Digital Creed

16 February 2008

Arvind Ethan David is CEO and founder of Slingshot Studios, a microbudget British film-maker which has set out to take advantage of the digital changes taking place in the movie sector. A former dot com pioneer, and most recently managing director of London production company Ruby Films, David conceived of the business alongside Arts Alliance head Thomas Hoegh, and spent six months working pre-funding to prove the idea before launching Slingshot Studios. In March 2006 he won funding from VC Arts Alliance and the Creative Capital Fund. A second tranche of film funding to the tune of £620,000 helped launch its first feature, Sugarhouse, in August last year and film number two premiers at this month’s Berlin Film Festival. The company now has slate financing deals with the BBC, and is currently near completion on its third feature project, the £1.4 million FAINTHEART, in partnership with MySpace.

Where did the idea for Slingshot come from, and how’s it different to other boutique film companies?

It came out of a mixture of frustration at the status quo and hope that digital would change it.

For us, everything starts with the question: how is digital impacting the film industry? That works on a number of levels from production to exhibition, to distribution and marketing. To turn that into a practical example: digital is lowering the cost of production dramatically and that means there are a lot more film products out there. Last year, the number of films produced in the UK was 20% up on two to three years earlier. It also means the cost of audience acquisition is rising and the ratio of advertising spend to tickets sold is up 25% in the last four years in the UK.

The game is changing, and it became clear to me the breakeven point had to be lower in a market characterised by audience fragmentation. So we make movies for a price that is significantly below the industry norm. In 2003-4, the average budget of a UK film was £2m to £3m; our average is £500,000.

That’s one example. But it plays out across all areas. If you look at how we market, we do a lot more in the online marketing space. We have a movie coming out in March called Waterlillies, where we will try to get 10% of our target audience to preview it online before it gets to the cinema, making up a significant percentage of our audience. The only way to build demand for a small movie is by word of mouth and the best way to create word of mouth in a digital age is to make the movie available online.

Your first film was a flop at the box office. Has that changed the way you’re going about things?

In film everyone knows there is huge uncertainty around the outcome of a project, and half of all films fail to recoup their investment. It would have been nice for us to hit the first one out of the park. Even by doing badly – and it did perform dismally in box office distribution, but it’s doing better in TV, airlines and the secondary market – the first film validated what we are doing. Because of the low budget, the loss is absorbable, whereas if we had made it for £2 million, and had the same outcome, it would have broken the company.

We are now looking much harder at product positioning and re-evaluating that in light of our experience. The next couple of releases are more specific and focused in terms of genre and core audience. So we learn and we will continue to learn – but you have to be careful not to throw everything away because of one bad result. As a nation, we’re getting better at learning through failure. The dotcom I ran in the late 90s failed but I learnt some invaluable lessons from that. And I was more appealing to investors this time around because of that.

Is the technology there to support your vision?

The film industry has lagged behind the music industry and has been allowed to keep its head in the sand for a while longer, because download speeds don’t yet allow for film downloads in the same way they allow for music downloads. But the industry is in denial.

There is some evidence that a collapsed release window [the lag between a film’s theatrical release and wider availability] can radically improve the profitability of films. Some films in the US are pay-per-view simultaneously with cinema release, although they don’t do it through the internet but through cable. In the UK and Europe, though, there is much greater nervousness from exhibitors, and cinema owners are paranoid about not allowing any exploitation within their traditional windows. But we believe playing with windows is actually going to drive take-up.

How difficult was it to persuade investors you could build a business worth backing out of all this?

Having raised venture money and private money before I was very conscious of not wanting to put the cart before the horse. If there was one piece of advice I would give to other entrepreneurs it would be not to raise money until you have to and are reasonably confident of the plan.

So I pitched the idea to Thomas Hoegh, the principal of Arts Alliance, but told him I wanted some time to try to prove it. We came to a deal where I worked unpaid for a period of time but he wrote a small cheque to help me do the research. There wasn’t a formal funding arrangement in place, just a fairly speculative agreement that if we went forward there would be a reward for our contributions. After six months, which included a fairly rigorous planning process, a fair deal of consultation, identifying key team members and initial projects, we decided there was enough substance to move forward and raise some money.

And what about the figures – how did you convince them you could make money?

I think you sell the team in the first instance, and in the second instance the vision. Once those things are in place, a good VC helps you build up the numbers together. Our experience has been that the detail of the business plan, the projections and the cost base has shifted a number of times over the past few years, and will change again as we make major decisions like how much to focus on distribution, how much to fund from our balance sheet and how much to fund from third-party finance.

I don’t think anyone doubted our contention that digital would change the industry – the question was how and what does one do with that fact? We said we could make films for a fraction of the price and then the question was would anyone want to do that – would we get the talent and the projects? Three films in, with talent including Eric Cantona, Hugh Bonneville, Andy Serkis, David Baddie, Marc Evans and many others we seem to have won that argument. I can’t point to a single moment where it all shifted though; we have to convince different people on each case and every day we have to keep on convincing. None of us are retiring to our yachts in the Caymans yet.

Arvind Ethan David was speaking to David Longworth of Webster Buchanan Research