to your credit

The latest agency demand being rolled out to production companies is providing proof of solvency. I mentioned this briefly in an earlier post. They are requesting bank records, credit checks, and other confidential financials as validation of liquidity. The agency, who is the guinea pig on this policy, will not award a project unless the companies comply. It's like our own private stress test.  My guess is they want to make sure we are not only solvent but also solvent enough to float the cost of of production. Once again, it's a policy by mandate not by negotiation.

In the last six months I have personally engaged in countless conversations, with competitors and agencies, wondering who amongst us is teetering on closing shop. Most of us have spent our entire careers managing the upside and now were forced to manage the downside. Is it inconceivable a production company takes an award and uses that money to pay off debt only to find themselves without the liquidity to service the production? I think it's possible and apparently so does a particular holding company.

If production companies are willing to concede that in this economic climate credit checks are warranted then the holding companies need to recognize the same logic must be applied to their mandate of sequential liability. In other words, holding companies are saying they can't do business with a prodco unless they can verify enough financial stability to take on the liability of a production. Truthfully it's understable. What rational company would do business with an entity that isn't proven to be fiscally solvent, especially in this economy? In the same breath, they want prodcos to enter into contracts with agencies without receiving verification on the financial status of their clients. It gets better. In prodcos contracts with the agencies, the agencies want to be indemnified if their client cannot make payment even after good and services have been delivered. Despite the apparent conflicts in these two separate mandates, there is very little willingness to negotiate alternative terms such as having the contract directly with the client or paying more upfront or putting the cost of production in escrow.

I believe this is yet another issue that pushes production companies to the brink. In the not to distant future we'll reach the breaking point. When it does, it will either be every production company for themselves or a transformation of our business practices and financial relationships with agencies and their holding companies. Some action needs be taken to ensure the outcome is the latter.