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Are Pre-Buys Bad for Independent Movies?

The year's biggest Sundance sale raised a red alert during Berlin, but it’s not going to destroy the market for indies.
March 12, 2021
Are Pre-Buys Bad for Independent Movies?
View of Fort Mason Center during the 2021 Sundance Film Festival's satellite screening series arranged by Roxie Theater on January 31, 2021 in San Francisco, California. The Sundance Film Festival is going virtual this year due to the COVID-19 pandemic.(Photo by Miikka Skaffari/Getty Images)

Films are frequently just as important for their parts as they are their whole. By this I mean that filmmaking is so collaborative, it is nearly impossible to engage with a film in its entirety without being aware of a single aspect of the film: its acting, its photography, its costumes, or its writing. This extends to every aspect of the business. For example: How we decide what movies we want to see—and, thus, which movies actually get made—often depends on the film’s stars. This is true not just for blockbusters but also for independent movies, as a movie’s maximum financial value is normally greater when it can be sold to different territories piece by piece and stars are often big selling points in foreign markets. While Netflix and digital distribution in general have allowed indie productions to get sold for the whole world at once, it’s still the norm for indie films to get financed by selling off each territory one by one.

Last week, the Hollywood Reporter went to DEFCON 1, reporting that buyers getting ready for the virtual Berlin Market (a convention held during the Berlin Film Festival for movies and TV shows to be sold to distributors) were “up in arms” about the big $25 million Sundance sale of the film Coda to Apple TV+. In short, they were upset that films they “pre-bought”—or purchased prior to them being made with the intention of releasing them in their market—could be taken away from them. That’s potentially what happened with Coda when Apple bought the worldwide rights despite a number of companies having already purchased territories for distribution.

I get why the distributors are upset: The film played like gangbusters at Sundance and seemed like a surefire arthouse hit. But I don’t think this is the death-knell for indie distribution. In order to explain why, let’s do a quick explainer on the world of foreign pre-sales and the different types of pre-buys that exist so we can look at what happened with Coda and what its sale might mean for the future.

Buyers typically obtain the rights to a film prior to production in three ways. They can co-produce the film, which means they contribute actual dollars that go directly into making the movie. Another method is by committing to a negotiated advance on the film, which the producers will then take to a bank and get a loan for the production budget. When the filmmakers finish, they will deliver the film and receive the advance upon delivery. This is known as a negative pick-up,as the producers “pick-up” the money when they deliver the “negative.” Finally, buyers can backstop a film, which means they are providing the financial commitment needed to get the movie made (usually as a negative pick-up) but the producers can still take the finished film to market. If the film sells again, the company that backstopped the film will receive a “kill fee” (and sometimes, a credit on the film) in exchange. Kill fees are negotiated but are generally a percentage of what you are paying for the film.

There’s a good, recent example of a pre-buy that most people know: John Wick. Action films like this have a long and interesting history of being created with the international (that is, non-North American) world in mind and therefore are often made with commitments from international markets. John Wick was developed by a company called Thunder Road; it won the interest of Keanu Reeves after showing him the script. With Reeves firmly in place, Thunder Road was able to get Lionsgate interested in helping them produce the film because Lionsgate has a robust system of international sales in place. They committed to producing and handling foreign sales for the film, but strangely enough, they didn’t commit to releasing the movie in the United States. They believed its entire value would come from selling the film territory by territory. The budget was roughly $25 million, but it was part of a $250 million market during the 2013 Cannes market. Lionsgate was able to sell the film to England, Japan, Australia, Russia, Canada, etc. for smaller amounts than the total budget in each territory while ending up with far more than the $25 million needed to make the movie—even without a deal for the United States. Lionsgate eventually picked up North American rights as well after a legendary screening for buyers, when the normally reserved purchasers of rights were literally cheering the movie as it played.

John Wick is a good, real-world example of a franchise that came into existence because it could be sold on the front end. This is true for a lot of independent movies: They can only get made if they are pre-sold territory by territory. The reason this method is popular is because once a film goes to market and has a strong premiere at a major festival, it has the potential to sell for many times more than its budget. Of course, not every film turns out as great as it looked on paper, but distributors know what they are looking for and they know their audience. It can still be sold based on the elements that made it compelling on the front end.

This is how Coda was made. The problem with Coda is that the sales agents and producers wanted to treat the Sundance market as if the film were backstopped rather than pre-bought. They figured that once the bidding reached a record number, they could buy out the territories sold using part of that $25 million. It’s not an ideal situation for the distributors, who were thrilled when a film they believed in from the start had such a successful launch, and some of them aren’t playing ball.

It’s likely one of them went to the Hollywood Reporter with the complaint and source maintenance helps explain why THR used such excited language to explain the imbroglio. But the truth is that this is not a huge concern for independent distribution.

Backstops are already an established method of pre-buying. If a film is only available on the front end as a backstop, then you don’t have to pre-buy that film. I cannot envision a scenario where every film available on the front end is available only as a backstop because that would require believing that every film will go to market and sell for more than its budget when the reality is very few films do. Just look at the Sundance market this year, where a few films went for huge dollars, but most of the lineup remains without distribution.

If streamers bought every film for $25 million, then yes, the independent world would be changed forever. The more likely reality is that a greater number of films will be looking for backstops rather than negative pickups or co-pros and buyers should respond by negotiating higher kill fees and other terms that make a second sale only possible if the Netflixes or Searchlights of the world really splurge on something special. Running to THR and screaming that the sky is falling is an overreaction here and, while streamers are going to dominate the marketplace for a long time to come, there are more than enough independent movies that don’t sell to streamers that will keep indie distribution afloat, especially with the renewed optimism surrounding the COVID vaccine and the theatrical landscape reopening.

James Emanuel Shapiro

 James Emanuel Shapiro (@JamesEmShapiro) is a 20-year veteran of the entertainment industry. He's been the COO of NEON and Drafthouse Films and most recently started the analytics department at the Alamo Drafthouse. His gravestone will read "Made the only other offer to buy PARANORMAL ACTIVITY.”