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FEATURE

The Foreign Profit Potential

The Foreign Profit Potential

December 18, 2008
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" If it were that simple you'd be standing in line at the bank with a deposit slip and a handful of checks. "

There is money in foreign markets, but how do you get it? Can a studio simply ship a few hundred DVDs to Europe and wait for the money to roll in? If it were that simple you'd be standing in line at the bank with a deposit slip and a handful of checks.

If there is one thing that everyone agrees on it is that content is king. But turning content into cash isn't simple, and dealing with other countries can be intimidating with their various languages and laws. Still, with sinking profits in the U.S. DVD market, studios need to explore every available outlet for their product.

"The opportunities are really endless," said Amy Lew, vice president of acquisitions and licensing at Pulse Distribution. "Studios can license their content for cable/satellite broadcast, DVD rights by territory, IPTV, Internet VOD, paysites, download-to-own, clips on mobile phones, magazine publishing rights (image galleries for print or promo insert discs with lock and pay), hotel PPV, digital kiosks…"

If the list of opportunities seems exhaustive, take a deep breath before proceeding, because the possibilities for taking advantage of these outlets are even more overwhelming. Of course, if it were easy you'd already be doing it.

To Go Direct or to Use a Broker?
There are many brokers who can assist in licensing a studio's content to foreign markets, the most obvious advantage being they do most of the work (for a fee, naturally). Reputable brokers have developed relationships over years and have a solid grasp on what different markets around the world are looking for. They also know where the ceiling is and most are careful not to take on too many clients, picking and choosing studios based on what they think they can best sell abroad.

Jim Crawford, who owns Japanese animation company Adult Source Media, found great interest for his product in foreign markets. After a few years of licensing his own material he started SoCal Licensing to help other companies place their product abroad. He said getting started was a matter of finding out who the players were, who to talk to, what they're looking for, working within budgets and establishing relationships.

"There's a few other licensing companies out there," he said. "We have a select few that we represent and we don't really take on anyone and everyone. It has to be really good product for us to consider it."

David Kravis has been licensing adult product for decades through Coastline Licensing International, which was established in 1981 as Coastline Films, racking up deals worth more than $100 million over the years.

"The reason studios come to us is because we have relationships with buyers themselves," Kravis said. "We have pipelines to different broadcasters in different countries and they look to Coastline to act as an aggregator to supply their content or programming needs, but also to give them some diversity, not just from one studio, but from one studio that's good for gonzo, one that has features, another that might be all Asian or Japanese or black, so we act as a facilitator in putting together the content that the buyers are looking for. Subsequently we then become the pipeline to that buyer, so the studios come to us."

What to Shoot
When asked what kind of content producers should be shooting if they want to get it licensed, the number one answer from brokers was to shoot what you are passionate about. Different brokers have different opinions on recommending more storylines or more sex, whether softcore is necessary or not, especially since different broadcasters in different markets are looking for different things. It was generally agreed that there is a gonzo glut and that going too hard is going to limit the content's sales potential.

"There are four different pieces of product that can come out of one shoot if a producer is smart and he maximizes his production dollars," Cable Entertainment Distribution owner Mark Bruder said. He suggests shooting hard and soft as well as "T&A," which he described as five or six girls shot in a very soft, cohesive manner which has some thread that ties through 58 minutes that makes it look like an actual show.

"These play in different countries and in this country in different pay-per-view cable systems that are not allowed to play XXX, XX or even cable version adult," Bruder said. "So I get a T&A version that is titled differently, has nothing to do with the XXX. I get the cable version and I get the hard XXX, from that XXX they can cut a XX, which means there's no anal scenes or climax scenes."

Depending on the markets one is trying to hit, demands can vary wildly, sometimes even within a certain country. For example, nearly anything goes in Germany on the bookstore level, but broadcast content must pass a censorship board with tough standards — but for those that make the cut it's also one of the most lucrative territories.

"The U.K. and Australia are two good examples of territories that only license soft versions for broadcast," Lew said. "In Japan, mosaic, or layers of pixelation, must cover all genitals. Canada, the U.K., Australia and Germany all have strict censorship boards that must approve a title before it is released. In Germany the characters must have prior relations before having sex. In other words, if your movie has a scene where two people meet at a bar and then decide to leave and have sex, it will not be approved to broadcast."

Keep in mind also that many markets will need to re-edit your content to fit their country's standards. A producer sells it to them as-is with the right to edit it. While they can't make a new movie and there are no compilation or derivative rights (unless those rights are included), they can alter it so that it can be shown in their country.

Another big concern among producers is piracy. When a company licenses product for their country it is in their best interest to monitor the market to ensure only legally-licensed product is available, otherwise they are losing money along with the producer.

"Everything is regulated by contracts," Ajax owner Dani Duran said. "You only sell one title to one company, they have exclusivity, and then they protect what they buy. If you have exclusivity then you take pride of ownership and you advertise in the magazines and on the radio and television, it's yours for that country. You never have to worry about somebody making money off you without paying a dime because they just pirated."

Show Ye the Money
Duran doesn't need a great memory to recall times when a title could be licensed for $50,000 — in one territory. She learned much of what she knows from spouse Sidney Niekerk, the longtime Cal Vista owner who retired last year. Niekerk, who is from Holland, is said to have been the first to license U.S. product abroad. Duran has 22 years in the business herself. She said it was only 15 years ago that companies could make a ton of money on foreign rights.

"Cal Vista classics, the 35 mm films, were selling for $50-60,000 in Germany, another $40-50,000 in the Netherlands," she said. "It was a lucrative business before somebody picked up a video camera and decided anybody could do it." While part of the problem is a glut of American product, there has been a rise in foreign production in recent years, lessening the need to import product.

"The real transformation in the international side of the business was somewhere around the mid- to late-'90s," Antigua Pictures owner Todd Blatt said. "The people in Europe used to buy 80 to 90 percent of their product and only manufactured 10 to 20 percent of their own. Then it flip-flopped and they started manufacturing most of their own content. Now 90 percent or 98 percent of the content they release is localized product that they produce themselves."

That's not to say it's hopeless. Foreign rights dollars, Euros and yen may be fewer and farther between, but they are still there. How much can a studio get? It depends. Most suggest selling country by country rather than selling all European rights to one company.

"If you come out with a great feature and everyone wants to buy it," Duran said. "You're talking maybe $20,000 Europe, not 'Pirates,' of course, then you're a whole new caliber, but regular guys who shoot on video, that kind of thing, if they get $20,000 from Europe it's a lot, it's the maximum. Then you've got Australia, South America, softcore version, there's TV and cable deals. If they have a really good feature they'll probably get about $25,000 back, but that's a feature."

Surprisingly, because of diverse markets almost anyone has a chance — not only to license their product, but to get the same amount of money as better known brands. An amateur title can bring in as much as a lavish feature.

"You'd be surprised what titles will generate more money than other titles," Bruder said. "You would think that the bigger studio brands would get better buy rates on their movies, and you'd be wrong. It's a supply and demand type of thing."

What Am I Selling?
"What all the distributors and manufacturers want to do is find the distributor to buy finished DVDs from them," Blatt said, "but that's a chump-type of market to get into where you're dealing with lower-level guys selling stuff to stores where they have NTSC sections."

While companies can sell some NTSC discs in Europe (which is on the PAL system), the limitations are great. Like the U.S., most of Europe is seeing a decrease in DVD sales. That makes broadcast all the more important, and VOD platforms won't just put up American content. It must be dubbed or subtitled into local languages.

"With broadcast, where before it was ancillary money, now it's the main money," Bruder said. "Overseas it's not just broadcast, you're licensing all rights to them and delivering a split track master with a dialog cue sheet so they can take the dialog out and either subtitle it into German or dub it, that's an extra expense, but they pay great money so that justifies you being able to shoot with split track and being able to accommodate a couple extra bucks to make sure your production can accommodate a foreign licensing. Or you can make zero. Not every movie made finds a broadcast home."


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