war movies are just too risky. If the market tells enough people enough times that certain films just can’t be made, this self-fulfilling prophecy decrees that they won’t be.
It’s now 2007, and the production start date is fast approaching. The next step must now be to secure higher-risk, and consequently costlier, mezzanine financing. This is what’s known in the trade as a “gap” loan, literally borrowing against the estimated value of unsold foreign distribution territories. At the time, I was working for one of these lenders, and happened to be on the receiving end of his impassioned plea for financing assistance. Intrigued, I presented the idea to my fund – but they declined, instructing me to explain to Nicolas that the deal is just too risky.
Diane Stidham of Newbridge Film Capital, another gap lender, worked with Nicolas for days on end seeking a solution, but again, came up short due to excessive risk. But just when chances seemed to be dimming for ever obtaining the essential gap loan, Grosvenor Park Media (a known risk-taker) stepped up and offered the necessary financing.
“The Hurt Locker” now faced another hurdle: with the advent of pre-production now imminent, the project was rapidly running out of time to secure its principal production loan. This normally comprises the gap loan, the presale loan, and a tax credit loan, the latter in this case painfully lacking because the government of Jordan, where the film was to be shot, offers no such tax incentives. This mega-loan constitutes the bulk of the film’s financing package.
Unfortunately, production loans are notoriously slow, often taking upwards of 6-8 weeks or more. With few weeks left before pre-production and having exhausted all other funding options, Nicolas, like many indie producers, bucked the conventional industry wisdom and wound up putting his own personal money on the line to ensure that pre-production could begin on time – meanwhile waiting for the gap loan to close and painfully aware there were no guarantees that this loan would actually ever close.
Fast forward to today, where the 2010 Oscars will feature a face-off for Best Picture between the ultimate big-budget studio production “Avatar,” and the poster-child for scrappy independent productions “The Hurt Locker.”
Legendary filmmaker Billy Wilder – a mainstream success, but also a worldly-wise cynic who knew a thing or two about risky material and the vagaries of the movie business – reputedly declared that anybody who got a film made deserves an Oscar.
I would say that anybody who can cobble together the financing from pre-sales, gap, bridge, tax credits and equity funding to produce a theatrical feature worthy of consideration for Best Picture is already a winner in my book.