‘Dot-coms’ Bringing Film Sellers, Buyers Into the Internet Age

Stumbling across a “dot-com” in Hollywood these days is about as easy as running into a fired executive.

For the first time, Internet companies this week ventured to the just-concluded American Film Market at the Loews Santa Monica Beach Hotel, hoping to bring U.S. sellers and foreign film buyers into the Internet age. They weren’t at the annual movie bazaar a year ago for good reason: Most didn’t exist.

The half a dozen or so start-ups at this year’s market were largely looking to take the sale of independent films into the business-to-business world, the hottest sector of the Internet economy. These competing services enable the buying and selling of film rights online.

With a few clicks, a local distributor in a place like Paraguay can check the availability of TV rights to a film. If the systems work as designed, a few more clicks will finalize the deal electronically.

No one expects an end to the wining and dining at film markets because buyers and sellers will still want face time. But in something its executives described as a “beta test,” InternetStudios.com, a Santa Monica operation co-founded by veteran independent film executives Robert Maclean and Heidi Lester, actually arranged the market’s first online film sale this week.

A Turkish distributor bought TV rights from foreign sales company August Entertainment to the movie “True Romance,” directed by Tony Scott and written by Quentin Tarantino. Neither party was in Turkey. Both were in Santa Monica and could have done the deal face to face. But the demonstration showed off the technology.

“The way the marketplace works is inefficient and archaic,” Lester said. “We’re providing a tool that tracks rights, offers collections and other services to help people do their business.” Maclean added that, “We don’t think this will eliminate personal contact, it just allows the buyer to have enough information to analyze product for acquisition.”

Not only were Internet companies at the film market, they also took a high profile. Corporate sponsors, which pay to have their names plastered around the film market and in programs, included Filmbazaar.com in Los Angeles, Sightsound.com from Pennsylvania and LicenseMusic.com in San Francisco. Another company getting a lot of attention was Reelplay.com in Santa Monica.

Filmbazaar Chairman Kyle Scrimgeour said his company is a full-service provider of everything from rights tracking to the digital delivery of marketing materials. “We have a very elaborate weeding-out process to pre-qualify buyers and sellers,” to ensure bona fide transactions will take place.

Also of interest, and concern, is whether Internet distribution rights to films can be spliced and sold. For years, independent filmmakers have raised money by selling myriad rights, including foreign broadcast, video and pay TV, to their movies.

But distributing films via the Internet will depend on how quickly broadband technology develops and proliferates. As a result, it’s unclear how to value Internet rights.

Another problem is the borderless nature of the Internet. Sellers of foreign theatrical film rights do so knowing a movie will play only in cinemas in a particular country. Likewise, purchasers of TV rights require that a movie show only on a designated channel watched in a specific territory. But buying Internet rights for Bulgaria could be moot if someone in India can watch as well.

“The biggest problem is that something we put up today can be in China tomorrow,” said Lloyd Kaufman, the 54-year-old founder of Troma Inc., which has been peddling its hugely popular schlock horror flicks to overseas buyers since 1974.

Kaufman noted that selling Internet rights may also irk the acquirers of other rights by diminishing their values by creating new competition. “If you’re selling a new film, you may blow out the theatrical, video and television rights,” Kaufman said.

Another sticky issue involves existing rights deals. If someone previously bought pay-TV rights, they could argue that Internet distribution is just an extension of that and shouldn’t be sold separately, because the Web is just another delivery system like cable or satellite.

Lawyers are grappling with the issue, which they say will take time to sort out. “It’s not cut and dried,” said Alan U. Schwartz, an entertainment lawyer at Manatt, Phelps & Phillips in Los Angeles.

Another issue, Schwartz noted, is carving out a “window,” where a film could be shown over the Internet. Understandably, buyers of TV and video rights will want the film shown via the Internet after they are allowed to distribute it, while buyers of Internet rights will want the movie shown sooner.

But vague legal issues haven’t stopped buyers from at least inquiring. At Troma’s AFM suite, executives say they had numerous feelers from people interested in landing Internet rights on the cheap.

“There are a lot of bottom fishers coming in and offering 10 cents for your Internet rights,” Kaufman said.

New York-based Troma, whose classic genre movies include the “Toxic Avenger” series, has two of its own Web sites, one of which, Troma.com, has been up since 1993 and gets about 800,000 hits a month.

Kaufman is trying to identify ways the American Film Marketing Assn., AFM’s founder and the main trade organization for independent sales companies, and its 150 members can participate in this brave new world and is heading up a recently formed New Technologies Opportunities committee.

“Maybe AFMA as a brand could have it’s own portal or hook up with one of these business-to-business companies,” Kaufman suggested.

AFMA Chairman Kathy Morgan, a veteran international sales executive with her own company, said the trade group has other committees trying to sort out these complex issues for members, which include such high-profile firms as Miramax Films, New Line and HBO among dozens of lesser-known outfits.

Morgan suggests that because the Hollywood majors control worldwide distribution of their movies, it will be easier for them to control how, where and when their product is dispersed over the Internet.

“We, as independents, have a different problem and we have to get together with our international partners [local overseas distributors] to agree on how we’re going to do this,” Morgan said.

“Right now, I have buyers from Europe saying they believe that in the next couple of years they’re going to be broadcasting on the television stations they own via the Internet,” she said. “They want Internet rights and I say, ‘Great, but are they going to go all over the world, and, if so, how do we work this out?’ . . . All of this has to be decided.”

AFMA Executive Vice President Jonathan Wolf, who runs the AFM, said that no dot-com company at the market was willing to pay hard cash for Internet rights.

“Internet rights right now mirror pay-for-view rights,” Wolf said. “The Internet is in essence just another delivery mechanism. Though there is a lot of uncertainty about the future, most of our members feel comfortable that the business they’re in today--which is licensing rights around the world--will continue unchecked.”

He said that is because of the marketing of product. “You cannot market globally from one location sitting in the United States over the Internet. Touching your customer with in-store displays, or whatever, is very much a local, regional and cultural thing.”

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Hollywood Online

Among the handful of “dot-com” companies populating this year’s American Film Market:InternetStudios.com

Santa Monica, launched in August

* Principals: Robert Maclean, Heidi Lester

* Services: International sales of film rights

* Funding: Publicly traded. Initial funding from PCMI, a Vancouver, Canada, venture capital firm.

Filmbazaar.com

Los Angeles, launched Jan. 14

* Principals: Kyle Scrimgeour

* Services: Online services for buyers and sellers of independent films

* Funding: LGI Ventures, ING Barings, Cinemedia, among others

Reelplay.com

Santa Monica, launched in October

* Principals: Mark Litwak, Stephen Liu, Dennis Young, David Blake

* Services: Buying and selling films for the movie and TV industries

* Funding: SoftBank Venture Capital leading a $4-million second round of financing; Howard Weitzman, Carl Bressler, among others

Sightsound.com

Mount Lebanon, Pa., launched in 1995

* Principals: Scott Sander, Arthur Hair

* Services: Distribution of downloadable movies and music

* Funding: Private placement, Intertainment

RightsMart.com

Hollywood, launching in two months

* Principals: David Gajda, Robert Jackovich

* Services: Buying and selling film and TV rights over the Internet

* Funding: Initial funding through Hollywood Software, a seller of business software to major studios for film distribution. Venture capital funding pending.