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Netflix Dooming Need for Foreign Presales Deals

Foreign rights presales, which since the 1970s have been used by independent Hollywood producers to raise funds to get their movies shot, are quickly becoming a thing of the past. Credit Netflix for giving them a big shove out the door. So what does that mean for Hollywood's deal lawyers? Bigger rights deals — but fewer of them to go around.

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Foreign rights presales, which since the 1970s have been used by independent Hollywood producers to raise funds to get their movies shot, are quickly becoming a thing of the past. Credit Netflix for giving them a big shove out the door. So what does that mean for Hollywood’s deal lawyers? Bigger rights deals — but fewer of them to go around.

“Who wouldn’t want to do one big deal instead of 15 little ones?” says attorney Schuyler Moore, a film financing expert and partner at Stroock & Stroock & Lavan, and a member of the Board of Contributing Editors of Entertainment Law & Finance. While the paydays can be good for a lawyer who papers a contract with Netflix, the trend definitely means less business overall, Moore says.

Boosting movie and TV content, and making more of it available around the globe, has been a major ambition for Netflix CEO Reed Hastings. That’s led his company to become increasingly aggressive in signing long-term streaming deals that eliminate the need for producers and their attorneys to pursue foreign rights presales, once a staple of indie film funding.

“Netflix has turned film financing upside down,” Moore says. He is representing producer Gaston Pavlovich on the largest film acquisition by Netflix to date. In February, the streaming giant paid more than $100 million for the worldwide rights to The Irishman. The mob drama, to be directed by Martin Scorsese and starring Robert De Niro, Al Pacino and Joe Pesci, is set for a 2019 release and scheduled to shoot this summer.

“Instead of cobbling together a complex financing based on banking dozens of foreign presales, we now have one contract with Netflix,” Moore says.

It’s an emerging reality that Hollywood deal attorneys are still trying to assess. On the one hand, Netflix is a lucrative partner for producers and their lawyers, but it also means that papering the deals is a one-stop-shop process that doesn’t require billing as many hours.

“Clearly, Netflix is good for some in the industry,” says Marissa Roman Griffith, a transactional attorney in the Los Angeles office of Akin Gump Strauss Hauer & Feld, whose practice focuses on TV and film financing. “It’s a great thing for independent producers, who get their films seen by many more people than they otherwise might have,” she says. “And the films stay around longer.”

To be sure, foreign rights deals are still a part of the arsenal when an attorney considers how to set up a production fund. But no one disputes that foreign presales are an endangered species.

Netflix is the most obvious factor, attorneys say. But a glut of inexpensive and locally produced content, greater media consolidation, and a wider shift toward multi-platform, multi-territory deals are also changing the old order.

Producer Dino De Laurentiis is credited with pioneering the practice of foreign rights sales in the late 1960s and 70s, promising quality movies to overseas distributors unaligned with studios and delivering hits like Barbarella and Conan the Barbarian.

At their peak in the 1990s, foreign presales accounted for virtually all the cost of some films, especially smaller foreign-language films. But a film’s differing performance in overseas markets proved to make returns volatile, and by 2000 foreign presales accounted for a dwindling share of production budgets. (Lionsgate Entertainment might have had second thoughts after selling most of the foreign rights on the Twilight series, which meant its share of the $3.3 billion worldwide box office of the five films was just $1.3 billion in 2012.)

Because it is privately owned, Netflix can be as tight-lipped about acquisition costs as it has been with the ratings of its shows; it rarely releases numbers on either. The company has said that its content budget has grown from $2 billion in 2013 to $6 billion for this year, but how much goes to original content and how much to acquisitions is unclear.

There’s a countervailing factor to the drop-off in foreign rights deals for attorneys: Netflix itself appears to be driving a fair amount of new work. Several attorneys on the financing front lines reached for this story were reluctant to talk publicly, either because they’re working for — or across the table from — the streaming giant. Netflix, of course, isn’t just buying movies and TV shows — it’s making them, too. It dipped a toe into TV and film production in 2013, but last year produced 126 TV shows and movies — more than any studio, network or cable network.

Schuyler Moore jokes that the shift in the financing landscape is putting him “out of a job.” So where does he see new business? “I’m getting into virtual reality,” he says.

*****
Todd Cunningham
covers entertainment, media and sports law in Los Angeles for The Recorder, an ALM sibling of Entertainment Law & Finance.

The views expressed in the article are those of the authors and not necessarily the views of their clients or other attorneys in their firm.

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