How to Werc the System

How to Werc the System

In a soft market for independent films, fledgling indie producer Werc Werk Works is releasing three new movies and getting leverage with distributors.

“I joke that people in Los Angeles think that if they do one thing in a day, they’ve had a really productive day,” says Elizabeth Redleaf. “And sometimes that’s just going to lunch in Beverly Hills.”

It’s late June, and about 1,500 miles northeast of where film executives traditionally do lunch, Redleaf and Christine Kunewa Walker, cofounders of Werc Werk Works, are too busy for a languid pace. Their two-year-old production company, based in downtown Minneapolis, is preparing to release its initial slate of films.

Howl, starring James Franco as poet Allen Ginsberg during a 1957 obscenity trial and Mad Men’s Jon Hamm as a defense attorney, opened this year’s Sundance Film Festival and comes to theaters this September. Renowned director Gus Van Sant is one of Howl’s executive producers.

Life During Wartime is director Todd Solondz’s follow-on to his 1998 film Happiness, and played last year at the Venice, Telluride, New York, and Toronto film festivals to strong reviews. When it opened in theaters in late July this year, Time’s Richard Corliss said Solondz’s prickly and darkly comic characters came together in “the year’s best indie film.”

The Convincer, a crime drama by Wisconsin screenwriters and sisters Jill and Karen Sprecher, stars Alan Arkin, Greg Kinnear, and Billy Crudup. Filmed last spring, it’s being shopped for distribution and will be on the festival circuit this fall.

Werc Werk Works has at least one more film in the pipeline. The Turin Horse, from Hungarian director Béla Tarr, is a tragic story of determination and death.

The lineup reflects the character of Werc Werk Works’ cofounders: arty, serious, but still commercial. “We’re open to anything,” Redleaf says, “except horror films. They make monster money—no pun intended—but they’re just not our cup of tea.”

Redleaf and Walker can afford to be open—and selective. They operate in an independent-film industry that’s been decimated in recent years as distribution has become more fragmented across traditional and new electronic channels, and revenue and investments have grown harder to come by. But Werc Werk Works entered the field with a couple of advantages: a corporate-style infrastructure and emphasis on brand building, and a pool of private equity that supports the whole enterprise rather than being raised to launch one specific “product” or film.

The partners call their company “Werks” for short. They based it here because this is where they live and can preserve a certain “quality of life,” Walker says. She and Redleaf each have three children and say they wouldn’t dream of moving them to Hollywood. But whatever keeps Werks in the Twin Cities, it’s what the firm is accomplishing here that’s interesting.

“We are in middle America,” Walker says. “Maybe, possibly by being here”—far from the industry rituals of the coasts—“we can think outside the box.”

Where’s the Money?

For the first half of the last decade, independent filmmakers had a relatively easy time securing financing. To understand why, look at the Blair Witch Project. The 1999 release cost $25,000 to film. Distributor Artisan Entertainment bought the rights for $1 million, dumped $20 million into a marketing campaign, and watched the box office gross $248 million worldwide.

Even earlier, in the 1980s and ’90s, Miramax, the production and distribution house founded by Bob and Harvey Weinstein, had paved the way for spending big marketing dollars on small and foreign films—Sex, Lies, and Videotape; Life is Beautiful—and turning them into hits.

But for independent filmmakers today, Redleaf says, “the era of the Weinstein brothers walking in and getting into $9 million bidding wars is over.” It’s just harder now to aggregate mass audience for a film and generate mass revenues. Consumers have more entertainment options to choose from. And as DVD sales decline and electronic distribution channels—video on demand, Internet downloads and streaming—proliferate, the audience is even more fragmented.

Add to this problems with foreign rights. Those deals, like domestic distribution, are more complex to nail down. In addition, distributors in foreign markets are feeding audience demand for more films made in their own countries; U.S. films aren’t the automatic draw they once were.

Emblematic of the downturn: The Walt Disney Company, which bought the Weinsteins’ Miramax in 1993, shut it down last winter and announced a sale of the assets in July. Other studios, including Paramount and Warner Brothers, that had indie film divisions also have shuttered them and refocused on big-name blockbusters or safely established franchises like Shrek.

Last April, the New York Times said that half the distributors of independent film in the U. S. have folded in the past two years. Reporting from a conference of film producers that month, the Times wrote that conference sessions were titled “Better, Faster, Cheaper,” and “Where’s the Money?”
 

For Walker and Redleaf, the money is in hand. It’s unusual for a small film production company to be able to finance its own films, but Werks does.

The more typical model would be to find a great script, raise investor funds to cover some of the costs of making the movie, and license rights to distributors to cover the rest. But instead of seeking investors on a per-project basis, Redleaf and Walker have raised a longer-term pool of private equity from their investors. Having that cash available allows them to greenlight new projects quickly and at their own discretion.

“We can fund up to 100 percent, and our business strategy is to fund no less than 50 percent,” Redleaf says. This way, “we will be the controlling interest with rights to the film.”

Werks’ partners are tightlipped about who their investors are. Walker only hints that “a lot of those same individuals who invest in the arts invest in film.”

John Stout, co-chair of the media, entertainment, and sports group at Minneapolis law firm Fredrikson & Byron, has personally invested in a dozen films, though he isn’t an investor with Werks. He’s also helped structure financing deals for some 70 or 80 films in all, including Robert Altman’s A Prairie Home Companion. That’s been his biggest success so far, recouping all of its investors’ money—each bought in at about $250,000 a unit—and returning a profit that continues to grow as the movie finds new channels of distribution. More often, he says, films are “one of those businesses,” like venture capital, “where you’re going to have more write-offs than winners, particularly if you’re investing project by project.”

Stout says there are two main reasons people invest in film, aside from the potential returns: to back a writer, director, or producer whose talent they believe in; or to back a film whose cause speaks to them. Werks’ investors, having backed the company itself and not any specific film, would seem to believe in Walker and Redleaf.
 

A New Model

The Walker Art Center’s Film Society held its first screening in 2006: a recent release called Factotum, a Minnesota-made project starring Matt Dillon and Lili Taylor. Elizabeth Redleaf was there. A cofounder of the society, she’s been an active arts supporter and funder around the Twin Cities for decades, and serves on boards for the Walker Art Center, the Minnesota Opera, and the James Sewell Ballet. Redleaf also is an articulate, bona fide movie lover who can recite endless bits of dialogue and used to write film reviews for a local newspaper under a nom de plume.

Christine Kunewa Walker was at the screening, too. Executive producer of Factotum, she’s a veteran of 20-some years in the industry. Her other credits include work on American Splendor, and more recently executive producer for Older Than America, a drama that’s been airing this year through video on demand and the Independent Film Channel (IFC).

At the Factotum afterparty, Walker and Redleaf, whose children attended school together, got reacquainted. Two years later, they began setting up shop in Redleaf’s guest house. They had put their fingers on the industry problems they wanted to solve with Werks.

Walker says that prior to connecting with Redleaf, she had been an independent producer, operating project by project. “It’s almost like setting up a new business every new film project you do,” she says, sitting now in Werks’ loft-like offices downtown. “Elizabeth had a bigger vision of putting together infrastructure where we could do these things on a regular basis, maximize efficiencies, and have a person like a [chief marketing officer], which I’d never even thought about.”

 

“Part of the vision that I had for the company,” Redleaf says, “is that I wanted to see it run as a business in any other industry. Even to the point of using like language.” So titles are standard-issue business titles: Redleaf is CEO, Walker is president, Geoff Sass, an alumnus of the Olson advertising agency in Minneapolis, is chief marketing officer. At another film company, they might have titles like “creative executive” or “producer/partner,” and Sass’s position might not exist at all. “When I came into this in a serious way, to actually be involved in the making of films, I found that there was very little transparency. In fact even the language made things obtuse to outside investors,” Redleaf says. “It’s a better relationship with outsiders to be able to talk to them in terms that they understand.”

Even more significantly, Redleaf and Walker wanted to change the economics of film projects.

“This is the only business that actually has it reversed,” Redleaf says, “where the people at the very end have been achieving the biggest profits, people who come in at the tail end and say, ‘Okay, I’ll get it out to a movie theater.’ Half the profits of the film go away at that point for most filmmakers.”

According to Stout, in the domestic theatrical market, distributors’ fees range from 25 to 30 percent of box office at the low end to 40 or 50 percent in some cases. And the distributor only sees a portion of ticket sales to begin with; the theater owner may take as much as half the box office off the top. Distribution deals often leave filmmakers struggling to recoup their production costs, let alone make a profit.

“There are so many millions of ways that distributors can take advantage of filmmakers,” Walker says. For instance, a distributor might release a successful film to more theaters, so it brings in more revenues, but then also claim more expenses to support that wider release. Walker says, “We identified those [pitfalls] going into this company, saying ‘Let’s try to use our leverage so that we can be a more powerful player in the negotiating.’”

Werks’ MO is to ensure that filmmakers and investors recoup their money earlier and get a bigger cut. The firm negotiates from a position of strength financially. But Redleaf says another part of Werks’ leverage with distributors is having a strong product, a point reinforced by the fact that the films appear at the most prestigious festivals. She also cites her team’s adeptness at negotiating.

Sass says some of the negotiating is tied to marketing. “One of the ways distributors love to knock down the value of deals is they say, ‘Well, I love this film, but I don’t know how we could possibly market it.’” Werks comes to the table with well-developed marketing plans: potential audiences, how to connect with them, plus ancillary revenue opportunities—books, soundtracks, and the like.

Without strength in all areas, though—the creative work, finance, marketing and sales, legal—“you can’t apply leverage in these negotiations,” Sass says. Werks has that comprehensive team, he adds. The firm also has stacked the deck by enlisting a consultant: former Miramax CFO John Hadity. Hadity’s invaluable contribution is being able to say, as Sass puts it, “‘Look, when I was screwing people as a distributor making these deals, here’s what I was doing, so don’t let that happen to you.’”

Werks’ principals say they entertained offers from multiple distributors for the release of Howl and chose Oscilloscope Pictures, a New York company started in 2008 by Adam Yauch, a member of hip-hop group the Beastie Boys. Redleaf says the choice “was driven by the fact that they’re also trying to grow their company, and this was going to be a marquee project for them.” Young and hungry, Oscilloscope also had innovative marketing ideas that aligned with those of Werks.

Instead of recouping money after Oscilloscope does, Werks negotiated a “gross revenue corridor” deal, and will claim box office share in conjunction with the distributor—a coup for a film producer.

Walker says, “A lot of times when you get to that point of the process, as an independent filmmaker, you’re so happy that a distributor wants to distribute your film that you don’t challenge and question what the deals are, and you don’t challenge and question when you’re going to get your money back. We have been very fortunate in that by asking the question, we’ve actually been rewarded.”

To Market

There are other independent film producers in the Twin Cities, but Werc Werk Works is one of just two companies based here that regularly make feature films for wide theatrical release. The other is River Road Entertainment, founded in 1987 by Bill Pohlad. He also cofounded the Walker Art Center’s Film Society with Redleaf.

(Last year, Pohlad launched a new venture, a film distribution company called Apparition. It released the Joan Jett biopic The Runaways earlier this year, but Apparition is struggling now and restructuring.)

River Road’s feature films often cost $10 million or more to make, including Brokeback Mountain, which cost $14 million; A Prairie Home Companion was an exception at just $7 million. Werks’ films generally cost $1 million to $5 million to make.

At the box office, though, these small indies must go head to head against the Avatars and Twilights of the world. Marketing has become increasingly important and entrepreneurial. “You don’t market the way people used to market,” namely after there’s a film, says Lucinda Winter, executive director of the Minnesota Film and TV Board.

Sass says Werks’ process is akin to what happens during product development in other industries: Marketing is brought in at the very beginning to help determine whether there’s an audience, how to position the product, and what might add to or detract from the experience of the film for various parts of the audience. In the near term, Jon Hamm’s celebrity from Mad Men can be leveraged to promote Howl, Sass says, but over time he expects the film to “have an evergreen interest in a lot of special environments: in academia, in First Amendment law, in the gay political environment.” In Howl’s case, marketing has more to do with finding and interacting with those special audiences, he adds, than with structuring distribution channels.

Stout says having an in-house marketing person is forward thinking on Werks’ part: “Otherwise, you meet that kind of intelligence when you go out for distribution”—which may be too late.

Relationships in the industry can also do a lot to move a firm like Werc Werk Works ahead. The distributor of Life During Wartime, IFC Films, had worked with both Solondz and Walker before.

“IFC said outright they wanted to have an ongoing relationship with our company,” Walker says. That’s valuable in part because IFC, which has a cable TV channel, video on demand, and theatrical distribution, can place films in multiple channels. It’s offering Life During Wartime through video on demand even before the theatrical run is over. On demand is a less expensive distribution channel to support with marketing. It’s also appealing to audiences in this economy; watching a first-run film at home for $10 often wins out over spending $100 to hire a babysitter and go out for dinner and a movie.

Werc Werk Works’ biggest advantage as it continues to establish itself, however, is wherewithal. In the movie industry, it’s put up or shut up.

“There are a lot of people saying, ‘We’re going to do this,’ and nothing ever happens,” Redleaf says. “When we say that we’re going to do it, they know that we can do it and we will.”

The advantage is especially pronounced now, while the industry is in a downturn, Stout says. Having funds on hand allows a producer to seize the moment and strike better deals, not only with distributors, but with cast and crew.

“For me personally,” Walker says, “I find the power of having a secure project is being able to call up an actor like Greg Kinnear and say, ‘Do you want to be in this film? It’s a low-budget film, but we’re going to do it. It’s going to happen.’ That is very meaningful to everybody in this industry.”

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