UK investors tell me that film distributors not paying sales agents money owed is putting the whole indieprod business at risk. The problem has gotten worse over the last couple of years as the movie market has tightened. All financiers can do is pursue debtors expensively through the courts, with no certainty they will get paid at the end. “It’s putting us in funding jeopardy,” one gap financier tells me.
The job of overseeing indie arbitration falls to the Independent Film and Television Alliance (IFTA), an organization which financiers I’ve spoken to accuse of being “toothless”. Investors say that IFTA’s arbitration process between indie sellers and buyers needs to be toughened up.
IFTA says it is well aware of financiers’ complaints. But there’s not a lot it or anybody else can do if somebody is determined not to pay up. Most arbitration cases, it stresses, are settled satisfactorily.
The problem is that distributors are increasingly putting down 20% of a distribution licence to hold a film. The sales agent or producer then finance the movie based on what distributors say they will pay on delivery. But distributors – especially those in smaller or more far-flung territories – are shrugging their shoulders and saying they’ll pay what they want. Often this means 50% of the previously agreed price. Sales agents, mindful of not upsetting future relationships with buyers, urge financiers to settle.
“And this after we’ve spent tens of thousands of dollars on supposedly watertight legal contracts,” one financier groans.
IFTA presides over 150 arbitration disputes a year. The process works exactly like any other commercial arbitration tribunal, such as the American Arbitration Association. Disputes that cannot be settled through Ifta’s mediation go to court, where the judge can order the miscreant to pay up or seize its assets. Yet it can cost between $10,000 and $20,000 to go through IFTA arbitration to pursue a $50,000 debt. It’s all time consuming and expensive. And enforcing a judgment against a company in, say, Russia or Taiwan is almost impossible. Good luck with that, as they say. One financier tells me he had a stand-up shouting match with South Korean buyers after they reneged on one deal.
One of IFTA’s own arbitrators tells me, “The problem is not so much that IFTA is powerless, it’s that the arbitration process itself is so flawed. IFTA’s record is pretty good when you consider the size of the association.”
All the film company still owed money can do is get the miscreant banned from the American Film Market. And that takes time. Sometimes it’s left too late to bar a company from that year’s AFM. Even then, there’s nothing to stop the miscreant from wandering in to the Loews and doing business from the lobby. Or just going back into business with a new name.
The trade association is asked to bar between 5 and 10 companies a year because of unsatisfied arbitrations. Offenders can only be banned from two consecutive markets. Ifta tells me it does not keep a list of companies barred from the AFM.
At a deeper level, distributors who wriggle out of paying what they owe are damaging the market. Financiers will just pack up and leave. If things carry on like this, there won’t be an independent film market left for them to buy films from, one says.
“Distributors are running dangerously close to destroying the indie film industry,” says this funder. “It’s this cavalier attitude from distributors paying 50¢ on the dollar that’s putting the entire indie film business at risk.”
So what could be done to give indie arbitration more teeth? IFTA says grumbles about arbitration always happen when there’s less money around. Jean Prewitt, president and CEO of IFTA, tells me she can’t see any way of giving the arbitration process more bite. Well, how about this? How about extending the market ban to not only AFM, but to Cannes and Berlin as well?
IFTA publishes the list of arbitration awards on its website. Most of the companies listed are pretty obscure. It strikes me that most distributors are in the business of staying in business. Yet it’s precisely these lesser-known companies in smaller territories that fill the cracks in any movie financing plan.
It may be that being named and shamed by IFTA has a far worse consequence though. Banks such as Comerica and others maintain their own blacklists. Ending up on a bank’s blacklist means you cannot get your distribution contracts discounted. Your paper becomes worthless.
“Being banned by IFTA is one thing, but you definitely don’t want to get on to the banks’ blacklist,” one film company tells me. “Then you really are screwed.”