The budget was $3 million and for an independent film of that era, the movie was successful. It had a platform release in a dozen U.S. cities, followed by a sale of domestic television and video rights to HBO. One still can see it on late-night cable or by the DVD on Amazon for $.01 (plus shipping). I took it to the international film markets where it recouped its costs and was advanced what ended up being a 3x multiplier of the original budget. All told international revenues exceeded $12 million.

Somehow Cannell was involved with the rights to the underlying screenplay. He proved irascible and difficult to deal with. I’ll never forget a meeting in his office, where he was off-point and distracted. He dragged in Mario van Peebles, who had starred in several of Cannell’s television series such as “Sonny Spoon,” “21 Jump Street” and “Wiseguy.” These never were impressive when they were released, and in 2000 they were positively antiquated; more of a negative recommendation for the kind of project I had in mind, than a positive one. I think Cannell intended to display van Peebles as a kind of trophy. I didn’t know why he was there, and neither did he; I believe the current phrase for this is that he was “room meat.” Cannell aggressively was promoting rights to some book he recently had written, the title of which I forget.

We finally came to terms on a modest fee for the rights. Cannell had asked to be a producer on the film, and I readily made this concession, seeing as how (a) I didn’t care, and (b) based on his name recognition, I thought his involvement might be a modest plus for sales. He in turn promised to be actively involved in the development of the script, casting, marketing, etc. These commitments were set forth in a detailed agreement. Unfortunately, he did nothing. He wouldn’t even respond to letters and telephone calls and (in those days), faxes. I didn’t do anything about it, as I concluded his involvement in the project not only wouldn’t help, but also might be detrimental. Certainly he had nothing to contribute to the film’s aesthetics, and if he didn’t want to assist in marketing it, then from a practical standpoint there was nothing I could do (or that should be done).

So while the demise of one’s former colleagues and acquaintances never is happy news, frequently there are many items of note, not mentioned in any obituary. My encounter with Cannell was not significant in the scheme of his life. Nonetheless I have little doubt it was representative of an entire class of interactions, which have gone and will remain unmentioned.

The portfolios were cross-collateralized and were supposed to behave much like a mutual fund.  Meaning, successful movies (those that exceeded their collateral value) were expected to make up for unsuccessful ones (those that failed to earn back their collateral value).  There was no risk of production default for individual movies because all of them had completion bonds.  The main variable was market risk, i.e. that they might not actually sell for the full anticipated value of the collateral package.  This risk frequently was mitigated with various hedging strategies such as residual value insurance (RVI), which guaranteed the portfolio at least would recoup.  Although I am unaware of any specific instance where it was used with film CDOs, there also may have been a limited market for credit default swaps.  Please note the RVI policy I mention is not like the former “gap” insurance, which was the source of much contention (cf. the lawsuit between France’s AXA Insurance and Chase Manhattan Bank).  Gap insurance was supposed to indemnify the lender if there was a deficiency between the amount derived from sales of rights and the amount of the loan.  RVI insurance on the other hand guarantees a minimum value for the entire portfolio.

There was no secondary market for participations, or to the extent there was, it was extremely limited.  Not surprisingly these portfolios performed just like any other CDO; as interest rates went up, the value of the portfolio went down, and vice versa.  The value of participations in these portfolios became highly vulnerable as a result of the 2008-present credit crisis.  The value of the riskiest or most speculative tiers (equity and mezzanine) was wiped out completely.  The value of the tiers thought to be less risky (those held by institutional lenders) was eroded substantially.  As a result it became possible to acquire interests in these tiers inexpensively, perhaps for as low as 10 cents on the dollar.  The main problem is that the market lacks liquidity; the most likely candidates to purchase these participations are the very institutional investors who are trying to sell them.  If they have to be marked to market on the institutional investor’s books, they show a large loss.

I put together one of these deals for Franchise Pictures.  Franchise later was sued by the German firm Intertainment AG for keeping two sets of books, a fact I obviously didn’t know about at the time.  In connection with the investment banking firm Patton Pacific, I tried (but was unable) to complete another one a couple of years ago, just as the credit market was starting to get crispy around the edges, due to fluctuations in the interest rate environment.

It still is possible to put together a different version of these syndication arrangements today, with several important modifications.  First, the debt portion is much smaller, say, 50-60% of the value of the package, rather than 60-75%.  Even then, the lender may require other corporate assets such as stock, corporate guarantees, and possibly even convertible debt or warrants, as security.  Established entertainment lenders are reluctant to do anything unless they are over-collateralized.  Second, the interest rate assumptions are different (typically, much higher) in order to compensate for increased perceived risk.  Third, mezzanine-type financing has disappeared, as a result of which most of the balance of the portfolio is first-risk equity.  There are no more German Neuer Market deals to “wrap” the entire transaction and supply any difference between the amount of loan and presale commitments, and the film’s total negative cost.  If a portfolio of film assets is properly constituted, this equity component may not be as risky as it appears; only the top 10%-5% (last out) really should be at risk, with the balance picking up where the mezzanine component typically (previously) had left off.

Two illustrations of this are Alcon Entertainment, wholly financed by Fred Smith of Federal Express, which has had mixed success; and Crusader Films, owned by Anschutz Entertainment.  Anschutz has pumped millions of dollars in to Crusader, only to end up with a bloated corporate staff and dozens of failed movies.

Another recent example is the new David Ellison company, financed with $350 million from Oracle CEO Larry Ellison.  It was reported that $200 million of this total was bank financing (a consortium organized by JP Morgan Chase) and $150 million was equity.  While I don’t know for sure, it’s far more plausible the structure is a revolving, fully-collateralized line of credit.  None of the money is released until a project meets certain designated financial criteria.  Then, it is paid directly to the producer or even individual vendors, again on a line of credit basis.  As or after the film is made, all net proceeds from its commercial exploitation are deposited directly with JP Morgan Chase, which keeps the entire amount.  Only when they are fully out of the line, with reserves for future potential liabilities, is anything paid to the equity component.  The $350 million figure largely is illusory.

Enhancing Ellison’s risk is his relationship with Paramount.  However covertly, and regardless of good intentions, the likelihood is Paramount will attempt to use Ellison as a kind of dumping ground for projects it doesn’t want to fully-finance on its own, simply because they’re too risky.  Ellison in turn likely will be unable to persuade Paramount to participate in financing any of its own films.  Paramount will make some kind of a minimal effort to accommodate Ellison’s films into its own distribution schedule.  Since all Paramount will earn on those films is a distribution margin, it’s unlikely they’ll receive the marketing priority and attention that a full-fledged, wholly-owned proprietary Paramount movie would, under similar circumstances.  Big studios such as Paramount only release 20 or so movies per year, maybe less, which leaves little room for the third-party independent film.

The market is responding dramatically to these dynamics.  First, demand for mid-priced independent films ($5 million – $40 million) virtually has disappeared.  Theatrical exhibition has consolidated.  Because of their own financing commitments, large theatrical exhibitors need relationships with established studios in order to guarantee consistent product flow.  A film must have considerable marketing support, often equal to half of its negative cost.  This results in fewer opportunities for independent films, which are delivered sporadically with (typically) insufficient marketing support.  They are perceived as being one-shot or limited-shot players.  They take up landing slots that could be devoted to better-promoted studio movies.  This also makes them vulnerable to foreign market defaults.  Many foreign buyers simply walk away from their financing commitments with impunity if they believe the film doesn’t have the market potential it once was thought to have.  Second, with the rise of the Internet, the value of the DVD market – typically a major collateral item for the independent film – has plummeted.  One needs look no further than the travails of Blockbuster as evidence for this trend.  Third, while tax shelter benefits still are a viable source of collateral (and may lay off a significant percentage of the film’s negative cost), increasingly they are restricted.  Many jurisdictions, for example, impose a ceiling on the amount of tax-advantaged benefits they will confer in a year.  As with theatrical exhibition, large studios increasingly claim these credits in preference to smaller independent films.  Fourth, the value of Internet distribution is unknown, even as it erodes DVD and other margins.  Most likely it will be less than is thought, and will be deferred until some distant point in the future, creating significant revenue distortions.

The result is bifurcation.  On the one hand, there are $100 million, big-budget movies with established stars (increasingly, in 3D).  On the other, there are $1 million or so independent films.  There is little room in the middle, where one casting miscue, marketing error, insufficient audience penetration or poor word of mouth can mean disaster.  I exaggerate the differential between $1 million and $100 million in order to make a didactic point; in practice the slope is somewhat slipperier and, depending on the project and the vicissitudes of the marketplace, may be as low as $5 million or as high as $50 million.  Companies such as Lions Gate – now the subject of a take-over attempt by Carl Icahn – have incurred large losses attempting to navigate precisely this intermediate zone.  The value of companies like Village Roadshow has plummeted.  So-called “independent film companies” owned by major studios – as Warner Bros. owns New Line Cinema, for example – have been shut down completely.

Even some of the structure-financed portfolios comprising dozens of movies are not immune to this effect.  The “mutual fund” concept depends on the principle of covariance, that is, on balance, the sum of all better-performing movies will outweigh the sum of all lesser-performing movies.  In practice, it often has happened that each and every movie in the portfolio has underperformed, resulting in substantial losses.  Although it does not break out its finances, I suspect companies like Relativity Media, run by Ryan Kavanaugh, have incurred significant losses on their portfolio financing arrangements with firms like Universal Pictures.  This might be one of the reasons why Relativity is trying to diversify into television and film production.  These domains carry risks of their own, which a firm like Relativity might not be prepared to navigate.  Relativity’s recent acquisition of Overture Films – previously owned by Liberty Media and John Malone – is a good example.  Overture only made a dozen or so films and likely has a substantial negative book value.  It never did achieve any kind of “synergy” with Liberty’s other television distribution assets.  What Relativity can do with a firm like this is difficult to imagine.

This dynamic also is reflected by several recent independent film business transactions.  In July 2010 Disney finally sold its Miramax division for $660 million to Colony Capital, a group headed by Ronald N. Tutor.  Unless Disney financed most of the deal, it is difficult not to conclude Tutor dramatically overpaid for these rights.  Miramax has no films presently in production and no capacity to make them.  All it has is a “film library” of approximately 700 movies.  The value of a film library is the present discount value of its anticipated income stream over some defined period of time – say, 10 years.  The problem is that most film distribution rights are pledged for lengthy periods of time, frequently for as long as 25 years.  While there may be nominal future revenue streams resulting from anticipated future exploitation, most of the value is paid up-front in the form of an advance.  These advances long have been spent and no longer are corporate assets.  Reciprocally, most films are hedged with producer and talent participations.  There’s not a lot of free cash flow after these are paid; frequently, no more than a sliver.  Disney argued there was considerable value in sequel/prequel rights.  Even granting this premise it will take millions of dollars to make the films based on the sequels/prequels, all of which are subject to market risk.

A more realistic scenario is MGM/UA, which was acquired by Providence Equity Partners in 2004 for $4.9 billion.  Based on the kind of operating cash flow analysis I described, its present worth has been reported at approximately $1.6 billion – probably, far less than this amount, once one got into the books.

So where does this leave the prospects for a new independent film company?  There are a half dozen or so well-established ways now to finance independent films.  No one is going to innovate anything new.  This means it is all about execution and professional judgment; relationships with talent; and relationships with agents.  Considerable discernment is necessary to vet qualified projects, not only from a financial standpoint, but also from a script and participation standpoint.

For all of the palaver this skill is in remarkably short supply.  The movie business run by the large Hollywood studios is a completely different industry than independent film.  They really have nothing to do with each other, particularly when it comes to originating and producing repertoire.  As an example, the major studio has dozens – probably hundreds – of films in “development.”  This means they vaguely attempt to attach talent to them, various directors, various script-rewrites, development executives with expense accounts, etc.  The last thing development executives want is for a film they are responsible for actually to get made, because then it probably will fail, and the development executive will get fired.  This creates a culture of conformity and decision-by-committee which is endemic to a creative film company.  The major studio is not limber, lithe or agile.  Rather it is a bureaucracy dependent on economies of scale  – a contradiction in terms for any company involved in creative endeavor.

A far better strategy would be to comprise a small administrative unit to run an as an independent business organization.  Each film production would be established as a separate limited liability company (LLC), with the film company as its sole member and manager.  This truncates all financial liabilities at the LLC level.  All “corporate” overhead could be pushed down to the LLC, so the effective cost of running the business is zero.  Since the corporate unit is the sole financial member of the LLC, it alone is entitled to tax benefits (such as NOLs that might be incurred in the first year gap between production and receipt of revenues).  Under certain circumstances these in turn can be rolled up and passed through to a parent company so as to reduce its overall tax liability.  The company literally will pay for itself.  While there would be financial supervision of each production, there would be limited creative supervision.  One of the biggest overhead items studios have is cadres of executives deciding which walls should be painted mauve instead of fuchsia.  The entire reason why one buys into a creative team is because one trusts their creative judgment; if one doesn’t, then one should not make the movie to begin with.  Each LLC also would capture and retain maximum syndicated tax benefits, production credits and other incentives.  Once an active portfolio of projects has been comprised, then it can be syndicated as an integrated, performing unit to a consortium of institutional investors, such as those lead by JP Morgan Chase.

As proof of concept, this in principle was the strategy I implemented when I was President of Gold Circle Films to finance movies such as “Double Whammy” and “My Big Fat Greek Wedding.”  After I left, the company formed its own foreign distribution company and its own domestic distribution company, both of which no longer exist.  It started producing movies in the middle market range, with decidedly mixed results; I believe this is the riskiest zone to be in, for the reasons I set forth.

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The annual report is an imperfect source of information for evaluating a record company’s performance.  Companies constantly are redefining their operating segments, buying and selling divisions and restating previous years’ results.  Despite supposedly-uniform accounting standards and generally-accepted accounting principles (“GAAP”) each company presents its financial information differently.  In particular “record company” or “music” results almost always commingle record sales with music publishing.

These anomalies make it difficult to ferret out pertinent information and compare it year-to-year, much less company-to-company.  To address these problems partially and in the most feasible way possible I used the annual report for each separate year rather than the “historical results” section set forth in a single year’s report, which is where the restatement problem most likely is to occur.  I took special care to maximize the likelihood I was using comparable data on a year-to-year basis to the fullest extent possible.  Frequently this information is not found on an income statement but rather is buried in a footnote to the accounts.  One would think there ought to be conventions establishing rules for presenting this information but there aren’t.  This is highly annoying.  All I can say about this is that inconsistencies and discrepancies are likely to occur uniformly.

Return on Sales

Raw economic statistics in the applicable currency such as the amount of turnover and pre-tax operating income (“PTOI”) are not useful in evaluating a company’s performance and they particularly are not useful in comparing one company’s performance with that of another.  For this reason percentage-based measures are more informative.  Net sales typically is defined as gross sales less variable and fixed costs but before interest, taxes, depreciation and extraordinary items such as write-offs due to reorganizations.  Sometimes an allocation for costs incurred by the corporate group also is deducted.  Pre-tax operating income (“PTOI”) is net income from running the business.  Another roughly comparable measure used today is “earnings before income taxes, depreciation and amortization”  (“EBITDA”).

Return on sales (“ROS”) is the ratio of pre-tax operating income (“PTOI”) to sales.  Because individual divisions are wholly-owned by the parent company and their financial results are consolidated it is not possible to use other typical measures of company performance such as return on investment (“ROI”).  Return on investment is the ratio of PTOI to shareholder’s equity.  Shareholder’s equity however is not broken out by operating segment.  The same principle is true with return on assets (“ROA”).  Most balance sheets break out assets under management by business segment.  However this information is not reliable because of different accounting conventions pertaining to asset allocation, valuation and depreciation.  For example a company can exaggerate its asset base by appraising its assets unreasonably high or writing them off unreasonably slow, all the while remaining within GAAP boundaries.  This leaves ROS by default as the best available measure to use subject to these caveats.

One of the issues with ROS is that to some extent it may be one-dimensional.  For example a well-run small division in an oligopolistic market may appear to outperform dramatically a huge division with ten times the turnover constrained by more competitive trading divisions.  What’s missing is scalability.  For a company with several business segments it is interesting to evaluate segment PTOI as a percentage of total corporate PTOI, against segment revenue as a percentage of total corporate revenue.  This measure is more sensitive in that it accommodates both contribution to turnover and contribution to PTOI as independent variables.  It also is more specific in that it evaluates the opportunity cost of allocating corporate resources to one segment as opposed to another.

Not measurable by any of these formulations is what I will call “return on time” (aptly, “ROT”).  ROT asks the question: what else could management be doing instead of whatever it is doing, which potentially would add more value to the firm?  What other opportunities could management pursue, which it has foregone in favor of its present course of action?  Every business decision carries with it real-world consequences – not only in terms of the direct causal effects from having taken that decision but also because it precludes you from doing other things which, had you chosen them instead, might be even more rewarding or lucrative for the firm.  To some extent ROT is speculative as one never will know for sure.  However it is valid when assessing management decisions in an environment where several different options are available and have been deliberated thoroughly.  It also is valuable when assessing these decisions retrospectively.

Graphs and Figures

Line charts are easy to read.  They are presented temporally.  One simply cross-references specific data points, which appear at the imaginary intersection of a location on the horizontal axis (the “x” axis, which typically is for years) and one on the vertical axis (the “y” axis, which typically is for results such as ROS).  Figure 1 is an example of a line chart.  Scatter-plot charts on the other hand can be somewhat more challenging.  In this case each data point also represents a single year and appears at the imaginary intersection of the “x” axis with the “y” axis.  The data points however do not appear consecutively.

One of the advantages of the scatter-plot is that data points can be forced against an imaginary line running from the lower left-hand corner of the chart to the upper right-hand corner.  Points falling on the line mean the “x” axis data are perfectly correlated with the “y” axis data.  Points below the line in the south-west quadrant are deficient on both “y” axis and “x” axis data.  This is the worst place to be.  Points above the line in the north-west quadrant are superior on “y” axis data but deficient on “x” axis data.  Points below the line in the south-east quadrant are superior on “x” axis data but deficient on “y” axis data.  Points above the line in the north-east quadrant are superior on both “x” axis and “y” axis data.  This is the best place to be.

Figure 1 depicts the manufacturer’s suggested retail list price (“MSRLP”) for net U.S. shipments from record labels to the stores they supply as compiled by the RIAA (“net shipments” means gross sales less returns). It also depicts gross domestic theatrical box office admissions as compiled by the MPAA. As neither the RIAA nor the MPAA adjust their data for inflation I undertook to do this for them. I used the gross domestic product (“GDP”) implicit price deflators prepared by the U.S. Department of Commerce, Bureau of Economic Analysis on October 1st of each year. The current series is 2005 = 100. At the inception of the data set RIAA sales primarily comprised vinyl LP records. Later it came to include audio cassettes, then compact discs, then digital downloads. To a large extent the MSRLP is an imaginary number. The actual average wholesale price to retail record stores is somewhere between 40% – 50% of that amount.

The MPAA numbers also by and large are imaginary. The actual average license fee to theatrical exhibitors is approximately half of that amount. Particularly since the early 1990s, motion picture distributors receive a majority of their income from other sources including television license fees, sales of video devices (at first, VHS tapes; now, DVDs) and international sales.

While of course there are many exceptions domestic theatrical box office gross remains the best proxy for these additional revenue streams. The MPAA numbers frequently are criticized on the ground that actual theatrical box office admissions are declining and the only reason why they keep going up is because of increases in ticket prices. I did not attempt to constrain for this effect. My objective was to maintain as much compatibility as possible between the RIAA data and the MPAA data.

As illustrated by Figure 1 there are two interesting things about these statistics. The first is that the U.S. record industry peaked in the late 1990s and has declined ever since on both a “real” and an inflation-adjusted basis. On an inflation-adjusted basis the film industry peaked approximately six years ago and has been declining ever since. Even then it has remained far less volatile than the record business.

The second point is that all four data series have converged. My interpretation of this is that both record sales and theatrical box office admissions both have become increasingly marginalized as consumers are presented with other consumer entertainment software alternatives and substitutable competitors for leisure time expenditures, particularly including the Internet and video games. For further analysis of this dynamic see Epstein, E. (2010) The Hollywood Economist.

For further discussion, see this post.

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MCA acquisition by Matsushita Tender Offer 11-13-1990

Both obituaries mentioned her fascination with Far Eastern-based spiritual traditions such as meditation and what now has morphed into the idea of “mindfulness” in psychology. Properly understood, “mindfulness” really is an outgrowth of the human potential movement of the mid-1960s to mid-1970s. It will come as no surprise that Ms. Jones was highly involved with it. For example in the book Please Touch – A Guided Tour of the Human Potential Movement (1970), the author Jane Howard states at p. 44: “One enthusiast who has thought of leading workshops herself is a veteran member of many encounter groups: the actress Jennifer Jones Selznick. Her guest house in Los Angeles is often used for groups and marathons and informal human potential meetings. Once when I was at Esalen for a workshop (the ‘Quest for Love’), she was there, too. At first I didn’t recognize her, and could only think ‘Gee, whoever she is she looks so clean; she’s so much more well-groomed than the rest of us.’

Jones’ involvement in the human potential movement is not particularly unusual.  Many other actors, actresses, singers and artistes of similar ilk also were in its thrall.  She must have been more so than others; there are a plethora of other then-celebrities whom Howard could have mentioned, but she doesn’t. I suspect most of them now are vaguely embarrassed at the association.

Jennifer Jones

Lions Gate’s fourth quarter results were mediocre, as was its FY 2008 – 2009.  There are several reason for this, including developing softness in the DVD market; over-spending on marketing and promotion; its ill-advised acquisition of the TV Guide cable channel; and a distribution deal it made with the kiddie-video firm Hit Entertainment.  See Joe Flint’s article “Lions Gate swings to loss,” Los Angeles Times (June 2, 2009). 

One factor Flint doesn’t analyze is the cost of taking on third-party distribution deals like it did for the movie “The Haunting in Connecticut” which was produced by Gold Circle Films.  Lions Gate also recently announced a similar deal with Ryan Kavanaugh’s troubled Relativity Media, see Claudia Eller’s article “Lions gate turns to Relativity Media to fill movie pipeline,” Los Angeles Times (April 28, 2009). 

Here’s how these deals work.  The distributor (Lions Gate) has a fixed amount of overhead that it needs to amortize over the number of films it puts out each year.  If it doesn’t have a sufficient number of its own proprietary releases to do so, then it tries to make up the shortage by “renting” its system out to somebody else.  Instead of earning a profit from distributing the movie (or incurring a loss if it isn’t successful), all it gets is a modest distribution fee, typically in the range of 15%.  Typically the producer pays all prints and advertising, which typically runs (or should run) in the range of 10%. 

Let’s analyze how this pertains to “The Haunting in Connecticut.”  Domestic theatrical box office gross is that reported by Daily Variety.  All other numbers are informed estimates based on typical industry outcomes:

Domestic theatrical box office gross:                                    $ 55,389,516

Less 50% to exhibitors                                                               -  27,694,758

Gross distributor margin                                                          = 27,694,758

Less 10% P&A reimbursement                                                 -    5,389,516

Less 15% distribution fee to Lions Gate                                -    4,154,214

Gross producer margin                                                              = 18,151,028

Less production budget (est.)                                               -  10,000,000

Net producer margin                                                                  =   8,151,028

While the numbers aren’t in yet, Lions Gate also will handle domestic DVD sales, for which it will earn a distribution fee, typically in the range of 15%.  It also may handle domestic TV sales (when that window materializes), for which it will earn a distribution fee, typically in the range of 5%.  In some cases the distributor gets a slice of the net producer margin, however in this situation it seems unlikely seeing as how the Lions Gate didn’t incur any proprietary risk in connection with the property such as putting up P&A funds or paying the producer an advance against anticipated revenue.  Significantly Lions Gate will earn zero on foreign sales, even though a domestic theatrical release considerably enhances the value of those rights.  All foreign sales revenue will be retained by the producer (Gold Circle), subject to whatever foreign sales agreements it has in place.

From the producer’s standpoint I would evaluate this as an excellent result, though of course out of this the producer has to deduct all of its selling, general and administrative costs; together with post-production interest (“Haunting” sat in the can for over two years before being released).  It also has to amortize all of its failures over those films that are successful.  Gold Circle’s “New in Town” with Renee Zellweger, for example, made $16.7 million, yet cost approximately $15 million to make; “Over Her Dead Body” with Eva Longoria made only $7.6 million, with approximately the same negative cost.  Both are subject to the same arithmetic set forth above, resulting in huge losses. 

From the distributor’s point of view, however, these deals are rarely profitable.  The reason why is that the distributor’s services are inefficiently priced.  The value of a domestic distribution relationship to the producer far exceeds the amount the distributor charges for services (particularly with foreign sales, where Lions Gate earns nothing, even though having a domestic theatrical release significantly enhances the value of those rights).  The distributor typically undercharges for its services in relationship to their actual cost.  By the time personnel costs and corporate overheads are factored in, the distributor often spends more than it makes.  Finally and most importantly the distributor loses return on time.  Every property takes a certain amount of effort and energy to market, advertise and promote.  The amount of this activity isn’t scalable to revenue actually received.  Every minute the distributor spends servicing third-party properties, it could be spending on working its own proprietary films, which exponentially greater revenue potential.  For this reason it truly might be said that the third-party distribution deal is the last refuge of a firm on the edge of failure, because in the end it lacks sufficient creativity to develop and produce its own product. 

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