Montreal: London-based industry risk-insurers Screen Partners has paid the full amount on a $1.5 million `gap’ insurance claim made by Royal Bank. The claim is the first for Screen Partners in Canada and is based on Royal’s gap financing on the Rene Daalder feature Hysteria (Hysteria Productions), produced by Daalder and Kay Salomon on a budget of about $4.5 million.

Royal and investors in the Canada/u.k. coproduction were supposed to be repaid from foreign sales revenues from l.a.-based distributor August Entertainment. When the 24-month sales window closed more than six months ago, Royal filed a claim with Screen Partners. In Montreal last month to make the payment, Screen’s managing director and founder Kent Walwin says a new sales agent will soon be appointed and the film should be ready for the American Film Market (Feb. 25-March 5).

‘My colleagues and I are here to prove to the industry that valid claims on Screen Partners’ insurance policies are paid and that our gap financing insurance works because it is done properly,’ he says.

Reliable insurance is a crucial production financing issue but Walwin says producers have been rather slow to adjust to new international market realities.

In view of the market-share grab and glut from Hollywood, Walwin says the typical Canadian movie-of-the-week is in danger of slipping from international B list sales status to a C or even D list.

‘There’s a slight retrenchment among Canadian banks,’ he says. ‘This is a good thing and it’s not a problem for producers at all. It doesn’t mean producers can’t produce but they do have to be more careful in analyzing just what their business is.

‘They have to think about the current model line-up and think about what’s happening in the marketplace.’

And while more banks are competing in the film and tv sector, Walwin says, there’s been a ‘slight contraction’ in the business of selling international (feature) films.

‘It’s contracted at a time when techniques that we developed and other more aggressive gap-financing from banks meant that more pictures were flooding into a contracted market. It started at mifed ’97 which was when we noticed things had gone terribly wrong.’

‘Basically Asia partly disappeared,’ Walwin continues. ‘What it means is that people are still managing to sell films but the amounts of money they’re getting are really much lower.’

In the recent past, a $3 million to $4 million movie might earn $250,000 from a Japanese sale. Today Walwin says, it’s more likely to be $50,000. The $10 million type of budget might normally have sold for $800,000. That’s been reduced to $200,000, he says.

As for the major markets in Europe and North America, Walwin says the dramatic hike in studio releases has had the effect of downgrading what was formerly ‘a healthy B list.’

‘We’re finding the American majors are now doing A list [films] which are dropping through to the B list and they are knocking us down on to the C list and to the D list.’

‘Play forever’

Happily for the insurer, says Walwin, Hysteria will successfully sell to tv, ‘and it will play forever,’ he says. Hysteria stars Patrick McGoohan in the role of an eccentric shrink who conducts telepathic experiments on patients in a mental hospital.

Daalder is currently in L.A. supervising ‘some limited reworking’ of the movie at an estimated cost of $200,000.

Screen Partners’ first move is to more or less immediately recoup its ‘re-working’ investment. Secondly, says Walwin, the film (a coproduction) qualifies for British capital allowances (tax breaks) via the U.K. Section 48’s nifty ‘Sale-Leaseback’ scheme.

‘With a bit of luck the first cycle of sales should take us off [pay back Screen],’ says Walwin. ‘In the second cycle, with a fair wind, it will take off the Canadian investors and the producer deferments and so on.’ He says a film like Hysteria (‘a solid movie of the week’) can sell (all u.s. media, four to five years) for between US$250,000 up to US$650,000.

‘Other than the star’

Walwin says producers must master the ‘hugely variable and difficult business’ of signing the right talent at the right price.

‘It’s a business that Hollywood has tended to keep to itself. The thing is we need to make films which to some extent have things going for them other than the star.’

‘What do we think about Patrick McGoohan? He’s wonderful in those films where something odd is going to happen. We’ve got to get producers to look at utilizing [casting] some of the great names that are not as expensive and actually reinvent them.’

Walwin says there’s no simple formula for calculating the world sales potential for an soild mow or non-theatrical movie, but a workable package would tend to suggest ‘a gap- range’ of not much higher than $1.5 million. ‘So if you’ve got a $10 million [movie] you have to get $8.5 million from somebody else. Of course there are hundreds of exceptions that break the rules but our [insurers, bankers, financiers] job is not to speculate.’

Walwin say the heart of the business isn’t the rare breakthrough, it’s the average, properly priced film.

While Canadian bankers have expressed real caution at covering gap deals at 35%, Walwin says banks and insurers like Screen Partners have to follow, or compete, in the market.

‘I’ve got to go where the market goes,’ he says. ‘The market is currently at 35%. Should it be there? No.’

Looking ahead, Walwin says banks are best at doing things like discounting tax credits and other ‘reliable’ assets, but insured, longer term private investor funds are emerging in places like Canada, the U.S. and Germany as preferred gap-financing tools.

Screen Partners launched its time-variable-contingency insurance service seven years ago and has insured some 30 Canadian productions over the past five years.