Season Is Bright for Independent October

Earlier this year, New York-based specialty movie distributor October Films saw two of its brethren, Samuel Goldwyn Co. and Savoy Pictures, succumb to the financial woes of the independents.

While neither company went out of business exactly--Savoy is being thrown a lifeline by Barry Diller’s Silver King Communications and will now focus on TV, while Goldwyn is being swallowed up by John Kluge’s Metromedia International--neither was left standing on its own two financial feet.

Suddenly, October has found itself one of the few big fish in a small pond of remaining stand-alone independents.

The company--founded in 1991 and reincorporated in the fall of 1992 with capitalization raised by Allen & Co.--is in the throes of completing its second round of equity financing through a private placement with a new group of unnamed investors.

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Currently owned by Allen & Co. (21%), the money management firm Siegler Collery (31%) and management and other investors, October has also expanded its bank line with West Deutsche Landsbank and recently added Union Bank of California and Atlantic Bank of New York.

The new capital through the equity investors and expansion of the bank line will give the company $15 million--which is mere chump change to a major studio but means something to an independent. The company also has access to some off-balance-sheet financing for certain movies.

All of this, says John Schmidt, one of the company’s three co-managing executives, has “helped to fuel our growth significantly. . . . We’re now poised to step up to the next level.”

On the creative side, last month October took center stage when it nabbed two of the four most coveted prizes at the Cannes International Film Festival: for Mike Leigh’s “Secrets and Lies,” which won the Palme d’Or, and for Lars von Trier’s “Breaking the Waves,” which took the Grand Jury Prize.

While this was considered a great victory for the management of October--which in addition to Schmidt includes Bingham Ray and Amir Malin--the three partners readily admit that, prestige aside, it’s tough to survive the ups and downs of the independent theatrical distribution business, which has undergone seismic changes since their company was formed five years ago.

Perhaps most significantly is the competition that has been fueled by such independents as Miramax and New Line, which have been bought by deep-pocketed owners, and by studios like Twentieth Century Fox and Universal, which have launched their own specialty film divisions to pursue the kind of offbeat product that was once the domain of independent distributors.

Regarding October’s big Cannes wins, Ray says, “If the folks who accept these awards think they add up to anything, they don’t.” He notes that for every “Pulp Fiction”--a huge commercial hit for Miramax--there’s a “Best Intentions”--a big flop. And, as Ray points out, the two films that took top honors at Cannes last year, “The Underground” and “The Gaze of Ulysses,” never landed U.S. distributors.

That’s not to say Ray and his partners aren’t grateful for the awards. They are. But they’re also realistic about the business they’re in.

“There’s going to be a lot of pressure on us to deliver on these films from Cannes,” says Ray, admitting that even after the critical and box-office success of its 1994 release “The Last Seduction” (its most profitable film to date), October “had a pretty dry year.” “Basically we’ve been on hiatus,” and failed with its 1995 slate, he says.

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What’s kept October afloat during the down cycles is having other revenue streams outside the domestic theatrical business--which is as volatile for the major studios as it is for the independents.

“We had a very dry year theatrically, but revenue--and net profit-wise, we had our most profitable year,” says Malin, who was the co-founder of the once successful but now defunct independent Cinecom Entertainment. Although, as Malin says, “the theatrical marketplace is our calling card,” October also derives cash flow and earnings from the management and exploitation of film libraries, the sale of video and television rights to additional films it acquires, and its in-house nontheatrical operations business under which it licenses films directly to universities, prisons, libraries and the armed forces without having to pay a middleman.

October handles worldwide sales of the Cinecom library, which includes such classic art house titles as Merchant/Ivory’s “A Room With a View,” John Sayles’ “Matewan” and David Byrne’s “Stop Making Sense,” collecting a management fee for each sale to video and TV outlets.

And, through a joint venture called Millennium, October also manages the domestic rights to films produced by the Los Angeles genre film company New Image. According to Schmidt, through these library management agreements, October is the largest supplier of pay premieres to HBO.

“It’s a very tough business for everyone, and you have to offset the low points with a steady stream of library income,” Malin says. “This is a very business-minded company operating on a lot of levels.”

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Schmidt--the former chief financial officer for Miramax Films who, with Malin, joined October in 1992--says the company’s strategic goal is to continue expanding the domestic distribution business and creating its own foreign sales division by the end of the year to directly handle the sale of international rights to the films it acquires.

The company will release 12 films this year, compared with eight in 1995 and fewer in previous years. While October is first and foremost a distribution company, it has begun to selectively co-finance movies. The first of these, Abel Ferrara’s period drama “The Funeral,” jointly financed by October and Patrick Panzarella and Michael Chambers (producers of “Kids”), is due for release in the fall. October also bought domestic rights to “Breaking the Waves,” which it will also release this fall, at the script stage rather than as a finished film as it usually does.

Getting involved in films before they’re completed is a way to better compete for a certain level of product, Schmidt says, but he cautions: “We still don’t want to be in production. . . . We do it entirely from the perspective of a distributor.”

One of the fatal mistakes made by many independent distributors, including Savoy, was veering from their original business plans and expanding into the capital-intensive business of development and production. Ray says if there’s anything to be learned from the mistakes of those who have fallen by the wayside, including Carolco, Orion and countless others, it’s that “you can’t ignore the wisdom of a disciplined overhead. You have to do what you’re built to do.”

When Ray co-founded October in 1991 with Jeff Lipsky, who left the company in April 1995, he says, friends warned them that “we were completely out of our minds, that the time wasn’t right.” He says what he’s come to learn is that “there’s never a good time except for when it’s right for you.”

October has come a long way from its origins as a two-person company founded in Lipsky’s garage in Sherman Oaks, to the 21-person player it is today on the independent landscape. Ironically, it was director Leigh’s film “Life Is Sweet” that launched and provided cash flow for October in its early months.

If they’re lucky, Leigh’s “Secrets and Lies” will deliver equally good results.

“We’ve come far from the garage when Jeff’s dining room table was my office and I was afraid to scratch it,” says Ray, adding, “We just keep pluggin’ away.”