Romancing the Mid-Budget Film

Asian filmmakers have long been caught between the devil and the deep blue sea. They’ve either made low-budget independent movies with clearly identified local markets, or they’ve produced blockbuster epics packed with stars and all-but-guaranteed big global box office returns.

Then there’s the challenging gulf in-between. Those looking to produce films with a budget between US$1 million and US$5 million have long struggled to get their ideas to the big screen. Investors generally baulk at the mid-price movie, with its risk of significant financial loss in the event of a flop.

“Is profitability possible for mid-budget Asian movies?” was the central issue in the opening seminar, March 20, at FILMART 2007. The answers offered during the seminar were often illuminating.

The long-term value of such films is underestimated by many, leading industry players said. “A lot of directors cut their teeth in this range and have gone on to help their film industry tremendously,” said Jonathan Olsberg, chairman of Olsberg/SPI, a strategy consulting firm specialising in film and now advising the Hong Kong Government.

Mr Olsberg pointed to Stephen Frears, the British director whose film The Queen saw its lead Helen Mirren win an Oscar for Best Actress this year. “Frears is an inspiration to those who look at their national film industry and ask, ‘What do we need to be successful?’” Mr Olsberg said.

Asian directors face tougher challenges than their European counterparts, he said, because filmmakers in Europe have access to a lot of “soft money,” as public sector funding is called. And that does not need to be repaid.

Still, he said, even mid-budget films with “soft money,” including such critical and minor box office hits as Britain’s Billy Elliot and Germany’s Run Lola Run, had failed even to make their production outlay back.

Government Funding Vital

While the seminar panel welcomed a recent Hong Kong Government budget announcement, that HK$300 million would be allocated to supporting local films, they stressed that it was no guarantee of success.

“More than 90 per cent of films in London have soft money. Even with that, not one returned a net profit,” said Lee Beasley, head of Media and Entertainment at Standard Chartered Bank (HK) Ltd.

“In Asia, soft money is not available, so there is more pressure,” added Mr Beasley, who helps link investors looking to provide loans to Asian filmmakers.

In the year since Mr Beasley started the entertainment operation, he has reviewed 69 projects seeking budgets of between US$400,000 and US$20 million, with one US$70 million blockbuster.

Peggy Chiao Hsiung-ping, Chairman of Arc Light Films, said government funding was necessary to make films that weren’t “one-dimensional” and profit-driven. Such funding, she said, could help breed a culture of diversity.

The China Card

Mr Peter Poon, General Manager of Fortune Star Entertainment (HK) Ltd, said his company was helping to fill a void. Fortune Star financed 10 debut director projects under a scheme called First Cuts, which leveraged the production talents and star value of superstar Andy Lau.

“The black hole is US$2 million to US$5 million,” said Mr Poon, explaining that Fortune Star was financing Asian films to help meet the voracious demand for Chinese language programming on its film channel.

He was optimistic about the future of mid-budget Chinese films, saying the mainland success of Confession of Pain, the recent release from Infernal Affairs directors Alan Mak and Andrew Lau, indicated there was a huge market in the Chinese mainland. “Many films are going in, but quality has to be controlled to make sure the market is sustained,” he said.

“The booming China market is really revolutionary and will affect budget and profitability,” agreed Ms Chiao. “There is so much room for growth,” she said, citing a rush to open cinemas across the country. “There will be even bigger change in the market, and that is what everyone wants to get into.”

The Awards Trap

The cost of promotion was another factor hindering the financial success of mid-budget films, according to the panel. This was the case even when the film has become a critical hit.

“Yes, your film got into Cannes, so you took 20 people there. That comes straight out of your pocket and affects your profitability,” said Mr Poon. “Yes, you get to walk up the red carpet, but when you do there’s no reason to smile. Look at the cost. An award is a burden. All these other costs are not taken into consideration,” he said.

Filmmakers face big bills for promotion and distribution, he added. “It’s non-stop, from theatrical to DVD release. Yes, it’s in KMart. It’s selling well. But on the other hand, it makes zero dollars because we are spending millions on promotion and distribution,” Mr Poon said.

The Digital Promise

Digital developments may “change the game” for filmmakers, argued Mr Olsberg. In particular, he noted the promise of “disintermediation” – removing the links between a filmmaker and his audience.

Digital downloads, he said, would enable filmmakers to reach viewers directly, creating awareness of their films and delivering a movie without the need of studios and theatres. “That’s potent for low-budget films,” he said.

In promoting Haunted School, one of its First Cut projects, Fortune Star used the web rather than traditional media, said Mr Poon, because the film was targeting 10- to 16-year olds, who “don’t read newspapers.”

The move initially startled the film’s makers, he admitted, but it did well enough at the box office to allay concerns. “We need to use creative ways of marketing and spend only what is needed.”

Despite the risks and hurdles, mid-budget films are great opportunities for investors, according to Mr Olsberg. He said they represented an asset for investors, even if their value was hard to quantify during production. “It’s unusual to have a breakthrough hit office building,” he said. “But you do have the chance in the film industry to make a very big gain.”