Producer William Keenan was about to close a deal on a movie about the early years of Jesus Christ recently when all hell broke loose on Wall Street.
Despite a "built-in marketing angle" featuring arguably the world's most recognizable name, "The Aquarium Gospel" lost its $25 million in financing after a lender that previously committed to the project suddenly backed out.
"We were in the process of papering the deal when the economic crisis hit," said Keenan, who planned to shoot the movie in India. "Now, we're having to rethink our strategy."
So it goes for many producers in the independent film business. The credit crunch further squeezed many independent filmmakers, who were already struggling from a glut of films and a shortage of funds even before the global economy went into a tailspin last month.
While the major studios have long-term deals in place to co-finance their movies, independent producers aren't nearly so fortunate. Most of them do not have easy access to capital, and instead must cobble together a patchwork of financing to make one film at a time. That patchwork has become frayed as lenders cool on making loans to filmmakers and foreign buyers grapple with access to credit and depressed currencies.
"The entire ability of independent filmmakers to finance their films has been shaken dramatically," said Mark Damon, chief executive of Foresight Unlimited, a Los Angeles film production company, who produced the 2003 drama "Monster." "It just makes it very scary."
The upheaval in movie financing is sure to cast a pall this week at the American Film Market in Santa Monica, a major global market for independent filmmakers and distributors.
"I think the atmosphere will be pretty somber at AFM," said Stephen Prough, managing partner at Salem Partners, a Los Angeles investment bank that focuses on media and entertainment.
AFM Managing Director Jonathan Wolf said: "I can't sit on the eve of the show . . . and predict the level of business."
David Garrett, who heads the foreign sales arm of Summit Entertainment, which handled such films as "Michael Clayton" and "Nim's Island," predicts that there will be an industrywide shakeout.
"A lot of smaller production and independent sales companies are going to be hit very badly," he said.
Even before the credit crisis, the independent film business was retrenching. Paramount Pictures this summer folded its specialty film label, Paramount Vantage, into the studio. That followed a move by Warner Bros. to close its specialty arm, Warner Independent Pictures, as well as Picturehouse. And entrepreneur Sidney Kimmel has significantly curtailed his film production company, which financed "United 93" and "The Kite Runner."
Money from private equity firms and hedge funds has also grown scarce at the same time that several banks have cooled on lending to Hollywood. In July, Germany's Deutsche Bank abandoned efforts to raise $450 million for Paramount Pictures. It was followed by Societe Generale, the Paris-based bank and well-known movie financier, which exited the business, citing market conditions.
Many independent filmmakers depend heavily on "preselling" the rights of movies to distributors in foreign territories. Those sales usually require an upfront payment before the movie is delivered, and are used as guarantees to secure bank loans to finance production.
But foreign presales, already sluggish the last two years, slowed further when credit markets froze, creating new pressures on foreign theater exhibitors, pay-TV channels, broadcast stations and home video distributors, according to industry executives. The consequence was felt last month when buyers largely stayed on the sidelines at the annual Mipcom market in Cannes, where TV program producers gather to sell their shows to networks and distributors from around the world.
Some foreign distributors have had their credit lines restricted and are struggling to make payments to producers.
"My Iceland buyer said, 'I don't know when I'm going to pay you because our bank suspended operation,' " Damon said. Iceland's economy was hit so hard by the global financial meltdown that it is now seeking a bailout from the International Monetary Fund.
Avi Lerner, co-chairman of Nu Image Films and Millennium Films, a producer of "Rambo" and "Righteous Kill," said buyers in Turkey, Russia, Brazil and elsewhere were struggling to raise cash to honor existing agreements.
"People owe me millions of dollars," Lerner said. "They don't have the confidence that they will get the money from the banks, so they are limiting purchases."
And when his buyers can't pay, that directly affects how and when Lerner can make movies. The producer said he had scaled back production plans and pushed start dates on some projects into next year. Among them is a $40-million-plus action movie called "Armored" that will begin filming in June.
"It's a turbulent time, so we're spending a little extra time to make sure we're being financially prudent," said Randall Emmett, a producer of the film.
Foreign buyers have been further squeezed by the sharp depreciation of their currencies against the U.S. dollar, forcing them to pay 20% to 30% more to buy U.S. films.
Although buying has slackened, there's still an appetite for commercially oriented action and comedy movies, said Helen Lee-Kim, president of Mandate International, the international division of Lions Gate Entertainment Corp., an independent movie and TV studio. "Buyers are still buying, they just are not buying as much," Lee-Kim said.