Fred Milstein has been going to the Cannes Film Festival for decades to meet existing and potential clients. But like many of his colleagues in the film industry, he is skipping this year’s delayed gala and will instead follow the Saturday premiere of his latest project, “Flag Day,” from his home in Los Angeles.
Sean Penn’s independent coming-of-age drama released by Metro-Goldwyn-Mayer is one of the few feature films that Milstein’s West Hollywood bonding company, Media Guarantors, has completed in the year. last.
Once the pandemic emerged, insurance companies began to exclude COVID-19 from their policies. With these exclusions, banks were often reluctant to accept so-called completion guarantees or bonds that independent filmmakers rely on for financing.
âThe pandemic has had a real, immediate and profound effect on independent businesses, which depend heavily on commercial banks and lenders for financing their production,â said Milstein, managing director of Media Guarantors. âThere has been a huge dislocation of the market.
During the pandemic, Hollywood studios and streaming platforms have found ways to run cameras, film abroad, and develop security protocols that are expensive and slow down filming but limit virus outbreaks. But the loss of insurance coverage and rising production costs have placed a heavy burden on independent filmmakers, many of whom are struggling to get back into business.
“The unavailability of production insurance has caused a kind of deadlock in the financing structures typical of independent films,” said Stuart Ford, CEO of AGC Studios, a film and television production and financing company. .
Last year, 393 feature film projects slated to go into production in the United States resumed development, moved overseas, or vanished altogether, according to the Independent Film & Television Alliance, the global trade group for them. independent distributors and producers.
“The independent industry is demonstrating heroism in its efforts to return to production, to recover distribution, despite a number of obstacles which have never been worse,” said Jean Prewitt, President of IFTA .
Milstein and his colleagues went from as many as 65 completion guarantees in a year for films with budgets of $ 5 million to $ 70 million, to around 20 films in post-production during the pandemic, including “Flag Day,” said Milstein.
Unlike deep-pocketed studios that have cash to fund projects even if they go over budget, independent producers typically rely on bank loans charging a few percentage points of interest to fund their shoots.
These bankers typically require a completion guarantee which ensures that productions will be packed on budget and on time. If they are not, bond providers like Media Guarantors are required to reimburse banks. These bonds can cost 1.6% and 2.5% of the production budget, Milstein said.
Without access to cheap bank loans, producers were forced to resort to more expensive sources of finance, which eroded their profits.
Highland Film Group in Los Angeles was still able to make around 10 films during the pandemic, but security protocols inflated budgets by around 10% and interest rates went from around 4% to 14%, said CEO Arianne Fraser.
âThere was a lot of fear as to what the future would bring,â Fraser said. âWe have learned to be really, incredibly efficient. Everyone has to take cuts for this to work. ”
Getting insurance remains frustrating, said Kent Hamilton, a seasoned insurance broker for the independent film industry.
âThe market is the toughest I have seen in over 35 years,â said Hamilton, president of Front Row Insurance Brokers at Sherman Oaks.
Hamilton said some insurers make it harder to cover low-budget movies with stunts and fireworks, and it’s apparently more difficult to use standard insurance coverage for older actors, which covers the contingencies of illness and death of the cast and crew.
Insurers suffered heavy losses during the pandemic as COVID-related claims increased.
Lloyd’s of London reported in March a loss of $ 1.2 billion for 2020, driven by $ 4.7 billion in costs related to COVID-19.
The losses sparked litigation in Hollywood over insurance payments. Last week, Fireman’s Fund Insurance Co. sued Walt Disney Co. for not wanting to pay $ 10 million in claims for certain film and television production delays caused by the COVID-19 pandemic. The LA production company behind Ben Affleck’s heist thriller âHypnoticâ last September sued his insurance company for refusing to extend coverage without ruling out losses from COVID-19.
The pandemic added to what had already become a tough market for independent producers, who operate on low margins, as studios and theaters focused on releasing fewer but bigger films.
âI think it’s a lot harder now than ever,â said veteran producer Bill Mechanic.
Mechanic had already moved his film, “The Divide”, on the construction of the transcontinental railway, from Canada to Australia, where infection rates are lower and it is easier to obtain insurance and services. favorable tax incentives for films.
âTrying to make it make financial sense for people who invest is not as easy as it used to be,â Mechanic said.
It has been more than a year since production was halted by the pandemic and strict rules regarding testing, masking and social distancing on film sets have led to very few positive cases of COVID-19, according to the ‘Alliance of Motion Picture and Television Producers.
This has allowed production in Los Angeles to return to pre-pandemic levels as insurers and financiers become more confident about the risks of the coronavirus outbreak.
Milstein’s Media Guarantors, a unit of specialist insurer SpottedRisk, has started offering a completion guarantee that will also insure against any COVID-19 risk with the aim of reviving independent productions.
Bonds are double the cost of pre-pandemic versions, but producers will be able to access cheaper borrowing costs from banks and bond costs could drop over time if the pandemic recedes, Milstein said.
Bankers are starting to show more flexibility.
“Where we could have said initially ‘no COVID coverage, no funding’, we found ways to make it happen,” said Jeff Colvin, senior vice president and group director of Comerica Entertainment Group Bank. Comerica finances a film using Media Guarantor’s new bond product.
In one case, Colvin said, the producers themselves funded their film until the lead actor’s scenes were completed; then the bank was happy to give a loan to help finish the film. In other cases, the bank was comfortable with the risks if a key player was vaccinated and the project was running in low-risk places like New Zealand.
Colvin said he believes the pace of funding for independent filmmakers will return to what it was before the pandemic, driven by high demand for content from streamers.
âThere is a feeling that there is a light at the end of the tunnel, people are moving forward,â said Brian O’Shea, CEO of Los Angeles film sales agency The Exchange, who visited Cannes this week. He said his company was able to take advantage of pent-up demand for content because it has a library of films, he said.
AGC Studios – whose backers include Latin American asset management firm MediaNet Partners and film production company Image Nation Abu Dhabi – has been able to fund some of its films with cash, Ford said. One was the romantic comedy “Locked Down” starring Anne Hathaway, which was filmed last fall and sold to HBO Max.
Other investors are offering options to filmmakers. For example, UK film and television investors Great Point Media, which supported Peabody Award-winning Steve McQueen’s ‘Small Ax’ series, partnered with insurers to cover COVID-19 risks in production of up to $ 400 million.
Some of its smaller productions have benefited from an insurance program supported by the UK government for the film industry. During the pandemic, Great Point said it funded 16 films, some of which appealed to the government program, up from 27 the year before.
In the United States, IFTA and the Motion Picture Assn. lobbied the US government to come up with a federal program similar to Britain’s to cover the “COVID void” in film production insurance.
Milstein hopes his new completion bond product will take some relief from independent producers.
âMy hope is that this can start to unlock more traditional and conventional funding avenues for independent producers, make that access easier,â Milstein said, âso they can spend more time on creation and less time. time and energy to knock yourself out. try to replenish the funding.