Stephen Jarchow

As the business of independent filmmaking is becoming increasingly challenging for many, with tightening credit and traditional business models beginning to falter, Regent Entertainment is positioned to continue on its successful course. And not for any changes it’s made recently in reaction to the current crisis in financial markets, but because of the way Regent’s founders set up the business 14 years ago.

Stephen Jarchow, today Regent’s chairman of the board, and Paul Colichman, a member of the board, established a company with multiple revenue streams. Regent acquires films for distribution and maintains a growing library of 3,500 titles. It also has its own full-service motion-picture studio, Regent Studios; an international distribution arm, Regent Worldwide Sales; a theatrical releasing company, Regent Releasing; and movie theaters, Regent Theaters.

Fundamental to Regent’s success has been its financing model. The company finances its own films using bank debt and equity capital, as well as having output deals with a string of international broadcasters. These allow Regent to take advantage of presales and subsidy programs.

In the U.S., Regent has ongoing relationships with ABC, NBC, CBS, FOX, HBO, Showtime, USA Network, Lifetime Television, SCI FI and a number of other channels. It also runs here!, America’s premium gay and lesbian TV channel, which was established in 2002 and is currently available on all major cable systems and Internet TV providers as either a 24/7 premium subscription channel, a video-on-demand (VOD) service, and/or a subscription VOD service.

Another critical factor leading to Regent’s success has been its ability to contain costs while at the same time attracting top talent. The company earned a place in movie history with Gods and Monsters starring Sir Ian McKellen, Lynn Redgrave and Brendan Fraser. It received three Academy Award nominations and won the 1999 Oscar for Best Adapted Screenplay. Other awards included three Independent Spirit Awards and Best Picture from the National Board of Review. Gods and Monsters, completed for approximately $4 million, competed effectively for awards against major studio motion pictures budgeted at $50 million to $100 million.

Having worked first as a lawyer, then in real estate, then at Bear Stearns before setting up Regent, he brings a unique perspective to running an independent film company—especially in these uncertain economic times. He speaks to World Screen about the challenges and opportunities ahead.

JARCHOW: Probably the biggest area for us is the ability to deliver content on a multiplatform basis in a variety of niches. Multiplatform simply means that you need to be able to provide your content in any way your viewers wish to receive it and use a variety of revenue models. For example, we have focused on a niche that we are very familiar with, which is the gay and lesbian niche. That’s only a small part of our business, but it is an example of what I think we will duplicate in other demographic areas. It was the one niche that we really understood and had a lot of experience with. We produced a picture about ten years ago called Gods and Monsters, which won an Academy Award and a Golden Globe [for supporting actress Lynn Redgrave] and a lot of other awards. And from that we began to build a business of being one of the largest distributors and producers of product aimed at that demographic. Nothing pornographic, but titles that were effective in presenting positive role models and entertaining content for people who are gay and lesbian.

We need to be able to effectively provide this kind of content, whether it be movies or series or topical shows or documentaries, on all formats. That includes television, theatrical and online, via our own video player and other companies’ video players. We need to provide our content in smaller snippets on MySpace and on YouTube and on Facebook or any place else that it is requested.

A big growth area for us is mobile. We are busy making deals and providing content to the cellular companies. Particularly for young people, that is a very interesting way to receive content and something that’s becoming even more prevalent than the Internet to a certain extent. They are viewing short form [content], but also entire movies, on their cell phones and that is a huge growth area.

JARCHOW: The gay and lesbian niche is actually a fairly large one. It is probably 8 to 10 percent of the world population that self identifies and there’s probably a contingent out there who do not. That is actually a fairly large group.

There are other examples of niches that we are working on, some of them fairly large, not dissimilar to the gay and lesbian niche, but most of them quite small. And for us, a niche that can generate $10 million to $20 million in revenue per year is a niche we can make profitable if we design our content cost and our content delivery systems and our revenue models accordingly. But for one of the studios, $10 million to $20 million is not interesting. For us, it’s a nice little business. We can do a few of those and make a very good living. So there’s a real opportunity out there for a company like ours that is known as a worldwide provider of television movies and series to continue to do the traditional Regent business but also to create these multiplatform niche programming services. And we really think that’s the growth.

We’ll continue to do the traditional business but the opportunity is along the lines of what we’ve done with here! and its related websites and the brand expansion through the acquisition of Out and Advocate, which are two of the magazines within the here! demographic. That has helped us get to more of our consumers and cross-market through advertisers. We can provide advertising associated with video online, with the network and with magazines. We’re finding that more and more advertisers are looking for video content that can either incorporate their message or that they can safely market around, that’s tailored to their needs. It’s taken, frankly, a little bit of education to think in those terms and also a little bit of communication back and forth with the advertisers because they’re figuring out what they want and what they need.

JARCHOW:It’s hard. It’s really, really hard work to be effective at this. But it does work. This exercise has just now become profitable—the combination of the magazines, the 20 or so websites and the network—and the revenue model is subscription in certain cases, transactional and advertising. And the ad click throughs are going to be probably one of the growth areas.

JARCHOW: Many independents have been affected by consolidation and other factors, including the current financial market. What we’re discovering—and I think it was Peter Chernin [the president and COO at News Corporation] who made this point—the market is coming down to huge, tentpole studio movies, which everybody has to see, and very small niche content. And there’s nothing in between. You’re seeing, with rare exceptions, how independent films and even smaller studio pictures are not performing this year and last year [was the same]. It’s pretty dismal. The studios are consolidating their specialty divisions because that’s probably not a business they really want to be in.

And for us, in terms of acquiring [third-party] pictures for theatrical release, we’re probably going to acquire more pictures this year than we’ve ever acquired, probably as many as 30 or 35 pictures, which is a lot for us—historically, we’ve gotten five to ten. Many of these movies were made at significant cost—at least in our world, $10 million to $15 million is a lot of money. There are no buyers for those movies right now. So we are able to bid effectively, whereas historically, we’ve been outbid by the specialty divisions at the studios. They’re just not, with rare exception, acquiring those movies. So there is a kind of middle ground. The most dangerous place to be is that $5 million to $20 million area because there is really no market for that. But this is where Lionsgate has played a role. They may make the movies for $5 million to $10 million but then they’ll spend a multiple of that to market it. And that’s a model that’s worked for them, although if you study their quarterly earnings, it’s very volatile because one quarter they’ll be spending a lot on prints and ads and marketing costs and revenue won’t come in from theatrical or DVD until a few quarters later. So it is a very difficult business and they have done it quite well, but it leads to a volatility of earnings, which the public market usually doesn’t like, although I think their stock prices held up reasonably well, all things considered.

Other than Lionsgate, once you drop below the studios, it’s hard to find many companies that really have much of a business model right now. It’s really tough for a lot of these guys.

JARCHOW:Certainly there’s a lot of panic out there. And you’re seeing major names run into liquidity problems in areas you would not have thought would happen, commercial paper and lines of credit and repurchase agreements, and things that everyone had always assumed there was always a market for. There’s a bit of a frenzy going on. I’m cautiously optimistic for established media companies because while the hedge funds are being reduced because of all of the redemptions, many of them still have capital. They need to put it somewhere. They need to earn reasonable yields. They can’t do the big buyouts because there really isn’t the leverage out there to do it. The stock market is certainly too exciting right now. You’ve got low interest rates. Real estate has a bad name, undeservedly I think. But it does because of the mortgage-backed securities deals that were done, principally in the home-market area. So what are they going to invest in? Well, some of these film slate deals have not performed or the jury is still out. I’m hopeful that the yields that can be obtained from film and media will be interesting, at least for a company like ours that has been around for 15 years and makes money every year and has a legitimate digital strategy.

We honestly have more financing opportunities and proposals in front of us now than I’ve ever had in the history of the company, which is very ironic and a little bizarre. But it is the case. I attribute that to the fact that the investors are just not able to get the leverage to do the gigantic deals, the multiple-billion-dollar deals. So a company like ours that would like to do a $50-million deal or $250-million deal, that’s something these guys can do. It’s within their scope at the moment.

These deals are always difficult to get done in the best of circumstances. They always take six months, regardless of what I do and how hard I work or how hard I try to push them, it is always six months! I used to write books on real estate and finance. It didn’t matter how much I hurried; it always took two years. Financing always seems to takes six months. It is really fascinating to me to watch how quickly a lot of these big deals are being done by the government. I guess that’s government. They do these deals and they move within days. I’ve never gotten a deal done like that in my life!

I think we’re going to be okay. But it’s certainly interesting out there and frightening for a lot of people. I guess what you have to do is stay cool, calm and collected, not take it personally, come to work every day and try to make good decisions, try to manage your business and hopefully things will work.

JARCHOW:Well, ignoring the credit crises, I think the traditional model of making a movie for a reasonable price, theatrically releasing it and taking it through the windows is  at least dated and maybe in decline. The prices being paid are fairly low. The theatrical success is very, very [small], almost never happens. The DVD market is declining for most independents. We’ve been a little surprised at how well it’s held up, but it’s still down from what it was. Twenty years ago you could throw anything out there on video and it would work. Now you may not get a DVD sale on certain titles. The DVD retailers really want big studio titles that have had a big theatrical release even if it is a busted release because of the marketing that has gone into it. They don’t seem to want the smaller independent titles. An exception to that though is gay and lesbian because that is a niche that can be marketed to a targeted group. If you go to your Best Buy you will see an area devoted to gay and lesbian DVD titles and we’re probably 80 percent of the titles that are offered, maybe even higher than that. DVD retailers will accept a defined niche, but it’s very difficult to do a general action title or thriller title or Christmas title and get much traction. We’ve had to keep our costs very controlled, keep our overhead costs controlled and really be very careful about what we do. You can’t just make a movie and then look around to see where you are going to sell it. You have to think ahead. We have output deals [with broadcasters] in a number of countries. We try to tailor a lot of our productions for them so we can cover a certain amount of our production costs through any of the subsidies that are available and through the output deals. That’s our goal.

JARCHOW: I started out practicing law, then I was in real estate and then with Bear Stearns and then I continued to invest in real estate and in other businesses over the years. I’ve done a lot of business in the Middle East, in Russia and in the Far East. I have 30 years of international business experience. And what I did not fully appreciate when I started this business was how the legal and accounting background was critical to our survival and ultimate success. The independent film business is a very contract-intensive and a very finance-intensive business. The accounting and collections, the contracts with 30 or so distributors and TV networks around the world, the contracts associated with the making of a movie, the dealing with the guilds, dealing with actors, the finance contracts, the cleverness of the financing and the way it is structured.

For me it has been useful that I didn’t start this business until I was in my 40s because if I had gone in 20 years earlier, I would have messed it up pretty badly! I’ve made a lot of mistakes along the way anyway, but I was able to bring a lot of judgment to the situations. And frankly, just having the business experience has been key to our success.

And then I have an excellent partner in Paul Colichman. He and I founded this company 14 years ago. Paul is incredibly experienced. He had produced about 40 movies before he and I joined up. We’ve become the closest of friends. It’s the kind of relationship where we trust each other implicitly. And we complement each other. If I have a business problem that I can’t solve, I will go through it with Paul and the next morning he will come back with three or four different possibilities, two of which are not practical and two of which are positively brilliant, but need to be shaped. And ideas I never would have come up with. My job is to take the raw data he comes up with and to think through the consequences of that action, how it affects many other things. I think we have taught each other a great deal in this business. He has taught me to be more proactive: Make that phone call today, don’t wait a day or two. And I have taught him to be more deliberative. Paul had a little tendency to ready, aim, fire. And he now in many cases has become more cautious than I have, even more conservative. I probably have a higher tolerance for risk than Paul does at this point. It’s been an interesting evolution in our relationship. It’s been one of the great experiences of my life.