Filmmakers, It’s 2013. Do You Know Where Your Jobs Act Is? Part 3

Written by Michael R. Barnard

FILMMAKERS, IT’S 2013. DO YOU KNOW WHERE YOUR JOBS ACT IS?
Part 3 of 3 parts.
 
Yesterday, in Part 2, we learned that cash is available and that the JOBS Act is going to give filmmakers an opportunity to more easily access that cash for investment to make movies and rebuild the independent film industry.

The Internet enlarged the playing field for securities offerings, whether valid or not, and for potential investors, whether knowledgeable or not.

How do you legally and ethically access that hoarded cash and encourage its investment in your well-developed movie project so you can hire people and make your movie?

 

Easier access to that cash is the promise of the JOBS Act, which was the biggest bi-partisan effort of the past several years of hyper-partisanship. Support for the JOBS Act spanned both parties.

 

America needs good jobs, and some of those jobs need to come from the independent film industry. Joblessness and low-wage jobs have crippled the survival and prosperity of millions of Americans, and are a drag on our entire economy.

 

For you, the significance of the JOBS Act is not only the production of your movie, but also its potential to rebuild the infrastructure of the American independent film industry by structuring movie projects to show business as well as artistic realities.

 

The ability to reach out to investors means you will have to analyze the strengths and weaknesses of your movie project, plan its production and distribution, and calculate reasonable possible returns. Your stronger, compelling plans and successful investor strategy will allow you to pay better wages, attract superior cast and crew, rent and purchase proper equipment, engage legal counsel and insurance, and make stronger efforts to engage audiences and deliver your movie to them. By opening access to that hoarded cash and other cash from investors, the JOBS Act can provide filmmakers with increased production quality and increased likelihood of a return on investment, which can increase the stability of the independent film industry in America. The process can increase the potential to deliver higher-quality movies to larger audiences.

 

There are two parts of the JOBS Act specifically attractive to independent filmmakers. They are Title II—ACCESS TO CAPITAL FOR JOB CREATORS, commonly referred to as “the General Solicitation Rule,” and Title III—CROWDFUND. These offer the promise to improve filmmakers’ ability to raise money for development, production, marketing, and distribution of their movies.

 

Some filmmakers are lucky enough to raise money for their movies through family and friends, angel investors, venture capitalists, or other ways of private funding. Most filmmakers are not so fortunate.

 

Many filmmakers turn to crowdfunding, whether perks-based donor crowdfunding or the forthcoming Equity Crowdfunding. That’s a good path for filmmakers whose social circle is pretty normal, and you will benefit from Title III—CROWDFUND of the JOBS Act.

 

Are you fortunate enough to have millionaires in your social circle? The change to the fundraising process, opening it up for general solicitation, will be the benefit for you from TITLE II—ACCESS TO CAPITAL FOR JOB CREATORS of the JOBS Act.

 

TITLE II—ACCESS TO CAPITAL FOR JOB CREATORS

 

TITLE II is popularly referred to as the “General Solicitation” rule. It will change some of the exemptions from the most strenuous rules; these exemptions, which are still very strict, are commonly referred to by investment professionals as “Sec. 506, Reg. D”. The rules that allow exemptions from some of the harshest regulations still include prohibitions against you, or any person acting on your behalf, offering or selling securities through any form of “general solicitation or general advertising.”

 

Most of those posts long ago on Friendster and MySpace and those ads printed in magazines and newspapers by filmmakers telling people to invest in their films and promising the investors profits have always been illegal. Examples of general solicitation include advertisements published in newspapers and magazines, communications broadcast over television and radio, and seminars whose attendees have been invited by general solicitation, as well as other uses of publicly available media, such as unrestricted websites and social media.

 

The big news is that TITLE II is going to let you promote your movie project to everybody you can reach. The only restrictions will be, simply, that you can only sell your securities to Accredited Investors – but you can now find those Accredited Investors by publicly announcing your movie project.
The JOBS Act instructs the SEC to make rules to stop the prohibition against general solicitation and to give you reasonable steps to verify that those who invest in your movie are truly Accredited Investors as defined by law.

 

You will not be able accept investment money from anyone who can’t prove they are Accredited Investors. The Act says you will not be subject to requirements to be a registered broker or dealer because of maintaining and advertising online or on other platforms your offer, sale, or negotiation of an investment in your movie. Under the general solicitation rules for your Sec. 506 of Reg. D offering, there might be no other reporting requirements other than, probably, the basic Form D now required by such offerings (see http://www.sec.gov/answers/formd.htm). It is likely the SEC will modify the Form D only to acknowledge that your offering is being made under TITLE II of the JOBS Act.

 

The JOBS Act established a deadline of Wednesday, July 4, 2012, for the SEC to promulgate rules and regulations for the implementation of TITLE II—ACCESS TO CAPITAL FOR JOB CREATORS. The SEC missed that deadline. The agency did publish proposed rules for TITLE II on August 29, 2012 (see http://www.sec.gov/news/press/2012/2012-170.htm) but has not implemented them. Although the SEC has missed the deadline required by the Act, and used a process a little bit out of the ordinary regarding its usual schedule of receiving public comments and publishing proposals, the SEC believes they are working prudently within the complex requirements of implementing the JOBS Act. There is not yet an anticipated date for finalizing the rules for Title II of the JOBS Act. It continues to accept public comments regarding TITLE II.

 

TITLE III—CROWDFUND

 

Title III—CROWDFUND of the JOBS Act, twisted into an acronym of that tortured construct, “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure,” relieves filmmakers of many of the burdens of raising equity investment for movie projects. The goals of the Act appear to allow a filmmaker (or any entrepreneur) to offer securities to any American for up to a maximum of $1 million in any 12-month period for all of the entities controlled by the filmmaker using the process similar to perks-based donor crowdfunding

 

It appears the filmmaker’s offering of securities must be made only through a registered securities broker or through a newly-described “Funding Portal” registered with the SEC. Funding Portals are intermediaries that might be similar to the existing crowdfunding sites, and will be responsible for educating the public about investing, protecting the public from fraud, vetting the people offering the securities, distributing to the SEC and potential investors any information about the securities, and holding in escrow all proceeds prior to reaching the offering amount. Funding Portals will also protect the privacy of investors and cannot purchase from any finders or brokers any personal information about potential investors. Filmmakers will not be allowed to be officers, partners, or directors in the Funding Portal servicing their projects.

 

In order to offer equity shares in their project, it appears filmmakers will need to provide some form of a Business Plan and Financial Projection, which was common before the collapse of the independent film industry, that includes the purpose for the offering and the target offering amount and its deadline, as well as the description of the ownership and capital structure of the issuer. The Business Plan and Financial Projection will likely include the name, legal status, physical address, and website address of the issuer; the names of the directors and officers and anyone with more than 20 percent of the shares of the issuer. A description of the financial condition of the issuer including all other offerings of the issuer within the preceding 12-month period is also required. The filmmaker will need to make regular updates about progress meeting the target offering amount. There will be rules about describing the price, value, terms and class of the securities offered. Annual reports will be required.

 

WHO CAN INVEST, AND HOW MUCH?

 

Once the new SEC regulations are in place, you likely will be allowed to approach anyone via any method of communication, describing your well-developed movie project, as long as you only send them to the Funding Portal or broker handling your movie project. If you pay someone to bring people to your project at your broker or Funding Portal, you will be required to declare publicly that you pay the person to do so.

 

It appears there will be no limit to the Americans you can approach, but their participation will have limits. Expect that those potential investors whose annual income or net worth is less than $100,000 will be allowed to invest up to 5 percent of their annual income or net worth, capped at a maximum of $2,000. Anyone with an annual income or net worth of more than $100,000 will be allowed to invest up to 10 percent of their annual income or net worth, capped at a maximum of $100,000. These maximums will apply to all of the investments made by the individual to all issuers – not just you – in any 12-month period.

 

It is attractive to filmmakers to be able to raise up to $1 million per year in equity investment. This fits into a common timetable for making movies; the first year’s fundraising could support development, production, and post-production, and the second year’s fundraising could support marketing and distribution, effectively allowing filmmakers to raise up to $2 million for your movie.

 

The investment securities in your movie will be barely, if at all, liquid. Your investors will likely not be allowed to resell their securities for a period of 12 months except to people such as accredited investors and family members, or through a complex registered public offering in the unlikely case that you were to develop one.

 

The issue of Funding Portals has become very complex. It originally appeared that the JOBS Act would allow a proliferation of new businesses to serve as Funding Portals. However, complex and contradictory parts of the Act now appear to make it illegal for Funding Portals to earn a profit unless they are functions of registered Broker-Dealers. The possibility of non-profit organizations setting up Funding Portals has not yet been addressed by the SEC. The process of becoming a registered Broker-Dealer could take probably more than six months and cost probably more than $25,000. For the SEC’s information about the process, see http://www.sec.gov/divisions/marketreg/bdguide.htm

 

“You’re dealing with other people’s money, there is an obligation of financial and fiduciary duty to the investors,” says Bob Thibodeau of Crowdfund Capital Markets (see www.linkedin.com/pub/bob-thibodeau/3/849/b4a), a service company providing backend and clearinghouse functions for equity crowdfunding operations.

 

“Orderly, transparent, liquid markets are good for everybody,” continues Thibodeau. “The processes, the technology, the understanding of regulatory environments is much more conducive to orderly markets than everybody learning something all at once, which is chaos, which is where crowdfunding is right now.”

 

The SEC is working with The Financial Industry Regulatory Authority (FINRA) (see http://finra.org), the largest independent regulator for all securities firms doing business in the United States, on rules for funding portals, and FINRA has a voluntary Interim Form for prospective Funding Portals. Once the SEC and FINRA have adopted funding portal rules, they then need to promulgate the rules that will apply to those who need to use Equity Crowdfunding to fund their businesses.

 

“Investors soon can expect to be inundated with crowdfunding pitches, legitimate or otherwise,” said Heath Abshure, President of North American Securities Administrators Association (NASAA) (see http://www.nasaa.org/about-us/nasaa-board-of-directors/), the oldest international organization devoted to investor protection.

 

An analysis of Internet domain names found nearly 8,800 domains with “crowdfunding” in their name at the end of the year, up from less than 900 at the beginning of the year.

 

Fraud concerns run high in certain circles of the professional investment community. However, the openness and transparency of the Internet, according to crowdfunding experts, serves to thwart fraud.

 

Slava Rubin of popular perks-based donor crowdfunding site Indiegogo (see www.linkedin.com/in/indieslava/), and very active in the process of crafting the Equity Crowdfunding part of the JOBS ACT, says “Indiegogo’s 5,000 campaigns are proven case studies to predict that there is no significant worry about fraud. The fraud rate in our case studies has been about 1 percent.” He notes that when e-commerce was new on the Internet, people also predicted huge increases in fraud. However, eBay and Amazon proved that online fraud risk is no greater than every other risk we face every day.

 

According to the report “How the Crowd Detects Fraud” (see http://www.crowdfundcapitaladvisors.com/resources/26-resources/120-crowd-detects-fraud.html ), “This is the new crowdsourced diligence paradigm.” The crowd itself effectively polices against fraud.

 

PERKS-BASED DONOR CROWDFUNDING AND EQUITY CROWDFUNDING WILL CO-EXIST. 

 

Perks-based donor crowdfunding and Equity Crowdfunding each has its own process and participants. It is likely perks-based donor crowdfunding will be more focused on funding for personal, artistic movies, while Equity Crowdfunding will be focused on movies with commercial appeal.

 

Kickstarter is not going to get involved in Equity Crowdfunding because its mission was never profit-oriented over artist-oriented. It launched in 2009 after an original idea in 2001 to fund creative projects that would probably not be profitable, but that were good ideas that people want to see come to life.
For instance, last year Charlie Kaufman, Dan Harmon, Ira Sachs, David Fincher, Bret Easton Ellis and Paul Schrader all turned to Kickstarter to invite fans to participate in their personal creations.

 

Equity Crowdfunding will be a different experience, and for different backers, than perks-based donor crowdfunding.

 

The JOBS Act established a deadline of Monday, December 31, 2012 for the SEC to promulgate rules and regulations for the implementation of TITLE III—CROWDFUND. The SEC missed the deadline, and has no anticipated date for the rulemaking to implement TITLE III. The SEC has not published any proposed rules for TITLE III and continues to accept public comments regarding TITLE III.

 

When the SEC is engaged in rulemaking, they typically want to hear from the public and will say very little beyond what is proposed.

 

Part of the reason for delays in rulemaking may be the change in leadership at the SEC. On December 14, 2012, Chairman Mary Schapiro left the agency, and President Obama appointed Elisse Walter as her successor. See http://www.sec.gov/news/press/2012/2012-240.htm and http://www.whitehouse.gov/the-press-office/2012/11/26/statement-president-obama-departure-sec-chairman-mary-schapiro

 

Although the SEC has made few announcements about the JOBS Act and its rulemaking, former Chairman Schapiro spoke about it in her opening remarks at the SEC Open Meeting on August 29,2012 (see http://www.sec.gov/news/speech/2012/spch082912mls.htm) and current Chairman Walter gave her “Opening Remarks Regarding the Proposal of Rules Eliminating the Prohibition against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings” at that same meeting (see http://www.sec.gov/news/speech/2012/spch082912ebw.htm)

 

When it wends its way through the SEC rulemaking processes, the JOBS Act will be a powerful tool that will give filmmakers something they have desired for decades: easier access to investors for their movies.

You face the opportunity to have a significant impact on the future of America’s independent film industry.

 
You can immediately participate in the process to make sure the JOBS Act supports the needs of America’s independent film industry. The SEC wants to hear from you at http://www.sec.gov/spotlight/jobsactcomments.shtml
 
As a filmmaker, you can tell the SEC that it’s important to you to be able to have access to investment capital in order to make your movies and to rebuild the independent film industry.
 

Michael R. Barnard is a writer and filmmaker who has been researching the American JOBS Act since it was first proposed. Barnard is currently working on creating an independent feature film, A FATHER AND SON (http://AFatherAndSon.wordpress.com). Barnard lives in Brooklyn, New York, and is the author of the historical novel NATE AND KELLY. You can reach Barnard on Twitter at @mrbarnard1 and on Facebook at michael.barnard.

 

This article is an overview and observation, not legal advice.

Filmmakers, It’s 2013. Do You Know Where Your Jobs Act Is? Part 2

Written by Michael R. Barnard FILMMAKERS, IT’S 2013. DO YOU KNOW WHERE YOUR JOBS ACT IS?

Part 2 of 3 parts.

Yesterday, in Part 1, we looked at the general state of affairs for raising money from investors for your movie, and introduced the JOBS Act for its potential to help rebuild the independent film industry in America.
Offering securities for your film is tightly restricted and regulated by the SEC. For every rule of the SEC that you ignore, your disgruntled investor’s attorneys will accuse you of fraud and deception and other wrongdoing. They will win, and collect good sums of money for their clients.
“If somebody loses their money in a film investment,” says Jeff Steele of Film Closings, “Nine out of ten times, they’re going to sue the producer. That’s how the world works. The difference between being sued by ma and pa investors or Accredited Investors is that Accredited Investors have better lawyers.”

For the definition of “Accredited Investors,” see http://www.sec.gov/info/smallbus/secg/accredited-investor-net-worth-standard-secg.htm

In simple terms – explanations that are more complex require attorneys – the process to raise money for your movie by legally offering securities is referred to generally as a “Private Placement Memorandum,” which usually costs about $15,000 or more in time and fees.

When you have your expensive PPM, what can you do with it?

Under Rule 506 of Regulation D, you can only show your expensive PPM to, simply put, millionaires. This audience, legally known as “Accredited Investors,” is allowed because of the presumption that people with lots of money can’t get destroyed by a single bad investment, and are smart enough to properly evaluate the realistic potential for any investment.

 

According to attorney Dan DeWolf, attorney with the New York law firm Mintz Levin Cohn Ferris Glovsky and Popeo (see http://www.martindale.com/Daniel-I-DeWolf/499422-lawyer.htm), “As a matter of public policy, the courts really do not want to get involved in investments with someone where, if it was disclosed it was a risky investment, and they are wealthy, and they can afford good counsel. If they have a million dollars net worth and they’re making these types of investments, they can afford to pay counsel or their accountant to look this up. The courts really don’t want to interfere in this type of capital formation.”

 

The definition of “Accredited Investor” is very specific, and was updated in 2011 to exclude the value of one’s home because of the destructive volatility of the mortgage crisis. It includes those with a net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of their primary residence, or those with income exceeding $200,000, or $300,000 with the spouse, in each of the past two years and the reasonable expectation of the same income level in the current year. (See the description of Accredited Investor here: http://www.sec.gov/info/smallbus/secg/accredited-investor-net-worth-standard-secg.htm)

 

“What the courts don’t want, and the SEC doesn’t want,” continues DeWolf, “is people preying on widows, orphans, and others where these types of high-risk investments are totally inappropriate. That is why they limit it to only Accredited Investors, because they can bear the risk.”

 

It’s a closed community. Only after you find an Accredited Investor can you then pitch your expensive PPM. Generally speaking, you cannot legally let anyone other than Accredited Investors have access to your project for evaluation (there is an allowance for those with prior relationships, but that is not in the scope of Title II of the JOBS Act), nor can you allow anyone other than accredited investors to invest in your project.

 

These facts commonly frustrate new filmmakers.

 

Of course, the spirit of artistry and story-telling still burned under the collapse caused by the Great Recession. Filmmaking never died. Even in the worst times of the Great Recession, when distributors, hedge funds, foreign presales, and bank credit started to disappear, filmmaking found support. Even with the tremendous downward pressure on budgets for production and distribution, filmmakers continued to strive to make movies.

 

At the same time, audiences clamored to help the arts of filmmaking. The spark of creativity was nurtured by a new process of perks-based donor crowdfunding to fund filmmaking.

 

The process is like an egalitarian version of the ages-old concept of “patron of the arts,” when wealthy benefactors provided money to support their favorite artists for the sake of the art.

 

With today’s perks-based donor crowdfunding, filmmakers, instead of seeking equity investment in their movie project from a few people in exchange for profit participation, simply ask everyone for outright contributions, usually offering perquisites as a return gift. There is no equity participation; this means that none of the donors will receive any ownership in the movie project. Supporters give money to filmmakers solely for the sake of helping get the movie made. They cannot receive any possible profit. They usually cannot even receive a tax deduction, since perks-based donor crowdfunding is rarely set up for qualified donations to registered non-profit organizations, such as 501c3 entities.

 

It works.

 

“Any resource that allows artist and audience to link directly and strategically is a great thing,” said Sean McManus (see http://www.filmindependent.org/sean-mcmanus/)about crowdfunding. McManus is co-president of Film Independent, the largest organization serving independent filmmakers in America. He added, “They crowdfund pre-production, production, post-production, and even festival runs and distribution.”

 

“Crowdfunding also enables filmmakers to develop direct contact with potential viewers once the film is available,” added Josh Welsh (see http://www.filmindependent.org/josh-welsh-co-president/), also co-president of Film Independent.

 

Perks-based donor crowdfunding is probably just as hit-or-miss as seeking equity investment. Many projects launched on crowdfunding sites fail to reach their goals. However, Kickstarter, the biggest player in the field of crowdfunding sites, rightfully brags about some fascinating and exciting results on their blog at http://www.kickstarter.com/blog/100-million-pledged-to-independent-film. Kickstarter alone has brought together nearly 900,000 people who supported independent filmmakers, pledging more than $100 million to features, documentaries, shorts, web-series, and other film and video projects over the past three years. Rentrak, which tracks such things, reports that almost one hundred Kickstarter-funded films were in more than 1,500 North American theaters, and another dozen or more have theatrical premieres slated for 2013.

 

There are many crowdfunding sites; another popular crowdfunding site for filmmakers is Indiegogo and a newer one is CrowdZu.

 

The term “crowdfunding” refers to a subset of the term “crowdsourcing,” a recent term to describe the use of social media, primarily, to obtain information and maybe even consensus from the crowd of people accessible by one’s online and offline social circles (see http://www.merriam-webster.com/dictionary/crowdsourcing). “Crowdfunding” is the process of using crowdsourcing for the specific purpose of raising funds. Curiously, the most popular crowdfunding site, Kickstarter, does not use the term “crowdfunding.” It calls itself, simply, an online funding platform. Considering the U.S. Government’s definition in Title III of the JOBS Act of “CROWDFUND” as an acronym of the contorted “Capital Raising Online While Deterring Fraud and Unethical Non-Disclosure,” it’s easy to side with Kickstarter’s dislike of the term.

 

Some investment professionals are only aware of the term in the context of the forthcoming Equity Crowdfunding, which is not yet legal, as well as some closed-to-the-public investing sites that now exist, and they might express confusion or concern when people talk about “crowdfunding” as it is popularly used today.

 

This confusion is likely to grow when perks-based donor crowdfunding and Equity Crowdfunding both become fundraising tools for filmmakers and other entrepreneurs.

 

Perks-based donor crowdfunding has been legal and immensely popular. Public use of “Equity Crowdfunding” under the JOBS Act has not yet been implemented and is still illegal. Existing closed-to-the-public equity investing sites are limited to only Accredited Investors.

 

DOWNWARD PRESSURE ON BUDGETS

 

The perks-based donor crowdfunding efforts that are successful commonly provide only a bare minimum amount of funding for making a movie. In an industry where ‘flying by the seat of your pants’ and being ingenious in cheap ways to create movie magic has always been the lifeblood of making movies, there is now a new lower threshold as many crowdfunded projects raise barely enough money to pay for extremely reduced expenses. Although it’s now the assumed reality for our new generation of filmmakers, this new lower threshold often results in shorter production schedules, lower or non-existent wages, fewer cast and crew, no rental of equipment to increase production value, avoidance of location fees and even insurance, presuming ‘word-of-mouth’ instead of crafting a marketing budget, and other critically minimized expenses. The Great Recession’s downward pressure on budgets that had already been small has hindered the infrastructure of the independent film industry in America, making competitive production value, consistency, opportunity and livelihood difficult. This is particularly unusual, given the tremendous growth in the quantity of independent movies being made. For instance, more than 2,000 feature films made in America were submitted to the Sundance Film Festival 2013.

 

“There is now a strata of filmmaking where they get their fifty grand and do whatever they can possibly do with it,” says Richard Abramowitz of Abramorama.

 

In the modern independent film industry in America, Ted Hope of the San Francisco Film Society considers three levels of independent feature film budgets: about $20 to $25 million, which might be considered as Oscar-worthy films; about $3 million for independent films that attract a lead actor who had a significant role in prior feature films grossing in the range of $100 million; or, otherwise, budgets of about $500,000 or less.

 

“That breakdown is a simplification made for the sake of clarity,” says Hope.

 

Several industry experts agree that a filmmaker can now craft a feature-length movie for a production budget under $1 million that is competitive in theatrical production values.

 

“Absolutely,” says Abramowitz.

 

“1,000 percent agree,” says Hope, and adds, “It’s been a long time since we had a ‘Napoleon Dynamite.’ On the other hand, Oscar-nominated ‘Beasts of the Southern Wild’ is only marginally above that $1 million figure and is nothing short on the theatrical production value, and well-positioned in the marketing, too.”

 

Regarding the downward pressure on production budgets, Steele adds, “I would say a $15 million film from a few years ago is now the $3 to $5 million film. The crunch brought the budgets down to where they should be.”

 

Stacey Parks of Film Specific (see http://www.filmspecific.com/public/department86.cfm), which works with filmmakers to properly package their film projects, frequently advises her clients to reduce their original budgets. “If you have started with a $5 million budget,” says Parks, “You’re really only going to make your film for probably no more than $2.5 million.”

 

There are new opportunities because of the ‘correction’ in filmmaking budgets. More can be done with less. The trick will be to rise out of poverty and rebuild the infrastructure of the independent film industry.

 

The new generation of filmmakers, and those filmmakers who can quickly adapt, face exciting opportunities for funding their movies.

 

THE MONEY IS OUT THERE. 

Yes, there is cash available for investing. Lots of cash.

 

Cash is being hoarded by the very wealthy and by your friends and family. The notorious mindset of “stuff the money in the mattress” eight decades ago, borne from the fears of the Great Depression and the fear of banks collapsing, returned again in the Great Recession.

 

Individual Americans have missed almost $200 billion of stock gains by hoarding cash rather than investing it (see Bloomberg’s “Americans Miss $200 Billion Abandoning Stocks” at http://www.bloomberg.com/news/2012-12-24/americans-miss-200-billion-abandoning-stocks.html).

 

Corporations and institutions have done the same; trillions of dollars have been sitting idle instead of creating jobs and building business infrastructure (see NPR’s “Companies Sit On Cash; Reluctant To Invest, Hire” at http://www.npr.org/2011/08/17/139703989/companies-sit-on-cash-reluctant-to-invest-hire, Forbes’ “Super Rich Hide $21 Trillion Offshore, Study Says” at http://www.forbes.com/sites/frederickallen/2012/07/23/super-rich-hide-21-trillion-offshore-study-says/, and PolitiFacts.com’s “Obama says companies have nearly $2 trillion sitting on their balance sheets” at http://www.politifact.com/truth-o-meter/statements/2011/feb/10/barack-obama/obama-says-companies-have-nearly-2-trillion-sittin/).

 

The FINANCIAL TIMES reports that equity funds have seen the strongest inflows in more than five years because of boosted investor confidence. Net inflows into equity funds monitored by EPFR, the data provider, hit $22.2 billion in the week of January 9, 2013 – the highest since September 2007 and the second highest since comparable data began in 1996. (See http://www.ft.com/intl/cms/s/0/195ed762-5bd7-11e2-bf31-00144feab49a.html)

 

“Access to capital is essential for success,” says Salute.

 

Tomorrow, in Part 3, we look at the JOBS Act’s provisions for specific opportunities to access that capital.

 

Michael R. Barnard is a writer and filmmaker who has been researching the American JOBS Act since it was first proposed. Barnard is currently working on creating an independent feature film, A FATHER AND SON (http://AFatherAndSon.wordpress.com). Barnard lives in Brooklyn, New York, and is the author of the historical novel NATE AND KELLYYou can reach Barnard on Twitter at @mrbarnard1 and on Facebook at michael.barnard.

 

This article is an overview and observation, not legal advice.

Filmmakers, It’s 2013. Do You Know Where Your Jobs Act Is? Part 1

Written by Michael R. Barnard
FILMMAKERS, IT’S 2013. DO YOU KNOW WHERE YOUR JOBS ACT IS?
PART 1 of 3 parts
Young filmmakers today – those of you in your early to mid-twenties – entered filmmaking after the Great Recession and complications of rapid technological developments began to cripple the independent filmmaking industry in America. You entered the field just as the then-new perks-based donor crowdfunding function blossomed in the debris of crushed distribution companies, shrunken Minimum Guarantees, destroyed bank credit, and disappearance of most equity investment by hedge funds, institutions, and high-net-worth individuals. Those of us who are older are still smarting from the destruction, still aware of the way things had been.
The independent film industry in America shows signs of poverty, with many independent filmmakers living lives of ‘the starving artist,’ and jobs within the industry seem to be rare. Rarer still are consistent jobs that pay a living wage.
President Obama signed into law the American JOBS Act last spring. Called the “Jumpstart Our Business Startups Act,” its purpose is to help Americans who have good, sound business projects to attract cash from investors more easily. Businesses create jobs and hire people, and America needs that. The independent film industry in America needs that.
President Obama said, “We are a nation of doers. We think big. We take risks. This is a country that’s always been on the cutting edge. The reason is, America has always had the most daring entrepreneurs. When their businesses take off, more people get employed.”
By amending the Securities Act of 1933, the JOBS Act should make it easier for indie filmmakers to raise money so they can create jobs and help rebuild the American economy. It can have a profound impact on the independent filmmaking industry.
The biggest bi-partisan effort of the past several years of hyper-partisanship was the creation of the American JOBS Act. Support for the JOBS Act spanned both parties, the President, and even anti-tax organizations known for being at odds with the President. It is designed to turn hoarded cash into investment in companies so they can create paid jobs and build infrastructure. Read the JOBS Act here: http://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf and for the summary, see http://thomas.loc.gov/cgi-bin/bdquery/z?d112:HR03606:@@@L&summ2=m&
Filmmakers, here are details of why we need the JOBS Act, how it will help filmmakers, and the status of the JOBS Act today.
THE WAY THINGS USED TO BE
Earlier generations of young filmmakers were often surprised to discover that their public pleas for money to make their movies ran afoul of federal SEC regulations that control offerings of securities, rules that demand rigorous registration under equity investment laws.
“Securities? Equity? Registration? SEC? What are those things,” asked the new filmmakers from previous generations. “I just want to make a movie.”
The young filmmakers who came before you were shocked to discover they could not just tell everybody on Friendster and MySpace, or through ads in printed newspapers and magazines, that they wanted investors to pour money into their movie project in return for great profits later.
This was the first thing filmmakers learned after they finished writing their script: raising money can be very illegal.
Here’s why:
THE GREAT DEPRESSION
Eight decades prior to the Great Recession, we faced the Great Depression, which started in 1929. Times were worse because there were few protections or “safety nets” for citizens. When huge numbers of American citizens lost all their money after the crash of crazy, outrageous investment schemes and scams, they really lost everything, ending up on the street, eating in charity soup kitchens, and begging.
The economic destruction to America was so great that the country created severe, restrictive rules to prevent it from ever happening again. Those rules included the Securities Act of 1933 and the Exchange Act of 1934 to protect citizens from shrewd, myopic, or criminal people who had persuasive high-power pitches for getting citizens to invest money in their projects, whether real or imaginary.
America needs investment; that’s what made this country great. It does not need more economic destruction from poorly thought out or deliberately deceptive projects.
The rules and regulations still control investment in America.
They are implemented and overseen by the U.S. Securities and Exchange Commission (SEC). All of the SEC laws, rules, forms and regulations associated with the Securities Act of 1933 and Exchange Act of 1934 are on the SEC’s site at http://www.SEC.gov/divisions/corpfin/cfrules.shtml The big news from last year was the American JOBS Act, signed into law by President Obama on April 5, 2012, which offers some changes to ease this process of investing in America. The goal is to create jobs.
“This is what is going to be the solution for job creation in this country,” says Richard Salute of Cohn Reznick Accounting in New York (see http://www.cohnreznick.com/richard-j-salute), “And, that’s what will keep us in the forefront of developed nations. Access to capital is essential for success.”
The JOBS Act provides filmmakers with tools to rebuild the independent filmmaking industry in America (see “President Obama Signs JOBS ACT; Its Equity Crowdfunding May Rebuild Indie Film Biz” at https://michaelrbarnard.wordpress.com/2012/04/05/presdient-obama-signs-jobs-act-its-equity-crowdfunding-may-rebuild-indie-film-biz/)
THE GREAT RECESSION
The economic destruction of the Great Recession that struck in 2008, just as our new generation of filmmakers came on the scene, affected the independent film industry in America as harshly as other industries, maybe even more harshly than many industries.
“The industry kind of imploded five or six years ago when Fine Line, New Line, Paramount Classics and a few other smaller companies disappeared,” says Richard Abramowitz of consulting firm Abramorama (see http://pro.imdb.com/name/nm0009150/), which specializes in production, marketing, distribution and representation of indie movies. “There was certainly a dip there when the economy tanked.”
“There has definitely been a hit. We’ve seen a downward trend, especially in New York City,” says Mike Nichols, East Coast Rental Manager of AbelCine (see http://abelcine.com), a long-established national equipment rental house. “In 2008, I was bidding on equipment packages for about three dozen indie films. In 2009, that dropped to less than a dozen.”
“I think the independent filmmaking biz got was coming to it, it got corrected, just like housing,” says Jeff Steele of Film Closings (see http://filmclosings.com/), a strategic advisor and film finance veteran specializing in structured-financing for film. “It had attracted a ridiculous amount of hedge fund money out of Wall Street in 2006 to 2008 when I worked for a $300 million fund where we had done thirty films in two years. It was a time when finance plans were looking for films, rather than the other way around. Then the credit crunch hit in 2008, and all of the foreign buyers had their credit lines dry up, so they couldn’t acquire any more films. There was suddenly a surplus of films, films made for $10, $20, $30, even $40 million independent films ended up going straight to video because they had nowhere else to go. It forced filmmakers to drastically reduce their budgets.”
According to prolific indie producer Ted Hope, with more than five dozen prominent indie films across the history of the current independent film culture to his credit, “The real issue right now is the artists and the people that support them are not benefiting from their work, and it just can’t be done. I’ve watched six years of my own personal earnings keep going down each year. I’m not making a living producing the movies. And the system as it’s set up right now does not benefit artists or those that support them.”
Almost to prove his point, Hope has stepped away from producing and is now the Executive Director of the San Francisco Film Society in California.
“I produced close to 70 films, and I know in my heart that movies like The Ice Storm, 21 Grams, American Splendor, Happiness, or In The Bedroom would not get made today,” says Hope.
THIS IS EQUITY
New filmmakers are often surprised to find out (usually from friends, but sometimes more harshly from Federal authorities) that it is illegal to randomly offer securities to the public to raise money to make their movies. Their first reaction is to try to find a way around the term “securities,” only to learn that a security is pretty much any offer of a potential return in the future for any cash investment made now. See “security” at http://www.investorwords.com/4446/security.html
Young filmmakers often argue that the SEC could not possibly be interested in pursuing and prosecuting their own small, insignificant movie project.
Correct. Sort of.
Your worry is not the SEC; your worry is your investor. While the SEC may never notice your movie project, the people who invest in your movie are paying a lot of attention to it, and America is full of investors who become disillusioned and disgruntled about the difference between what they feel they were promised, and what they feel they really ended up with. Those are the people who will sue you, and they win by relying on the rules and regulations of the SEC that you ignored.
Offering securities for your film is tightly restricted and regulated. Even under what are known as “Reg. D exemptions,” there are still many expensive regulations to keep you from investors’ money.
Those problems often boil down to enthusiastic, over-confident filmmakers overstating the potential of their movies. You need to be confident to get a movie made, but when you pitch investors, you must include the realities of the risks. Not only is that the ethical course to take, it is also the course that will help you protect yourself.
Tomorrow, in Part 2, we will look into the legal ways to raise money for your movie.
Michael R. Barnard is a writer and filmmaker who has been researching the American JOBS Act since it was first proposed. Barnard is currently working on creating an independent feature film, A FATHER AND SON (http://AFatherAndSon.wordpress.com). Barnard lives in Brooklyn, New York, and is the author of the historical novel NATE AND KELLYYou can reach Barnard on Twitter at @mrbarnard1 and on Facebook at michael.barnard.

This article is an overview and observation, not legal advice.

STAY TUNED FOR TOMORROW'S INSTALLMENT ON THIS CRITICAL ISSUE!

They Want To Fund Your First Feature (& Take You To Venice, Italy)

Launched this year by the Biennale di Venezia in partnership with Gucci, the Biennale College - Cinema is an initiative to support teams of directors and producer to make their first audio-visual work. A community of selected filmmakers from around the world will work alongside an invited team of international experts and tutors to explore the aesthetics of micro-budget filmmaking and the new integrated models of production, which engage with an audience from the outset.

After a first 10-day workshop in Venice for 15 selected projects in January 2013, up to 3 teams will be invited to a second 15-day workshop between February and March and supported with 150.000 Euros in order to produce and screen the projects at the 2013 Venice International Film Festival. The Call for Applications is open from the 30th of August 2012 to the 22nd of October 2012 only to teams of directors at their first or second feature and producers with variable degrees of expertise who must have produced at least 3 short films distributed and/or presented at Festivals.

For more information go here, or email college-cinema@labiennale.org

When Do You Submit A Project To A Financier Or Distributor? (continued)

I've written about this before, and I am sure I will write about this again.  It keeps coming up, both with my own projects and with those I consult on. I think it is really simple and it is based on both experience and common sense.

It is my belief that there is only one chance to show a script where it will have real impact -- and that is when it can be portrayed as "inevitable".  That is usually when there are both talent and finance commitments -- the two components that make a dream real for the industry.

The ideal time to submit a project is when there is enough in place to create the perception of inevitability but also room to bring in others to enhance a deal.  Why not make things better if you can?

The folks you are submitting to, need to both cover their ass (i.e. not look foolish) and be urged to act.  They need to be able to both visualize your dream, and still have room to add theirs on to it.

Indie Film in South Africa Part 2

By Jon Plowman How do you turn your passion for film into a profit? How does one take all that experience built up on non-paying indie projects, and turn it into a career? I'm glad you asked. Welcome to the second part of a two-part article on indie filmmaking.

It seems to me that a lot of filmmakers are chronically losing sight of a very simple fact: there has been a total revolution in the film industry in the last few years. The last AFM - American Film Market showed some unsettling trends in the industry. The recession is biting hard, and it's as much to blame as anything else, but unfortunately piracy is also taking a huge toll. Investors are much more wary of putting money into any given production, because it's unlikely to turn a profit the way it used to five or ten years ago. The days when a filmmaker could command a budget in the tens of millions of dollars range are basically now a thing of the past, especially if that filmmaker is an unknown. The industry has slimmed down, it's leaner and meaner and there is no space for egotistical filmmaking, for running way over budget and making huge, extravagant productions. The Avatars of this industry are going to be once in a blue moon in the future. And don't think that you can make a film on a shoestring budget and have the slightest chance of selling it at AFM or Cannes, without having done your homework and made sure that it meets the minimum requirements for the industry. More of those in a moment.

[caption id="attachment_6937" align="aligncenter" width="410"] Discussions between scenes. One of the military advisors in the greatcoat.[/caption]

99% of films nowadays are the micro- to low-budget productions, films made intelligently utilising a minimal budget and still managing to get the best possible results out of them. Which, if you think about it, means that the so-called "indie" filmmakers are perfectly placed to make films for the mass market. We're already good at making films on a shoestring, the thing is that we need to be able to sell them and turn enough of a profit to do the whole thing all over again, and give investors a return - which will encourage them to invest again. So what's the answer? It's simple, with the right ingredients.

Firstly, we need a network. Networking is critical. This industry coined the term "it's not what you know, it's who you know", and that applies now more than ever. But indie filmmakers don't have the cash to spend on cultivating the right people, so how can we make those crucial connections? Simple. Social networking. After a couple of years of networking via free social sites such as Facebook, I get about 90% of the work I do through the internet. I have a huge network of industry people, from actors, to directors, to producers, to production houses, to crew. Local and international people. None of that would have been possible without social networking. And even with nothing but handfuls of small change in my pocket, I can still afford to get online at a local internet cafe.

Secondly, we need a kick-ass script. Film is a visual storytelling medium, a way of presenting a story in a medium that is universal to people of all cultures, languages, ages and backgrounds. But without a story, there is no film. I run a group on Facebook which has nearly 200 members, almost all of them scriptwriters, many of them with great talent. Almost none of them have ever sold a script. It's easy to find South African production houses who are keen to make the films, but there isn't much local money here. We have a critical shortage of writing agents, so we are usually forced to try and sell our scripts overseas, where they tend to get lost in the crowd. So for us, it's Catch 22. Again, social networking has helped to bridge that gap.

[caption id="attachment_6938" align="aligncenter" width="410"] The cast and extras readying to shoot the charge.[/caption]

Thirdly, we need a good core production team, people who are prepared to do what it takes to nurse the project through to the finish line. No chancers, no laziness, no incompetence, but people who know their business, know the industry inside-out and are well connected. They don't need to be experienced if they are good at what they do. And they need to know their own strengths and weaknesses and to be team players, able to delegate and share the workload with others whose own strengths can compensate. They need to be able to focus on the bigger picture, and work together to bring the production in, on time and on budget. It's asking a lot, but those kinds of people are out there. Get to know them. Make it your business to know them, because without a good producer at the head of a good production team, a production - your film - is dead in the water.

Fourthly, we need a good business plan. Filmmaking is a business. It's all very well to be creative, but at the end of the day, movies that don't make money bankrupt the investors and lose potential investments for the future. Investors are people with money, and they made the money by being good at business. They need to know that the money they might invest is going to people with good business sense, who won't waste the investment, but will make it turn a profit. So do your homework, and work out a proper business plan, complete with realistic projections of both sales and return on investment. Investigate the markets into which you plan to sell your finished film, find out whether or not it is a product that will have saleability, and get realistic estimates of the kind of income selling your film in that particular territory will generate. Critically, have a fully-fleshed out, workable marketing plan for the film, complete with marketing agreements with the right agents for taking the finished product off your hands to sell. Without those agreements in place before you ever greenlight the production, it's virtually impossible to sell a film. They don't need to be signed - frequently they can't be until you know you have the other components of the production in place - but the fact that you have done your homework and have initial interest in your production can make all the difference when it comes to actually selling it.

Fifthly, we need Names attached. In the industry, a Name = money. Simple as that. Investors in the film industry only feel comfortable with their investment if they know we have someone with a reputation involved, someone who has already proven themselves. If the Name is not already internationally well-known, they need to be listed on IMDB and have a good portfolio and a good track record. Those are the only two viable options. Nothing else will do. And you're going to hate me for saying this, but forget about making a cheap film with unknown cast, director, producer and writer. You simply won't sell it. 99% of agents at the festivals won't even take the time to discuss it further without someone that they can have confidence in attached.

[caption id="attachment_6940" align="aligncenter" width="410"] The director, cast and extras after wrap. The lead military advisor, a member of a historical reenactment society, is wearing the Afrika Korps cap.[/caption]

Sixthly, we need the money. With a good script, a good business plan and a good Name, the money is out there and can be found. There are production companies with money - many of them international ones, and don't feel that because your production is a local one, that you need to focus on trying to raise local money. There are private investors with the money to spend. And many countries have quasi-governmental or private organisations with the capital set aside specifically for local film production. Do your homework. With the right business plan and good connections, it's perfectly possible to find the money you need in another country or even on another continent. I've been asked, "OK, fair enough, but what's the right budget?" My answer to that is always, "How long is a piece of string?" The right budget is going to be different for every production, but it boils down to the usual mix of salaries, locations, crew, post production, etc, etc. On some productions, you might be spending as much as 50%, or more, on salaries. On others, the lion's share might go into special effects. It's going to be different for every film. Remember that anyone in the industry who has pull - your Name - will expect to be paid commensurate with that pull. But that doesn't mean you can't work out a deal whereby they get a percentage of the profits, and it doesn't mean you're going to have to pay $30 million just to have Brad Pitt in your film. You can find plenty of actors with similar box-office draw who will do the same or a better job at a fraction of the rate, especially if they believe in the project. Part of knowing what you need to spend is having a good producer who can give an accurate budget estimate, and who already knows where to shop to get the most cost effective savings with the money he'll be given. And with the right budget, we can afford all the talented actors, crew, experience, locations, gear, etc that we need.

Get all those ingredients right, and from there on out, you can hang up your apron. No more flipping burgers for the rent and food, because you might just be able to make a career out of indie films.

Ted tells me he's focusing on setting up the infrastructure to help support the indie film industry. With that infrastructure in place, it's going to make the whole process of making and marketing films much easier. As indie filmmakers, we've done our time and proven ourselves. We've got the experience, the connections, the know-how. We're perfectly set to take over where the bloated, hugely cost-ineffective mainstream studios can't compete, and put ourselves on the map as the filmmakers of the 21st century.

About Jon:

Jon's fairly typical of indie filmmakers in South Africa. He's worked on more than 75 productions, everything from PSAs, student films and shorts, to commercials, television series and movies, and full-length internationally famous features such as Goodbye Bafana, Avenger and Blood Diamond. Last year he worked on the World War II film The Fallen, a short about South African soldiers' contribution to the fighting in North Africa and which was a top 25 finalist in the International One Minute Film Festival. Since he lost his fulltime job, he's been working on music videos and short films. He's even been paid for some of them.

You can connect with Jon on Facebook: www.facebook.com/magscadar

Indie Film in South Africa Part 1

By Jon Plowman Ted asked me for this article last year. I agreed, because there are a couple of important points I'd like to put out there to encourage filmmakers in the same kind of position as I find myself. But before I could actually get around to writing the damn thing, I found myself retrenched. That's "laid off" to most of you. I lost my job. Yeah, you know the one I mean, the one that actually pays the bills while I work on movies. My boss gave me a sob story about how he couldn't afford to keep me on because the business was struggling. He has a wife and two small kids, and his business was their sole income. I couldn't blame him. We feel the global recession here just as keenly as the US or Europe. So there I was, out on the street with R150 in my pocket. To put that in perspective, R1 = US$0.15, give or take.

Welcome to life as an indie film maker on the southern tip of Africa.

[caption id="attachment_6933" align="aligncenter" width="410"] Dressing extras for shooting the battle scenes from The Fallen.[/caption]

As an independent filmmaker in what - to most people who will have read this blog, is a foreign country - I can tell you that things in South Africa are much the same as anywhere else in the world. We do have some advantages over other filmmakers. We generally have a better (read: cheaper) pricing structure, making it reasonably cost effective to shoot a foreign-financed film here. In season, we have great weather. We also have interesting and varied landscapes, architecture and population, so we find the lion's share of our income in the industry is from foreign investors who bring their movies to us to service, despite the fact that the movies are almost universally set back in their home countries. We also have a burgeoning South African film industry, and we are beginning to make a name for ourselves with our own home-grown directors - Gavin Hood (heard of him?) and our movies - Tsotsi, District 9, etc. Despite the fact that our industry is small and relatively young, we have huge amounts of talent and experience. And the smallness of the industry works to our advantage, because it's easy to get to know all the right people.

Having said all that, where does independent filmmaking come into the equation? This brings me to my first point, and the main thrust of this first part of a two-part article on indie filmmaking.

Two years back, I was one of a small group of like-minded people who identified a niche in the local film industry that was crying out to be filled. So, as we say here in South Africa, we made a plan. I became one of the founding members of the South African Indie Films filmmaker's collective, and we have an almost continuous stream of small-scale, zero-to-low budget independent films on the slate. Very few of us make money off the films, because we do it for the love of film and because we all have stories we want to tell. 99% of the people who work on our films are students, gifted amateurs, or people who work professionally in the industry, but - like me - are either "between employments", are working in their spare time, or are looking for portfolio material and experience during the off-season. We realised that we'd found a gaping hole in the local film industry into which we seem to have slotted nicely. We're based in Cape Town, but we have affiliations with like-minded filmmakers in Johannesburg and Port Elizabeth, and even in Namibia. When we started a SAIF Facebook group, we had acquired 150 members within 24 hours. Two years later we have almost 1,000 members. We've been approached by people from afar afield as the UK and Europe to read scripts, help find finance for their films, help them get their films made. We have a network of related groups focusing on different aspects of the film industry, and all of them are very active with news, casting calls, crew notices, trailers, forthcoming releases, film festivals, and so forth.

[caption id="attachment_6934" align="aligncenter" width="410"] Setting up for a take on the charge. The director Bauke Brouwer is in the NY[/caption]

Social networking is an incredibly powerful, usually free tool for the modern filmmaker. Sites such as LinkedIn and Facebook - two of my personal favourites - are fast becoming an essential way to connect with industry people and extend your network. Used to your advantage, it can only be of benefit to you.

So that seems to be a workable solution. Whether you use social networking or not, find people who are like-minded, who have the same passion for film, the same drive to create and tell stories, and collaborate with them. Organise collectives and informal groups, meet over the weekends, club together for equipment and transport, utilise student filmmakers and actors who are keen to get involved - there never seems to be a shortage of available actors - and get out there and make films. If nothing else, for the people who have a real passion and want to make this a career, the experience and the networking will help in the future. And working with a group of other people on an informal basis helps to share costs and the logistical problems become much easier to deal with as experience increases. The down side is that if you're not paying someone a salary, it's hard to hold them to their commitments, but you find in the long haul that the people who are not really committed drop out and you're left with a central core of people who are prepared to work hard with you to achieve the dream. There's nothing more inspiring than working on a project with other passionate, creative people. It's a drug that you'll find you just can't get enough of.

Jon's Plowman's a fairly typical of indie filmmakers in South Africa. He's worked on more than 75 productions, everything from PSAs, student films and shorts, to commercials, television series and movies, and full-length internationally famous features such as Goodbye Bafana, Avenger and Blood Diamond. Last year he worked on the World War II film The Fallen, a short about South African soldiers' contribution to the fighting in North Africa and which was a top 25 finalist in the International One Minute Film Festival. Since he lost his fulltime job, he's been working on music videos and short films. He's even been paid for some of them.

You can connect with Jon on Facebook: www.facebook.com/magscadar

When Do You Submit A Project To A Financier?

I have been producing movies for about twenty-five years. And it still is a thrill when an executive asks me to submit a project. But does a simple request mean you should send the project you have slaved over on in to them?

I have never had a company actually finance a project that is not either already somewhat packaged with cast or has pre-sales done on it. I have to remind myself over and over. Good acquisitions execs craft all sorts of arguments of why I should submit my projects early -- and sometimes I fall for it. I think when they succeed in suckering me in they too honestly believe that they can get it made without already being fully realized (short of execution); but they soon learn they can't. Which is not to say that they can't get it set up, but that is often a far cry from getting it made.

Acquistions executives job is to bring projects in, period. So they ask. And often we comply. If the sign of insanity is to repeat the same action over and over, expecting the result to change, are we insane to keep doing this practice?

It would be wonderful if the corporately backed entities truly were able to climb aboard projects in the midst of becoming and enhance them with their status, capital, and expertise. I guess they do sometimes, provided the project is generated by one of the top ten or twenty directors who have produced a hit of recent times. But where does this leave the rest of us?

I understand the why though: we make movies because we are the type of people who believe magic can happen. Yet, as much as I believe we can engineer the likelihood of serendipity happening, I don't think we can summon it. I might test the waters along the way occasionally, sharing a taste with a well-chosen partner who has earned the offering somehow, but I am going to keep on trying to keep my cards close to my vest, until I know my hand can win. I do count the cards after all.

Things All Filmmakers Should Know About the "JOBS Act"

Karen Robson and Steve Goodman of Pryor Cashman LLP have kindly provided us with a copy of an analysis they've written about the recent changes in securities laws because of the JOBS Act. It contains vital information about crowdfunding and how it relates to film -- and is an important read for all filmmakers. JOBS ACT TO HELP FILMMAKERS RAISE CAPITAL By: Stephen M. Goodman, Karen M. Robson and David E. Parsly May 2012

NOTE: This is a general analysis of the statute and should not be considered legal advice.

On April 5, 2012, President Obama signed into law the Jumpstart Our Business Startups Act (the “JOBS Act”). The JOBS Act encompasses a series of proposals that emerged in Congress over the past year, and that were ultimately brought together in a single piece of legislation receiving substantial bipartisan support. The stated purpose of the JOBS Act is to stimulate job growth and capital formation by removing and/or reducing certain costs and regulatory burdens applicable to smaller companies.

Specifically of interest to independent filmmakers, the JOBS Act introduces reforms to a certain widely, used private offering rule to remove the prohibition on “general solicitation” and creates a new exemption for “crowdfunding”, which, when rules mandated by the JOBS Act are finally adopted by the Securities and Exchange Commission (the “SEC”) in approximately nine months, will offer the potential to raise money through small investments from a larger number of investors.1 Since rulemaking related to the elimination of the general solicitation rules in private offerings must be completed within 90 days, this exemption will have a more immediate impact than crowdfunding on capital formation for filmmakers.

ELIMINATION OF “GENERAL SOLICITATION” RESTRICTIONS ON RULE 506 OFFERINGS

Private securities offerings under Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), are frequently used by filmmakers to raise capital through the issuance of equity or debt securities. Regulation D offerings are exempt from registration under the Securities Act, which eliminates the substantial burdens and expenses associated with public registration and reporting. The most popular exemption used for domestic private placements is Rule 506 under Regulation D, because the amount that can be raised under Rule 506 is virtually unlimited and, so long as the offering is made only to “accredited investors” (i.e. generally investors that meet certain minimum annual income or net worth requirements), the number of investors is likewise (at least theoretically) unlimited.

However, issuers relying on Rule 506 have been prohibited from engaging in any form of “general solicitation or advertising” to attract investors. The SEC has never precisely specified what constitutes a “general solicitation,” but the SEC has cautioned in no, action letters that to avoid a general solicitation an issuer must approach only investors with whom the issuer has a “pre,existing substantive relationship.”2 Over the last several years, many commentators have noted the deleterious effects on issuer’s capital raising created both by this “general solicitation” limitation and by the vagueness and apparent internal contradiction in its interpretation.

Title II of the JOBS Act amends the Securities Act to specifically permit general solicitation or general advertising in connection with a Rule 506 private placement, so long as everyone who eventually makes an investment is an “accredited investor”. The intended result is to permit issuers, such as companies formed to finance and produce films, to reach a broader pool of potential investors, regardless of whether they have a pre,existing relationship with the issuer.

It is important to remember, however, that the ultimate investors must be “accredited investors”, and here the rules have changed slightly. The JOBS Act mandates that issuers relying on Rule 506 must now take “reasonable steps” to verify that each investor constitutes an “accredited investor” as defined in the Securities Act. At the least, this means that an issuer will no longer be able to rely on an unsupported representation by the purchaser that the purchaser is an accredited investor. Therefore, while the JOBS Act provides filmmakers the ability to cast a wider net and attract any accredited investor by means of a general solicitation, it will likely also place additional burden and expense on filmmakers to conduct some level of diligence on their investors to prove that they are accredited. The changes to the law also leave unanswered what methods or content the SEC will permit (or require) to be used in connection with a “general solicitation” and how activities conducted in connection with general solicitations may affect other fundraising efforts by issuers.

Despite these uncertainties, the removal of the general solicitation prohibition may provide filmmakers the ability to seek direct access to potential investors. Depending on SEC rulemaking regarding general solicitation, it may in some cases mitigate the need for filmmakers to rely on intermediaries such as brokers, placement agents and finders to introduce investors and to bear the financing fees associated therewith.

CROWDFUNDING

In recent years, films and other art and charitable projects have used Internet “crowdsourcing” donations to raise revenue. Instead of donations, “crowdfunding” would permit companies to take in small amounts of money as investments from numerous individuals. Websites such as Kickstarter and Indiegogo have previously acted as crowdsourcing portals based on a donation model. The JOBS Act responds to a growing belief among many politicians and business people that entrepreneurs should be able to use this model in an investment context.

Title III of the JOBS Act adds a new “crowdfunding” offering exemption to the Securities Act. The exemption is available to film producers and other issuers if the aggregate amount of all securities sold to investors by the production entity and its affiliates during the 12,month period prior to the latest transaction (including but not limited to any crowdfunding securities) does not exceed $1,000,000. The crowdfunding exemption restricts the aggregate amount that may be sold to any investor by the issuer during this 12,month period to either $2,000 or five percent of the investor’s annual income or net worth (if his or her annual income or net worth is less than $100,000) or ten percent of the investor’s annual income or net worth (if his or her annual income or net worth is $100,000 or more). In the latter case, the maximum aggregate amount that can be sold to the investor during the 12,month period is $100,000.

Both the overall limitation on the aggregate amount of securities that can be offered in the 12 months prior to the offering date and the caps expressed in the limitations on individual investors include not only securities sold pursuant to the crowdfunding exemption during those 12 months but also any other securities of the issuer purchased by that investor without regard to the 12,month period. This means, for example, that if a producer has raised $500,000 in a Rule 506 private placement, then for the next 12 months it cannot raise more than $500,000 in a crowdfunding offering.

However a filmmaker seeking to rely on the new crowdfunding exemption will not be able to simply post its offering on a website and accept offered cash. Rather, there will be a significant number of requirements on the manner of offering the securities and the types of information that must be made available to investors, the SEC and state regulators, as well as requirements for updating the information during the offering and after the offering is completed.

Perhaps most significantly, the JOBS Act requires that any crowdfunding offer be conducted through a registered broker or “funding portal”3, not directly by the production entity itself. To satisfy the JOBS Act’s requirements that the broker take responsibility for the crowdfunding offering, the broker is required to:

• provide various disclosures, including disclosures relating to risks, and other investor education materials (to be prescribed by SEC rule);

• ensure that each investor (a) reviews these disclosures and materials (in accordance with standards to be established by the SEC), (b) affirms that the investor understands the risk of potential loss of the entire investment and that the investor can bear the loss and (c) answers questions demonstrating that the investor understands the risks of start,up investing, illiquidity of the investment and “such other matters as the SEC determines by rule”;

• take measures (to be established by the SEC) to reduce the risk of fraud, including obtaining a background check and securities enforcement history on each officer and director of the production entity and each person holding more than 20 percent of that entity’s securities;

• make certain information required to be provided by the production entity (see below) available to the SEC and to potential investors at least 21 days prior to the first sale of securities;

• ensure that proceeds are only released to the production entity after a target offering amount is reached and allow for investors to cancel their commitments (as determined by SEC rule);

• verify (to the extent deemed necessary by the SEC) that no investor has exceeded the limits on aggregate investment in the production entity required by the exemption (see below);

• protect the privacy of information collected from investors (to the extent determined by SEC rule);

• not compensate any finder, promoter or others for providing “personal identifying information” of any potential investor;

• prohibit its own directors, officers orpartners from having any financial interest in the production entity; and

• meet such other requirements as the SEC may deem appropriate for the protection of investors.

To rely on the new crowdfunding exemption, the production entity must also comply with a number of disclosure and offering requirements. In particular, the production entity must:

• file extensive disclosure with the SEC and provide to the investors and the relevant broker or funding portal information regarding (1) its name, address and website address; (2) the names of its directors and officers and each person holding more than 20 percent of its shares; (3) its business and its anticipated business plan; (4) its financial condition4; (5) the stated purpose and intended use of the proceeds of the offering; (6) the target offering amount, the deadline to reach the target amount and “regular updates” on the progress of the offering; (7) the price (or the method for determining the price) of the securities offered and a reasonable opportunity to rescind the purchase commitment if the final price is not determined at the time the commitment is made; (8) a description of the ownership and capital structure of the production entity and the terms of the offered securities (including how the offered securities have been valued and the risks of being a minority owner); and (9) such other information as the SEC may require;

• not advertise the terms of the offering, other than to direct investors to the funding portal or broker;

• not compensate anyone to promote the offering unless the person clearly discloses the receipt of compensation in connection with any such promotional communication (pursuant to rules to be adopted by the SEC);

• file at least annually with the SEC (and provide to investors) reports of the results of operations and financial statements (as specified by SEC rule); and

• comply with such other requirements as the SEC may prescribe.

The SEC has been given 270 days to promulgate rules and regulations clarifying the crowdfunding exemption.

The information required to be made available by the issuer as described above is also to be made available to any state securities agency. Securities issued in a crowdfunding offer are exempt from certain state “blue sky” requirements except that notice filings may be required in the state where the principal place of business is located or where purchasers of 50% or more of the offering are residents. The production entity accepting the investment remains liable for material misstatements and omissions in information provided in a crowdfunding offer. Securities purchased in a crowdfunding transaction may not be transferred by the purchaser for one year following the date of purchase except to the production entity itself, to an accredited investor, as part of a resale registration statement filed with the SEC, to a “member of the family of the purchaser or the equivalent” or, in the discretion of the SEC, in connection with the death or divorce or other similar circumstance affecting the purchaser. Finally, the JOBS Act provides that purchasers who acquire securities in a crowdfunding transaction will not be included in calculating the number of record holders that an issuer may have before it is required to make public disclosures under the federal securities laws.

Due to the 270 day period for the SEC to implement crowdfunding rules, filmmakers will be forced to take a wait and see approach on what the impact of crowdfunding will be on the film financing industry. The costs associated with engaging a funding portal remain unknown, as well as the full extent of legal and other professional assistance that will be required. In light of the $1 million cap on the amount of crowdfunding offerings permitted per year and the recordkeeping and other potential burdens associated with having a large number of micro investors, it is possible that crowdfunding may be less popular than some anticipate. Still, as Kickstarter and Indiegogo have proven in the context of donations, there are masses of previously untapped investors out there that the JOBS Act may now allow filmmakers to access.

If you have any questions or would like any further information about the JOBS Act or how Pryor Cashman can serve your legal needs, please contact the authors of this Legal Update or the Pryor Cashman attorney with whom you work.

1 On April 23, 2012, the SEC issued a notice reminding issuers that until the SEC adopts implementing rules any offers or sales of securities purporting to rely on the crowdfunding exemption would be unlawful under the federal securities laws.

2 See, e.g., Bateman, Eichler, Hill Richards, Inc. (pub. avail. Dec. 3, 1985); Lamp Technologies (pub. avail. May 29, 1997).

3 A funding portal is defined by a new Section 3(a)(80) of the Exchange Act as an intermediary involved specifically in the offer or sale of securities pursuant to Section 4(6) that does not (1) offer investment advice, (2) engage in solicitation of transactions in the offered securities, (3) compensate anyone for such solicitations or on the basis of sales of such securities, (4) handle investor funds or securities or (5) engage in any other activities that the SEC deems inappropriate. A funding portal is to be exempt from registration as a broker or dealer, but will nevertheless have to register with the SEC as well as with “any applicable self,regulatory organization”. It remains, however, subject to the examination, enforcement and other rulemaking activity of the SEC and such other requirements of the Exchange Act as the SEC deems appropriate and it must be a member of a national securities association registered under Section 15A of the Exchange Act (although the national securities association can only enforce rules adopted specifically for such portals).

4 Specifically, issuers using the exemption must provide the following financial information, depending upon the size of the offering: (a) income tax returns and financial statements certified as true and complete by the principal executive officer (if the aggregate offering amounts within the previous 12 months is $100,000 or less), (b) financial statements reviewed by an independent public accountant (if the aggregate offering amounts are between $100,000 and $500,000) or (c) audited financial statements (if the aggregate offering amounts are more than $500,000 (or such other amount as the SEC may establish)).

***

Copyright © 2012 by Pryor Cashman LLP. This Legal Update is provided for informational purposes only and does not constitute legal advice or the creation of an attorney-client relationship. While all efforts have been made to ensure the accuracy of the contents, Pryor Cashman LLP does not guarantee such accuracy and cannot be held responsible for any errors in or reliance upon this information. This material may constitute attorney advertising.

STEPHEN M. GOODMAN Partner

Stephen M. Goodman is co-head of the Mergers and Acquisitions Practice at Pryor Cashman LLP. He has extensive experience representing companies in public offerings, private placements, and other complex financing and acquisition arrangements.

Mr. Goodman has also written on topics ranging from raising seed capital for entrepreneurial companies to the SEC’s whistleblower rules to the Supreme Court’s decision regarding material nondisclosure in Matrixx Initiatives, Inc. v. Siracusano, and has lectured on various aspects of capital formation at Columbia University, the City University of New York and the New York Academy of Sciences. His most recent article is “Still Room for Finders? Courts Question SEC View of Broker Activity” (BNA Securities Regulation & Law Report, November 14, 2011).

Mr. Goodman is a 1977 graduate of New York University School of Law, where he was Order of the Coif and Articles Editor of the Annual Survey of American Law.

KAREN M. ROBSON Partner

Karen Robson has worked primarily in the Film Finance and Production practice of the Entertainment Group since 1986 and heads the Los Angeles office of Pryor Cashman LLP. Karen represents a variety of financiers, banks, equity investors, high,profile independent producers and production companies for which she structures film finance transactions and also provides production legal representation. She also represents individual writers, directors and producers in the motion picture and television areas. For over twenty years, Karen has handled financing on multiple picture deals and single pictures, television mini,series and major documentaries. In recent years, Karen has represented both producers and lenders with respect to film financings which include senior and mezzanine debt and/or equity; international co,productions and U.S. tax incentivized financings.

Karen is also experienced in representing properties in the film, video, television and merchandising areas including properties in the family entertainment arena, including The Berenstain Bears, I Spy, a children’s television series featuring music artist Dan Zanes, and theatrical feature films based on a series of major children's television and merchandising properties.

Prior to her career as an attorney, Karen had a brief career as a film actress in Australia, including a major role in Peter Weir’s cult favorite, Picnic at Hanging Rock.

DAVID E. PARSLY Associate

David Parsly is an associate in the Corporate Group and represents public and private companies in a variety of general corporate matters, including corporate formation and governance, mergers and acquisitions, corporate finance, and securities issuance and compliance.

David is a 2007 graduate of the Benjamin N. Cardozo School of Law, and earned a B.A. from the University of Michigan in 2004. While in law school, David served as a judicial intern for the Honorable Richard B. Lowe III in the Commercial Division of the New York State Supreme Court, New York County.

www.pyorcashman.com

An Incredible Opportunity... Or Not? Producing Indie In The Era Of Economic Collapse

By Josh White Timing is close to everything. Good movies go unseen. Talent is squandered. Revolutions fail to materialize. All of this because of bad timing (and perhaps bad strategies). At the same time, great things occur, movements are born, we delight in the artistry of new talents -- all because people were in the right place at the right time. Is this a cause for celebration or something to lament?

I will not discount the good fortune I had to start making movies when I did. It is also so difficult to judge where we are now as a culture, an industry, or a movement -- or what the wisest strategy is for these times. I know we are not going to find the answer on our own. I trust we can build it better together. I was very moved by producer Joseph White's tale of trial and tribulation and I we are lucky he's chosen to share it with us.

My filmmaking partner and I always laugh about how our generation showed up at the end of just about every affair. American empire…falling, free love…sorry, peace movement…f*%k off… good drugs… bad thing, fast fortunes on Wall Street…occupied, great movement in music…almost missed it…In the beginning of 2008 we started to make a movie about the time of what is arguably the last great trend in rock n roll (and music -- in my opinion). Unfortunately, we made that film at the worst time to make an independent film and take it to market, not to mention what is going on with the world and the economy.

Today I read a statement that said:

MUSIC IS THE LANGUAGE OF EMOTION. THE POWER OF MUSIC SHAPES OUR LIVES AND CONTINUALLY TOUCHES OUR SOUL. MUSIC ICONS EXPRESS FREEDOM, DEFINE GENERATIONS, QUESTION AUTHORITY, AND INFLUENCE FASHION AND ART (it was written on the inside of a T-Shirt).

I feel the same way only better about the effects of movies. I remember first coming to NYC as a student and going to the Angelika to see independent films. I remember how much I connected with the characters, the stories, and the stages of my life. In some cases, those films helped me with understanding life. In some cases they were better than therapy would have been. Maybe part of it was my own coming of age, it doesn’t matter, the effect was real. I realized the power of the medium. It made me want to make films. I don’t believe in god. I do believe in religion. I believe in anything that is for the betterment of mankind. I think we all need help at times dealing with humanity. I go to concerts and I always think that I should feel like this when I leave church.

Sir George Martin said that music is the language of emotion. Pictures say a 1000 words. Add motion to photography and it says a lot more. Put these things together and then add a story and actors and the finished product becomes like many other works of art. It becomes immortal.

I understand that for most people who work on films that it is just a job, but it’s not. I think however, that here is a moral and societal obligation. Like it or not art is reflecting life. Life is reflecting art. We are shaping and interpreting the world. Rock n Roll evolved from music that came out of pain and a need for expression and the desire for something to feel good about. Music, ever the platform for articulating the zeitgeist evolved to implore us all to be at peace with one another. Now popular music all too often reflects some of our shallower values; wealth, objectivity, misogyny, even murder. WTF!?

How great would it be if we could treat artisans like the greatest days of the Roman Empire?! Imagine a society where our government would cloth us, feed us and provide shelter, if we would just paint the buildings, make everything beautiful and interesting and keep the streets clean. I know I’d be a lot happier if I knew that my kids would be sheltered, fed and educated if I just kept making films.

Somewhere along the way art became synonymous with business. Ask any film maker what they do and they are more likely to tell you that they are in the film business, before they will tell you that they are an artist.

In the fall of 2008, during our post-production, we were constantly hearing “You guys are in a great position. There is no product in the pipeline.” We heard that a lot. We had one of the top companies out there call us and say that they were tracking the film and wanted to see it. Things were falling into place. We thought “This is going to be great!”

Then reality set in. We spoke to people who knew people and found out that most reps were having trouble selling what they already had. The financial downturn had very quickly and unilaterally savaged the appetite for risk taking in every industry, and not surprisingly, the indie film industry too, had fallen off a cliff. When we finally had a conversation with a film rep, our worst fears were confirmed, there were a ton of films out there and no one is buying!

Why wouldn’t they be buying? I was reading all over that we just had a record year at the box office. Pay no attention to the man behind the curtain! Things are better than ever!

How could the business of show, the people who control the media, go on public record, and tell us that things are alright when they really aren’t!? How can they publish stories that claim that things are better than ever?! Oh wait…

It seems that when you are willing to stick your neck out for an art form that you believe in you are going to get a lot of free advice. “Oh you made a movie!? You should just play the lottery!” or my favorite which was said to me by Bob Dylan’s representative Jeff Rosen. He said: “You know you should work at Subway. If you add up the hours you are putting in you would be making more money.” Fuck me, he might be right.

So here we are again, just getting to another great party and someone has turned off the music. It’s the closest thing that I can imagine to getting to Rome to open your dream shop, only to find it sacked and burning. Everyone started to say the same thing, that even the experts don’t know anything anymore. Then what became painfully clear was that they haven’t for a while.

Just like the financial system and the housing market the film industry fell apart. What I don’t get is rather than heeding the warnings everyone played business as usual. I cannot help but wonder if only our industry leaders had spoken up, would things have been different? Maybe some of them tried. If MOMA and Indiewire had been able to call together the NY Independent Producers, distributors and the trades a year or two earlier could we have had a more graceful evolution? Did those meetings do anything? Is there a collective effort or did we all just run back to tending our own fires?

When you show up to a playing field that’s just been leveled, you have to look at it for what it is. Every time I hear someone speak of how bad things are right now, I like to think that the competition is weeding out. At first I was horribly discouraged about the future of the film industry and my career. Now I am trying to see the opportunity. It would seem that the evolution of an industry has changed gears to become the revolution of an industry.

Like every art form we learn the techniques of our masters and then break the mold. In this case the mold has been broken for us. The best thing to do is to embrace it. There is no going back. Truth be told, we have more going for us as artists than any artists have ever had before in history. We have technology. We can shoot, edit, after effect, and even market and exhibit our films at pennies on the dollar.

I met a young LA producer who is cranking out films with great casts for under $5MM. It’s nice when you meet someone who tells you that contrary to popular belief that it is easy to raise finance right now. He told me how he is working the foreign sales markets, which is great to hear because the last few people that I spoke to about it told me that foreign is dead and that unless you can prove a domestic Box Office of $5MM then, no one will be interested.

The whole thing makes me think of searching web pages until you find one that has a better weather forecast for your area(try it, it works). The fire has come down from Olympus again, and though Olympus (Hollywood) is doing a good job of remaining a mountain there seems to be better fires down here. I think that as independent filmmakers we are in a great position. I think its time for us to create a better system than the one that just fell.

No one likes to be forced to change. None of us have a choice. It’s happening…there is nothing you can do. The music industry was told to embrace Napster and they continued to try and stop it. This reluctance ravaged the industry and cost countless lost revenues.

A lot of people think that the day and date model is the way to go. A lot of theater owners think it’s a stupid idea because it means the end for the brick and mortar establishments. Fear is a very powerful emotion. All too often it clouds judgement and stands in the way of progress, even when that progress is clearly unstoppable. It’s revolution evolution. The explosion in technology has given the consumer greater choice and flexibility.

People are watching movies on smart phones and tablets now. Right now you can get my movie almost anywhere in North America via the internet. As a filmmaker, of course I’d prefer to have my movies seen on the big screen, in a dark auditorium, with awesome sound, filled with people having the “shared experience.” People will always want this experience. It will never go away. The theater chains will adapt. What that adaptation is, I don’t know. I can tell you it’s not 3-D. I’m curious to see where this all ends up…

Joseph White is a film maker with over 12 years of experience making films and commercials. He is the Co-founder of Red Hawk Films. Red Hawks first feature www.ThePerfectAgeofRocknRoll.com is available On Demand, DVD and On-Line. He is currently working on his follow-up film, an untitled documentary about the Elders of The Delta Blues and the influence their music had upon rock n roll and the world.

Video: Spike Jonze, Lisa Cholodenko, and me on Financing and The Rule Of The Samurai

Spike, Lisa, and I got to have a great conversation at The Cleveland Public Library early this year, and a great crowd came. An official video was shot of the proceedings and hopefully will be available shortly, but this one came from the crowd, and is a nice little nugget to wet your appetite.

IndieFilmFinanceModelV2011.1 : The Ten Factors

Yesterday I went into some of the factors determining how the Model for IndieFilmFinanceV2011.1 may be set.  If you were taking notes you probably recognized that these are the factors, but I thought it was worth jotting them down for our cheat sheets:

  1. Price point / negative cost below $5M;
  2. "Estimated" Foreign Value at 80% or higher  of negative costs;
  3. Track record of collaborators in US Acquisition market to project 25% of negative costs;
  4. Utilization of Soft Money/Tax Benefits as revenue -- not enhancement;
  5. Manufacture desire: inject freshness & an ability to cut through the noise;
  6. Predetermined & Accessible Audience;
  7. Aura Of Inevitability= Polished Script+Show Reel or Look Book + _________?
  8. Urgency of the deal;
  9. Something old (proven genre)
  10. Something new (fresh scent).

What does this all add up to?  Is there a formula we can use?  I think so.  Why don't we just get to that tomorrow?

New List Of Future Film Investors

Producers pride themselves in sourcing new financing sources. There generally is not a large supply of eager new money to leap into film biz. One agency has even taken to refusing to share with the producers they are representing the sources they are submitting to, for fear that they won't be the new financiers' preferred suppliers. Knowledge is power, but transparency is progress. Which is why I am excited to share this list with you... You almost would expect a financier list to be the sort of thing that is found on Wikileaks. I do think we are entering a period when free culture moles inside the agency world (yes, they have been planted and are digging away furiously), will start to drop documents on the Deadline desks, but this list did not come from such a source.

The Film Biz is always a bit obsessed with lists. Box Office. Highest Paid. Most Powerful. Most Number Of Twitter Followers &Facebook Friends. You'd think ability to get movies made would always be something that Industry-ites would track a bit more thoroughly. Well, until we start do this, I am pretty thrilled to be offered THIS LIST annually. So who on it do you already know? What can we do to get them into this world a bit more thoroughly? I don't know about you, but I am going to head off to China next month. Isn't that what any self-respecting film producer should do? Let me know if you have anyone over there you think I should meet.

IndieFilmFinanceModelV2011.1 : The Ten Factors

Last week I went into some of the factors determining how the Model for IndieFilmFinanceV2011.1 may be set. Previously, over at my old home, I spent some time trying to better define that model. If you were taking notes you probably recognized that what follows below ARE a the key factors, but I thought it was worth jotting them down for our cheat sheets: What Ten Factors Are Needed To Get Your Film Financed By Something Other Than Love Or Insanity: 1. Price point / negative cost below $5M; 2. "Estimated" Foreign Value at 80% or higher of negative costs; 3. Track record of collaborators in US Acquisition market to project 25% of negative costs; 4. Utilization of Soft Money/Tax Benefits as revenue -- not enhancement; 5. Manufacture desire: inject freshness & an ability to cut through the noise; 6. Predetermined & Accessible Audience; 7. Aura Of Inevitability= Polished Script+Show Reel or Look Book + _________? 8. Urgency of the deal; 9. Something old (proven genre) 10. Something new (fresh scent).

What does this all add up to? Is there a formula we can use? I think so. Why don't we just get to that another day? Stay tuned.... Much more to come on this subject.

IndieFilmFinanceModelV2011.1: Necessary Attributes

Last month, I started laying out what I felt was the necessary attributes of a project to get financed within the mainstream indie film industry these days, call it my IndieFilmFinanceModelv2011.1. Those posts have focused on budgets, foreign estimates & value, US acquisition price, and the type of investors involved in films these days. Today, we will look at other attributes that make a film viable for acquisition in different markets.

You might as well as forget about hypothesizing about the percentage of your negative cost that you might recoup in the US or foreign Acquisition Markets; they have to want in you the first place to qualify for such a gift. Why do you think your film will you get picked up? We are talking about a market, and for there to be a market, there has to be demand and desire. First thing you have to do is manufacture desire.

I see two principals usually at play in terms of manufacturing desire in the fields of indie acquisition: freshness and the ability to cut through the noise. Freshness is a close cousin of originality, but without the latter's capacity for daring. Freshness's greatest quality is its scarcity of stale. Freshness cuts through the noise in that it is sure to generate its own noise. The familiar cuts through the noise too but is never really fresh. "Trusted sources" do likewise and no longer have the burden of being fresh on them (or is it that they are eternally fresh?). Certain actors at certain times deliver both qualities, and they generally will not be the same ones that also possess that illusive foreign value -- leaving the filmmakers needing to cast in two directions at once -- that is if they want this IFFmodel to work.

If you are trying to get your project financed in the mainstream industry, it is important to remember that the movie business is all about people keeping their job. If you are trying to work in the business side of things, you have to look out for all your collaborators. On the finance side, what are your potential collaborators trying to determine with your film? You need to show them that there is an audience for your project that is reachable. The more that a film team has aggregated its potential audience in advance of shooting, the easier time the executive that is championing you is going to have getting your project greenlit. The more engaged that audience already is with both the subject matter and team, the easier it will be to roll film (or record x's & o's).

Fortunately, the script and the vision for a project still carry some weight in this world. Yet, many filmmakers miss what this really means in today's terms. It is not just the conception and execution that is important here, but also the distance those elements have traveled and construction that they've generated around them.

For instigating value (the financial amount that a 3rd party accesses your project to be worth that actually allows you to raise funds) to be set on a film idea, we have to create an aura of inevitability around it. If that script still has room for notes and improvements, the financiers will delay their decision -- for they believe all others will do likewise. There won't be the call to action until they feel they know absolutely what they are getting. If an investor's reader can still ask a question that starts with "why does...", chances are they won't finance your film. You get once chance these days to finance your project, and that requires a truly finished script.

Creating an aura of inevitability requires creating a fuller vision than what a script or a track record can provide. Image books certainly help, but show reels are becoming even more commonplace these days. When we hear tales of Michel Gondry and Aaron Ekhardt creating show reel for their collaboration, it doesn't even matter if it is true or not; those of lesser genius than those men damn well better show what they got if they want to get it going. You have to come from a place of tremendous privilege to not have to demonstrate your vision prior to receiving funds. In addition to our image books, it's time we started preparing to create show reels to jump start our projects.

As crucial as that quality of inevitability is, urgency is equally necessary. No one is going to act these days until they have to. Frequently urgency is created by market demand. If buyers and financiers all want your project, the urgency comes from fear of losing it. But we've been in a buyer's market for some time now, and generally buyers are willing to wait until the last moment to acquire something. Urgency now is generally determined by availability of actors, locations, and seasons. Timing of the submission of a project for financing needs to balance realistic expectations with the potential to stimulate a sense of urgency.

Beyond strategies to stimulate commitment, some of the standard qualities still hold true. Of course the content of the script still matters, and in these times of mitigated risk it probably matters even more so than before. Yes, it needs to be "good", but it also needs to have a proven audience and to somehow be fresh. Frequently these are looked at a contradictory elements: the need to be recognized as previously successful, and the need to not be like what has come before it. We tend to tread into genres to fulfill the prior demand: we know where to find or how to attract the fans of horror, thrillers, and several other genres. To commit to satisfying the dictates of these genres will increase that illusive foreign value. To also make it fresh, will create the hope and anticipation that you might be able to rise above the genre's previous expectations.

So where does this leave as to determining to the model for IndieFilmFinanceV2011.1? Next week, I will recap and then provide the math. It is almost as simple as 1+1=2. Yeah, right...

The New Model Of Indie Film Finance, v2011.1 Investors

Today I continue my series attempting to define the NMOIFFv2011 with a look at the individuals who make the courageous decision to back a film in this current climate. We've already determined that it is hard to predict success either here in the US or abroad with an independent film. Will an investor commit without a clear upside -- and if so, why the hell will they?!! The answer to this generally dictates whether your film will get made and certainly indicates WHO will finance your film.

When I started this series of posts I thought it would a simple and single one. I have a formula I have been using, that when I am able to follow it, I am confident that I will be able to finance my film. I want to share that with you, but feel I need to provide a little context first. My original post on the New Model Of Indie Film Finance v2011 conveyed that a film needs to make absolute sense. I then addressed foreign value and it's dictates, and domestic (US) value in hopes of helping to explain what absolute sense was. Examining the market here and abroad makes it clear that one will never be truly secure predicting the value of your film. There will always be risk, right? So what kind of individual or corporate entity will those that assume that risk and put up the equity needed for your film?

I see five types of financiers interested in movies these days:

  • 1) Those that can take advantage of Federal 181 tax provision;
  • 2)Those not only want to do well, but those that want to do good too -- these are more than just patrons of the arts -- they often look to advance the social issues as well;
  • 3)Those that need a steady supply of product, and hence are generally corporate entities;
  • 4) Those that can gain by association to the film and those involved with the film;
  • 5) Those that are looking for excitement, glamour, and glitz.

I find that investors regardless of their persuasion, have one common attribute. No one wants to look stupid or foolish. They might have different goals, but they need to be able to show their friends why your project offers a clear path to that goal. It is your job to explain it to them. Your ability to do so will greatly enhance your ability to close with them.

Investors in film generally either made their money in another field or inherited it from someone that did. Investors usually believe that the lessons they learned coming to the film biz are applicable to our industry too. Some may well be, but most film investors still marvel at the way we do business, for better and for worse.

To get a movie made often requires profound ego, bullheadness, and outright arrogance -- or else when confronted with the realities of the field, most aspirants would surrender. These "gifts" may be useful in getting work made, but they are not particularly helpful when it comes to collaboration.

Investors are filmmakers collaborators and your ability to at least appear to be ready to collaborate is helpful in closing an investment deal. Your ability to actually collaborate is going to determine what kind of experience you will have. The nature of your business relationships will effect the work you make. Understanding both your investors' wishes, expressed and not expressed, and learning how to work with them is required to close a deal and yield the intended result.

We are half way through an examination of NMIFFv2011.1 now. You have your numbers and you have your investors (or at least know what they will look like when you seem them). But it is not just numbers and willing investors that gets your project funded.

To make your film happen, there are some factors you need to inject into your project if you reasonably want to expect it to happen. Let's discuss that next, okay?

The New Model Of Indie Film Finance, v2011.1, Foreign Value

Today continues my efforts to try to define the takeaway from the two most recent and robust US acquisition markets of Sundance & Toronto.  I (and hopefully we) will try to extrapolate from them where we are today.  How can we use our most recent experiences to determine the reality of our filmed dreams today?  How can we move to a more realistic model of indie film finance? Foreign estimates still set the initial value for films, and it is CAST that is the predominate determinator for this value.  Before a film is shot, there are three types of actors that mean something to foreign buyers:

  • 1) stars that have been in big hits in the relevant territories;
  • 2) stars that have been in popular television shows in those territories;
  • 3) stars that can be expected to generate a great deal of publicity everywhere.

Other than stars, there are a few other aspects of a film that create foreign value.  Stars are another entity altogether from cast or actors -- and it is really the stars that determine foreign value.

Are there any other factors that help shape what your project is determined to be worth overseas? Fortunately, yes!  The track record of the collaborators have impact on a distributor's willingness to consider a project.  Experienced directors and producers have more foreign value, provided they have made films that have fairly recently been well received, either commercially or critically.  Similarly, proven cinematographers, designers, editors, composers, and vfx supervisors can mean something.

When the foreign markets were more hungry for US product, it was partially due to their paid and free television's appetite for it.  Although that has been vastly diminished, if your film will fit well into foreign television programming, you have some security.  It is generally thought that comedies and "urban" (i.e. non-white) content doesn't travel.  Nonetheless I have had buyers get excited about an office place comedy precisely because they feel like television but aren't.  Similarly, as new niche channels develop, new audiences aggregate.  I still remain confident that as much as hip-hop transcended music to become a global lifestyle, "urban" programming can get some international  legs once it gets its foot in the door.

Every international territory struggles with the same challenges of expensive marketing.  When a project comes even with the hopes of decreasing some of those costs, buyers perk up. I have seen those results come both from aggregated audience action (i.e. twitter followers, facebook friends, and data lists) and transmedia builds.  Although there is not yet the model that can be used to demonstrate success, let alone predict it, these first efforts still increase the appetite for acquisition among buyers, and thus potentially also the value.

For there to be foreign value, you need to have the potential to sell.  The things that increase that potential also increase a film's foreign value.  At acquisition markets you see this phenomenon in full play as film's that appear to be headed to a subsequent (and more major) festival, get snapped up far more readily.

Tomorrow Friday, we will look at why a film might hope to get acquired in the USA and where else can funding come from in the states.