How Gunpowder & Sky Makes Movies for Millennials

and Her Smell. It's my great pleasure to have Van in Flora's here and we're gonna talk a little bit about some major industry trends and familiarize people with Gunpowder and Sky. I think, sort of to start, I'm really interested in your take on the theatrical space right now because there's been a lot written about sort of this box office apocalypse. You know, things don't seem to be working, uh, theatrically in the way they once did, and that's been

sort of focused primarily on the major studio films. What's been sort of this scene in the indie space? Are are things um connecting theatrically? Is is there some spill over from sort of the problems and the larger theatrical space. How's that impacting of the indie space right now? I mean, from my perspective, the key is flexibility. Uh, and that's what we all talk about amongst ourselves and to filmmakers.

So unlike the major studios, there's a lot of baggage around the relationships with the theater owners and distribution UM. And I think being open to how long movies stay in theaters, how they released, how they're marketed, UM, and when they go to t VOD or SAT or other windows. We whenever we go into a film, whether we're making it or acquiring it, we talked to the filmmaker is to say, let's optimize the release. Sometimes that means bypassing

theatrical altogether. Sometimes that means a hastened window for theatrical, but uh, not being precious that it needs a certain level of promotion and time in theaters. UM. Now theater owners less flexible, but UM, particularly for young people, you have to give them a real reason to spend money and go to theaters because the experience isn't as wonderful as it was for us as kids. It was, first of all, is the only time you could see movies. But UM, technology is enabled kids to watch stuff on

demand how they want, when they want. At their freedom. UM, So you really have to give them a compelling reason of making an event to go to theaters. And that's that's a pretty high bar. Um So I think that uh, having flexibility, being a smaller independent studio, it enables you to do that. Um And the fact of the matter is the trending is just not great for movie with you.

Someone told me, um, and I grew up in New York, so that there are twenty plus percent less seats in particularly Midtown to downtown then there were a few years ago. That doesn't bode well for theatrical revenues. Um. So when you're when you're talking about having flexibility, what do you mean by that? What sort of Gunpowder and Sky's approach? When when you pick up a film, are you doing a traditional theatrical window? Are you doing some kind of hybrid?

Are you going straight to um s bod's avods? How do you approach a release of a film? I'll let you speak in a second, but all of the above. So, Uh, for example, we haven't sort of concluded this definitively, but we just acquired a documentary on on this wonderful young rapper Little People on fortun Only Die he's a sort of emblematic of these young rappers who go from obscurity

to infamy of via SoundCloud. Um. And unfortunately he overdosed, but he has these rabid rabbit fans, rabbid young fans, and we are thinking about doing a one night only release that may have exclusive music in theaters and then it will go to tivon spot, So literally twenty four hours. Um, we did this, you know, when I was at MTV with Madonna's Truth or Dare to the second movie, we had one week in theaters, and so sometimes we do ninety days, uh, and then we go to tivon spots.

Sometimes we'll sell movies right to spots. So the first four movies we did, we're with Jason Blum, and we sold two of those to Netflix, and two of those two HBO and CAM. One in particular on Netflix was released over the Thanksgiving holidays and probably more people saw that within a week than have seen a lot of Jason's films and theaters, which he admitted, Um, So I think you just have to figure out what's right for each project. And are you finding that that's you know,

a more profitable model for you? Does it help you in terms of your marketing spend, your distribution costs. Are you getting more of the revenue from a film release by not going, you know, a traditional sort of theatrical run for some of these films. Definitely, I think, UM, because we don't pre set the distribution strategy and we really look at it in a holistic way. How can we create maximum awareness UM with efficient spending. UM. We

look at all the windows, including theatrical very specifically. So for us, there's no point over spending theatrical if we don't think that is where most of our audiences to watch the film. UM. And we always set the distribution strategy after testing it and thinking about it a lot internally. So probably our biggest windows from a revenue point of view, or at least a net revenue point of view, off the marketing s bend are our second window, so so HBO, Netflix, TVA.

And when you're having conversations with with filmmakers, I mean, how open are they to this? Because I feel like you still read in trade press, you know when there's a big bidding war or something like that, that you know that that these filmmakers still want that that traditional theatrical release. Is that becoming you know, a little bit

of an anachronism. Or are people more open to two novel distribution strategies or do you still have to kind of have a kind of a tough conversation with people. It depends they're much more open than they used to be. You know, if I were to do uh Jack Assid Napoleon Dynamite, they may have bypassed theaters altogether. Right, But on one in particular, I acquired this movie foot fist Way with Will Smith and Adam McKay and Jody Hill, who did He's Bounded Down, Who's just a great, wonderful

young director. Uh. We we felt because I think it may have been the second or first worst testing movie in Paramounts history, right, And we tried to convince Jody to release it on Funnier Die and MTV dot com at the time, and he wanted a traditional theatrical window. Was his first movie, so we couldn't argue with that.

But I bet if we had that conversation today, uh, he might feel differently because we would market it socially and viral e and potentially get more eyeballs than would go see that movie and pay ten knowledge to see in the movie theaters. And just to add, I think a lot of the people and filmmakers were talking to ultimately also want a successful release, So it's not only

about the amount of theaters. They want the release to be seen as successful and they want to get into the theaters where they think the audience which will most likely want to see it is going to see it. So it's more quality over quantity, the same as in terms of the length of the release. Sometimes I wonder when when people talk about, you know, the theatrical experience,

and they have this sort of reverence for it. Um. I mean, do you think consumers feel the same way, because I know that that quite frankly, I don't always have a wonderful experience when I go to a movie theater. Maybe it's dirty, maybe people are talking. I mean, maybe I would prefer to just watch something in the home. I mean, is that something that that people aren't really listening to what consumers are telling them when they sort of talk about it in that and that sort of, um,

almost religious quasi religious way. It's hard. I mean, you think about the evolutionary lack of evolution of the in theater experience. It hasn't changed that much, right. I mean, you've got some Imax theaters, you've got theaters, your reserve seats um that are are wonderful, but they're they're more of the anomaly. Uh. And so I think you've got to make either the movie or the experience exceptional. Having a bar and a lot of the movie theaters is good.

So Alamo is having success with younger movie going audiences because it's a better experience, it's a night out. But I think that people are not listening enough to the consumers saying, you know what, it's not worth me paying all this money for that experience. I'd rather stay home or wait for the movie to get into a window that I can enjoy at home. Yeah, and it's I

think it's it's it's the cost of the ticket. But always deals so driving there and the parking and the X, Y and Z, and we were talking a little bit about the sort of the filmmakers and and they're growing flexibility with some of these distributions strategies. But there's office obviously another party involved in that, and that's the theater owners themselves. So what are you sort of hearing from that end of things? I mean, are they being flexible

to about letting your movies in. I mean, how how is that kind of conversation too? You know, I think they've been pretty great to tell you the truth, as long as you work with them in terms of release dates and and when you have the theaters, they want more programming, they want alternative program and clearly Disney students still doing really well with four quadrant event movies, but they like to have the options. Now that may mean you're not in three thousand theaters. You can start in

fifty and go to a few hundred. But I think that the theater owners like alternatives, and I also believe they'll maybe movie past and get it right. They're open to altern of pricing, particularly at low traffic times a day. You mean sort of subscription service kinds of things ees or flexible pricing. Um, let's let's go back to kind of the formation of Gunpowder and Sky. Um Fan, I know that you had a lot of experience. You were at Vatcom, you were at MTV films, UM and uh Floriss,

you were at end them all. How did you guys get together and why did you see this as a space you you wanted to go into? Well, you know, I think separately Floris and I had a similar notion of kind of a premium content studio that was sort of youth oriented, forward looking, that would create content for newer platforms. It just felt like there was a content renaissance.

There were platforms emerging UM every day, and a lot of the content, particularly for young people, was was amateur was based on you know, kids were posting videos, so there was an opportunity to create more premium content that targeted young people. And UM also there was gonna be uh sort of a day of reckoning with linear TV channels where they were going to have to find alternative

sources of programming because the audiences were getting smaller. So all those things lad each of us separately to uh come up with this notion of creating UM a content studio, creating brands that could live on O T T platforms targeting young people. And we got together primarily through Peter Turning and Honor and uh this was when when did you guys form the company story? And we were prepared

for it hobby or something. So the market looks very different at that time and what right, well, when we when we came up with the notion of the studio.

We were seeing that audience isn't obviously specifically younger people were moving where very quickly from traditional and linear TV channels to these new platforms, and on these new platforms you had, like what Ben was saying, from cat videos, make the totals, etcetera, which are very meaningful in themselves, but it's not, as we call it, kind of premium content.

With the shift, we assumed that at some point when the audience moves, as a rule of media, at some point um uh, advertising, subscription, etcetera, revenues will follow, and because of that, you're able to spend more money on the content. And with more money coming into the space, more quality, newer creators, newer formats, um etcetera. That what we were betting on when we came into the market and set up this new studio purely focused on premium

content for the space. That market was not there right it was. Everybody was talking about the digital pennies and the m c ns at that stage. UM, So we were taking a bet that what we thought what was gonna happen was gonna happen. You had some smaller digital players who were uh starting to spend some money like the the go nineties watchables, et cetera. Um, since then, we we we the market has actually shifted way quicker

than we could have hoped for. With now all these new O T T platforms which are looking for differentiated content as well as you focused content. So we're having the Warners, the Apples, the Netflix, Quimby, come const launching news services, the monetization on YouTube becoming better. Um, So there is more and more outlets and demands uh for premium content, differentiated premium content from both films, series as well as brands and channels. So where do you fit

into all of this? Because you're absolutely right, I feel like in the last year and a half, I mean, you have such major players coming into this space. Um. You know, as you mentioned, Warner just announcing yesterday just just you know this week, Uh, their their HBO Max service. You have Disney Plus coming in, you have this a VOD service that Comcast is launching. Apple. Where do you fit into this? Are you going to be a provider of content for them? Are you a competitor? How does

this work? And then you have something like Quimby, which is which is a little different with its sort of short form content. Well, we're providing content to all those services. To tell you the truth, we haven't announced the series, but to Warner streaming service with Quimby, we're doing that first series, fifty States of Terror. We're doing movies for these services. Um, so it's it's a great time to

make premium content for these different platforms, you know. In addition to that, though, we're not sort of randomly um uh, kind of picking the categories that we play in. We have specific genres that we're doubling down in, so sci fi, horror, music, unscripted, um, comedy. And as part of that, we're also creating these sort of branded ecosystems that have primarily lived in the AVOD world. So, um, we have a channel called Dust, which is a sci fi channel, and if you think about it, the next

Ridley Scott will come out of the digital ecosystem. And in fact, we've got over five hundred short films right with with name actors. We were acquired George Lucas's first film, Robert Semeckis and all these young filmmakers are making these sort of thirteen or less minute films that live in this world. They're consumed in this world. But then there's this i P that we can spin off and sell to other platforms, so they're also i P forms as well.

Um and so these genres we pick, we double down on them, We create content if they belong on a different platform like quimby or in theaters. Uh, you know a movie prospect came out of dust um, and then that's where they will live. So it's this combination of branded ecosystems that aren't really competing with quib because they're living on Facebook and YouTube and roku and they live

on Apple and Samsung and other platforms. Uh. And then we have i P that we kind of sell to different platforms and you're making money through advertising or through subscribe option or how does that work too? So so these these these brands, they do everything as Van mentioned, from short form two series, two films to bodcasts, and we have around direct to consumer channels which live on across a bunch of platforms. On the films and series, we make money through books Office, ti vo, UM sales

to Netflix, HBO. Then the channels we generate revenues through programmatic advertising UM, and we will through affiliate fees and subscription in the coming period. So I think and and coming back to, we think the opportunity is there is a big opportunity for for indie studios to create and sell grade content, especially if you have differentiated content, targeted content, and then creating these larger brands where we want to be a trusted cuader and programmer within a specific genre.

And these brands can live on the bigger platforms like Apple and Amazon and Samsung and Comcast, so where instead of only selling one off films and series were also packaging them in larger propositions. And I think as the next um ah he said iteration, I think you're going to see a lot of these larger platforms which need to become larger and larger and attract more and more people.

Everybody's focused on originals, original content, which is extremely important, but in order for these platforms to ultimately become successful, they need more existing brands on their platform to attract larger amounts of audience and reduce programming and marketing calls and have sticky content on their platforms. So I think you're going to see a lot of brands existing and new brands come up. Is that because it's almost like a sign of quality or something for for a user.

What why do you think? I think, yeah, I think you're seeing a lot of people who are now saying I think one which which is I think a mistake where people say young people only want v o D content, They want to watch it whatever they want, and they want to find it themselves. I think ultimately people care about brands right people where the same sneakers people want to listen to playlists Spotify. You want to be part

of a brand. You want to know that if you go to a trusted brand, you're going to find something good and you can talk about it with your friends. Um and UM. I think that reduces the amount of spend on programming and your it reduces your spend on marketing. And I think a lot of people now we've seen the issues with for example, Netflix, that sometimes it takes you fifteen or thirty minutes to find something you want, and I think people are going to start focusing on

that more and more. Um. It makes a lot of sense that that a smaller player, whose nimble could really profit from from all this change, because it feels like this change is just so accelerated. Things are so different and just a matter of months. But I've also recently been just sort of going around to traditional studios and I see this massive infrastructure, and I wonder what your thoughts are, as people who have also you know, worked

in that space to how do these companies pivot? I mean, is it difficult when you have all of this infrastructure, these jobs, these all these people who are on your payroll, and you know, ways of releasing content to the world that are so sort of baked into your business model. How how hard is it for these companies to adjust to to this you know, new Frontier. It's, um, it's

really hard. I think that um, you know what was his Steve Jobs expression that the people created the last invention are probably the last people are going to do the next one, because I have to get out of their own way. And there's all this sort of baggage that and and a lot of it is is good or bad baggage. But you know, I think that, UM, being at Viacom, uh, it was really important that UM. Anybody who stops listening to the consumer first, that's when you get into trouble. So MTV was a bit of

a canary in a coal mine. All these young people were watching videos on YouTube. They were consuming content on YouTube, but because there were traditional distribution deals where direct TV or podcast would pay a billion dollars for the content on MTV, MTV couldn't put its content on the platform where most consumers were going. And so that was it

was a nice baggage to have. You got a big check for your content, but then you couldn't be flexible and put it where people wanted to consume your content. When you don't have that baggage and you are small, you can follow the consumer. The consumer wants to watch a movie you make on Demanding Home and will pay the same price, well that's where you should be. Um. So I think that that the studios recognized the shift in consumer behavior. Look at the decline in linear TV ratings,

the decline and young people going to movie theaters. It's there, but it's really hard when you've got a lot of partners involved to say the theater owners, oh, by the way, i'm gonna short in your window from ninety days to thirty days. You're good with that, right. You've seen the reactions that the theater owners have like, hey, come on now, so it's it's gonna take a beat. It really is. We don't have that baggage. We can just listen to the consumer and and the purity of purpose provides us

a lot of freedom. Yeah, I think, and I think there's a lot of smart people at these larger places. But I think also the the having to focus on keeping your revenues and your profitability up whilst actually in order to pivot to the new world, you're gonna have to do things which in the short to medium term will actually you're focusing on lower profit initiatives and you're gonna have to let go of a couple of juicy,

juicy deals. Um. And for that you need to also have shareholders which kind of appreciate you going into that direction. I think that that's that's the balance which a lot of people are having to con Well, it's interesting you say that because I talked sometimes to analysts and I'm kind of struck by the fact that they treat a lot of these streaming services. They almost see them as just additive, that it's just going to add revenues to,

you know, their overall sort of pie. But they're taking content away, you know, they're they're wrapping up licensing deals which you're basically and at least in my estimation, pure profit for them putting you know, pulling that back, putting it on their service, which comes with all kinds of

attendant costs. So I guess I'm just sort of what kind of if you're a publicly traded company, isn't that really problematic if you have to do things when you're what you If you just look at it from a pure number standpoint, you think this is this was a terrible quarter, right, I mean, how how do you do that? Explain? Like this is gone of costs pix for the next ten years. But the opportunity is why, and that's why

are you going to do it? And for a Netflix that's as a premium play coming from the less quote unquote digital sign of it, it's an easier thing to explain than for a for another big studio legacy revenue. It isn't two sided coin because they're getting big license fees, but they don't have a direct relationship with their audience,

and that's the price they pay. And so the pot at the end of the rainbow is I'm going to get my content back and now I'm gonna know who's watching it and so when I release a movie or I release something with that actor in it, I can talk to them directly. Why do you think, um, that that legacy media companies have other than Disney sort of And actually I would argue MTV at least at one point have that kind of direct relationship with its consumers. Is it because they use sort of third party to

get their content out of the world. Why do they have Why have they why have they sort of failed to establish that kind of connection. Oh, because there were middlemen for the most part, there were cable operators and so and there was a really imperfect system Nielsen that took a very small sample of the country that only took their live viewing for a long time. So the way we got information was through emails and phone calls. When when they didn't like something, we heard it from

an email. But it wasn't as if we had this direct conversation we knew who was watching it in the Midwest or who liked what record or video. Where we just had to to beg and borrow and so it was just there were middlemen involved. So if you're somebody who's sort of entering this space, I mean, where do you see sort of the opportunities without giving away uh, you know, competitive advantages. You know, a lot of people that I talked to seem very anxious about this, this

new frontier. They're frankly, they're almost depressed about sort of how things are changing. You both seem to feel that there's a lot of opportunity. What what sort of it's exciting to you right now? Well, I think this this is part of the show for both of us at big companies who did things a certain way, you know, and them all make great content, they make great formats. They sold it to traditional television networks around the world. Um, what's changed is the consumer is in control and that

is really exciting. They tell you how they want to see things. And as a content maker, if you're again, if you're not precious about your windowing, then that is a huge opportunity. So if you make your movie, maybe HBO will buy it, or maybe the new Warner streaming service, or maybe Hulu will take your channel and distribute it for you, or Roku you know this great a vod system will take your channel and they'll sell ads against it and they don't charge five dollars a month to

a consumer. Um, I think as long as you're open to the noise of culture and consumption, then that's a huge opportunity. But as we talked about, if you're married to an old system that pays you a lot of money and you have to keep your profit margin a certain way, it's tough to pivot and embrace that as

quickly as new companies can. Yeah, and we we don't need the traditional gatekeepers to build our I P and our brands, right, so we because we're building these brands that if we can go with a series to a buyer and see if anyone is interested, or if we think it's actually better, or we can do we can tell it in a shorter amount of time, we can put things on our own channels, and as long as an audience agrees with us that it's interesting and they

love our brands, we're going to continue to grow. It's interesting that you were talking about launching in because there were a number of other indie studios that launched at about the same time. And you know, I'm thinking of um Open Road in one of its sort of iterations, and and broad Green and Relativity have been there for a little while. But st X really high mortality rate. When you when you look at those names, where did

where did they go wrong in your estimation? Because we've talked a lot about sort of big traditional media, why did some of the smaller players also sort of failed to thrive? Well, I mean, I know it's a bit of a buzz kill, but but I think they went

into it relying on traditional windowing. To tell you the truth, and and and so um, if you don't keep your costs in check, both in the negative costs of making a movie and your overhead, then you're gonna get burned if the traditional windows don't pay off for you, and so one or two failed movies costs you tens of millions of dollars. And we, uh, we didn't sort of go fall into that trap. Really, and particularly if you're targeting young people, you don't have to spend hundreds of

millions of negative costs. You can just make it fun and innovative and novel and they'll try to find it. Uh So, if you open the studio and relied on traditional windowing and traditional models, then there would be a high mortality rate unless you just keep banging out hits. Um. We're also about to go into the Toronto Film Festival, which I assume you you will both be at this

year's Sundance. The prices for a lot of content made big headlines in a huge sales for things like The Report and Runs a marathon and Late Night, which which did not do well. Uh do you expect those prices to be as high at future festivals? I mean, I feel like there's like a a boom and bus cycle or something. You know, you have one here where it's four was a bit of a bus. So what what was it that happened that that goost prices at the last Sundance? Will there be a kind of a hangover

effect at future film festivals? But what's your sort of take on that? I mean, I don't know what Flores feels about. I think you're right, it is it is our peaks and valleys. I think that the last year, streamers in particular and particularly Amazon came in with checkbook and wanted to say, we're going to buy these sort of broader movies. I didn't personally think that Late Night belonged in theaters. I thought it was and is a perfectly great movie for Amazon. It's a good, really good

family movie. It's funny, Um, and then who knows, next year they may not show up where maybe Netflix comes in and pays a lot of money, but the year before they kind of sat out right for us. It's the great thing about our studio is that's why we we don't consider ourselves to be in the studio because we do more things. Is that if there are more aggressive buyers, it's harder for us to acquire titles. On the other hand, it's it's a better market for us

to develop and sell our our films and series. So it's great if if if if there's an again aggressive buyers coming into Toronto, it's a good sign for us in other parts of our business and on the acquisition side. We we don't need to fill pipeline of let's say, its films a year because we have output deals or because we have an overhead to to to to support. So we're very fine to release fifteen films a year.

We're also very good to release two to five films a year because you're not saying I have to hit a certain number each year or something like that. Are some contractual obligations, right, And also we don't have contractual obligations,

which is another kind of issue. As you know with with with some other studios, you have contractual obligations to be in a certain amount of theaters, and then that starts hitting your p and a whilst actually you might not believe that it should actually be in that many theaters, but people are putting them out regardless because they have

these obligations. It doesn't help anyone. That's a great point because when you look at these sales prices, you think, oh, it's sport two million dollars, but you don't realize, oh, well, there's actually a twenty million dollar acomm that's right. That's right.

Because the year before we had a movie we produced called Summer of eighty four and we were kind of like people didn't buy for theatrical release, like oh, and then we sold the two shutter and and it was one of, if not their most viewed movie at the time,

and so we sold it around the world. So in some ways, the market speaks for itself and and the project finds the right home eventually, but being married to having to spend all that money to release it theatrically and not knowing what the outcome will be, that gets to be dangerous at times. So could you tell me what what's behind the name? What gunpatern skuy what? What does that mean? Absolutely nothing? It is uh, it's I don't sleep and it it came to me in a dream.

That was because when I was developing my own plan, I called the studio below the Radar, only to find out there were fifteen studios named below the Radar. But um, it was and I, uh, this lyric kept coming to me. I do not like guns at all, just just to

be clear, but it it had this infinite possibility. And it's from an amy Man song and it is actually meant to be ironic because it's the song fourth of July gunpowder Sky, what a waste of wait yeah, yeah whatever, it's ironic and and but it felt like it had this sort of infinite possibility and uh, and I called amy Man and she I didn't. I didn't really have to, but I called her it just comically it felt like I wanted to. And She's like, as long as you

treat artists fairly, then I will bless it. So we've we've tried to live up to that mantra. Well, Van and Force, thank you so much for joining us, and really appreciate it great. Thanks travelings. This has been another episode of Strictly Business. Tune in next week for another helping of scintillating conversation with media movers and shakers, and please make sure you subscribe to the podcast to hear future episodes. Also, leave a review in Apple Podcast let us know how we're doing.