The New Model Of Indie Film Finance, v2011.1

I recently had one of the top sales agents explain to me that the only indie film that gets made or sold these days are those projects that make absolute sense.  Okay, granted what he was referring to was only within the mainstream indie business -- the type of films that he and his cohorts commission -- but it is worthy of our time to delve a bit deeper into this.  What indie film project makes absolute sense?

The agent said there was no room for guess work in today's mainstream indie business.  If you want to get your film made, you have to have to make it for a price that all concerned feel it will certainly recoup at.  "Absolute sense" is this regard is a film that will inevitably make back what it cost.  "Absolute sense" can also mean a project that a company feels it has to have, usually due to the people involved or the timeliness of the concept, but those "packages"  are frankly even harder to come by than those that seem to be inevitably recoupable.  You are looking for  the needle in the haystack with either, and need to build it yourself if you want to hope to come close.

My last few projects all were designed to remove any guess work for financiers.  Between foreign sales estimates, tax credit rebates, and the undisputed value or attraction of the stars, if you want to be sure your film will get made, your project needs to read that the value of the work will exceed the cost of creating it.  Value in this regard, is strictly business related, and not cultural (sorry art-for-art's-sake fans, this isn't going to be one of those posts).  As much we can understand or even accept, those words though, what is the math that adds up to this formula? And where do the numbers even get their value anyway?

Even with 39 or 40 (and still rising)  films selling at Sundance this year, the first take away from it is we probably should keep our budgets below $5 million.  Granted the highest sales were the ones that had budgets towards the higher side of the scale, but those were also the ones that had the most to lose.  The films at Sundance 2011 were acquired for reasonable amounts with the US acquisition price generally in the low 7 figures or below.  No one, even the large corporate distributors, can stomach losing a great deal of money these days, and the business is currently designed around this preventative action of covering one's ass (no surprise that several of the corporate funded indies are now exploring the micro-budget field).

If the film business remains in an era of risk mitigation (and how in this economy could it not be?), just as acquisition prices will continue to be reigned in, budgets will be kept to a minimum by most investors.  Let's leave the issue of how to attract experienced producers and directors to a project when you can't afford to offer them a reasonable rate aside, and not worry about how budget effects the quality of the project; instead, let's try to give some greater understanding to what this principal of risk mitigation looks like in practical terms of getting our movies made.

As foolish as it is, the mainstream indie film industry relies on estimates from foreign sales agents to set the value for the films.  It is this "market value" that truly determines the budgets for the films that get made under this system.  Forget for the moment that everyone recognizes that those estimates rarely hold water any more these days.  Let's ignore the fact that international sales have been dropping 20-30% annually for several years.  Dismiss it as anomaly that certain former major territories no longer license films like they used to.  Until we develop the tools and know how to assign valid figures to the other factors that actually determine a film's success, this is the system we have.

Tomorrow, I will get into how foreign value appears to be determined.

Simple Observation: One Reason It Is Hard To Finance Films

Movies don't have the same value as they used to, but they now cost much more to market. Okay, maybe this simple observation is not as simple as I first thought.

When I started out in the film business, it was considered reasonable to value North American rights on a feature at 50% of negative costs.   If I was asked to value such rights today, on the average, I would say they were either zero or they would be a negative.

When I started producing movies, a well packaged and developed project could anticipate get 80% of it's negative cost from licensing foreign rights.  The value of foreign rights has been dropping consistently for years.  What were once major territories in terms of revenue they returned, now seem virtually impossible to do deals in.  Television rights abroad supported acquisition prices for years, but now those slots are increasingly difficult to obtain everywhere.  If an independent film can piece together 50% of its negative cost from international, I think they are pretty fortunate.

When I started producing films, the luxury of making specialized films were that they were inexpensive to market.  Sure it required making good movies that people wanted to see, but the benefit of making "review driven" films meant that was all one needed to make the film begin to work: a good review from the NY Times.  Those days when everyone was reachable through a common source or soap box are long gone.  Audiences have fractured, dispersed, and become increasing distracted as thousands of opportunities compete for their leisure dollars.

Is it a bit clearer now?  What's the conclusion?

The formula doesn't work, granted.  Unfortunately it is not so easy as, say, lowering the cost of production, as that decreases the scope of stories that can be told and the methods one uses to tell them.  As much as everyone speaks about this wonderful tool of the internet, we still don't have many examples of filmmakers and their collaborators harnessing its power and increasing a film's reach while decreasing the costs.

Is there a way to increase the revenue that could be returned via a film or an artist so that their is greater reason for an entity to market them?  The music industry has explored "360 degree" deals with both big and small acts.  Yet film remains primarily a single product industry (one that is available in multiple formats) and the benefits of such an arrangement are a bit harder to see.

You can always design your movie so that the value vastly exceeds the cost of making it.   Simple, huh?  Isn't that how it used to be done.  That is actually still how the typical studio film is greenlit, but if it was so simple everyone would be doing it.

Where does this leave us, this simple observation?  I do think there are answers.  I do think it is worth pondering.  Yet the real necessity is recognizing that this is the present reality and most filmmakers are designing their work around an old model when it was reasonable to thing you could make something at a price point and market it at a cost that lead most people to assume there would be a profit at the end of the day.  The simple observation is that those days are gone.

Now what?

Starting Down The Path Towards Filmmaker Empowerment

Today's guest post is from attorney Steven Beer.  We look forward to many more posts from Steven on this very subject: Filmmaker Empowerment. Producing independent films requires a broad skill set, including a keen eye for material, masterful team management skills, a facility with numbers, and an understanding of the marketplace. There is only one thing more difficult than producing and making a great independent film: securing a modest return on one’s investment in an independent film.

Why do so many prospective investors (beyond friends and family) roll their eyes when they are asked to invest in independent films? One business manager swears that, generally speaking, independent filmmakers and producers are not capable business people. He believes that they are so focused on making the film that they tend to overlook many key business elements. In support of this assertion, he cited the cursory nature of most business plans, the modest returns typically offered for a risky investment, and the failure to fully establish reliable marketing and distribution plans.

The business manager raised some very good points. The reality is that many producers need to re-think the standard business models for independent films. Let’s begin with the typical business plan, which often contains rehashed discussions about the marketplace and includes outdated success stories like “Slingblade,” “Blair Witch Project,” “Little Miss Sunshine,” and “My Big fat Greek Wedding.” All of these projects were produced many years ago and distributed in a vastly different marketplace. These were all exceptional projects and not necessarily representative of the independent film marketplace, past or present.

An additional question: why do most business proposals today concentrate on the prospect of an “all rights” deal with a hefty minimum guarantee and substantial P&A commitment? By and large, that ship left port several years ago and should be sold as scrap metal for smaller, more efficient vessels that are customizable and scaleable.

We recently participated in the Tribeca Film Festival All Access program. As part of the program, we reviewed business development materials from more than a dozen projects and discussed them with their producers. We were surprised that very few of the business summaries discussed alternative distribution strategies where the producers retain control of all facets of the marketing, promotion, and distribution of their films. Most of the projects discussed the traditional distribution model, which relies on the prospect of a festival bidding war between distributors. Given the overwhelming number of films in recent years where investors did not recoup their principal and the decreasing number of distributers buying films, it is probably time to address the financial realities of today’s marketplace.

Perhaps the best place to start is with production budgets, which tend to be overly generous and based on factors that speak to another distribution economy. For a variety of reasons, the costs of producing a quality independent film have reduced dramatically. Producers would be advised to scrutinize every line item and justify all below and above the line expenses. For instance, do you really need to pay the talent more than the SAG minimums? Will the presence of a particular actor materially increase the value of a film in the international marketplace? In responding to these questions, seek out reliable and timely market sources to confirm tangible value.

We are encouraged when working with filmmakers and producers who understand that reduced budgets accelerate recoupment for a film’s investors. Happy investors participate in additional projects and attract others to invest.

The lesson learned is that we need to evaluate all aspects of the business in order to stay afloat in a challenging marketplace. There are other considerations to discuss. We will address them in this space on a regular basis and encourage you to join in the conversation.

Steven C. Beer is a shareholder in the international entertainment practice of Greenberg Traurig’s New York office. Steven has served as counsel to numerous award-winning writers, directors and producers, as well as industry-leading film production, film finance and film distribution companies.

Financing in a Post-Capital Plane: Reflections on Putty Hill's Kickstarter Campaign

Today's guest post is from Stephen Holmgren, Putty Hill's producer. Last winter, Putty Hill director Matt Porterfield and I met with a small group of friends at Matt's house for a home-cooked Baltimore dinner. We were there to discuss fundraising ideas for Matt’s pending feature, Metal Gods, which we were determined to shoot over the summer. Matt had been polishing the script for years, and we were having success meeting great teen actors from local auditions. All we needed was some money to shoot and edit the movie.

We were open to working with production companies and investors on a variety of levels-- wanting more than anything just to have something completed by our self-imposed September deadline. We had various budget levels, including a best case, worst case, and disaster scenario. We knew that, despite positive industry responses, the reality was that if this movie was going to happen it would most likely have to come from local financial support. We brainstormed a long list of ideas, knowing we needed to reach outside of friends and family, to people who supported the arts. At this point, Kickstarter was in its infancy and not on our radar.

Flash forward to August. Time was running out, and our financial prospects were slim. Having failed to secure any concrete money from traditional industry channels, Matt and our team improvised, forging ahead with an alternate scenario called Putty Hill: a few pages culled together taking a screen test for Metal Gods as its inspiration. Working with what you would be hard-pressed to call a "budget",  we shot the new scenario with a week of pre-production and a mere 12 days of shooting. The city of Baltimore opened its arms, providing free meals, locations, equipment, and services. We ended up spending around $20,000 in total shooting which we received from a few small donations via friends and local business, and some meager savings Matt and fellow producer Jordan Mintzer had put aside.

The footage was great. Editor Marc Vives and Matt worked quickly to put together a rough cut. We knew we had something special. We also knew we were facing at least another $20,000 in order to get the movie in shape for any festival exhibition, with costs like color correction, sound mixing, and HD mastering.

That's when we started considering Kickstarter. A friend, Matthew Lessner, had recently run a successful campaign for finishing funds with his project, The Woods.  I reached out just in time for us to receive his last invite, and we decided to give it a go.  We spent a few weeks planning our campaign, devising various levels for contributions and strategies to get the word out.  We came up with a strong list, with incentives like special thanks on the DVD and Putty Hill "wifebeater" ($25), a signed copy of Matt Porterfield’s unreleased first feature, Hamilton ($50), limited edition archival pigment print photograph ($500), and even Executive Producer credit with admission and roundtrip airfare to our North American Premiere ($5,000).

After we had our levels set, we brainstormed ways to get the word out and decided to aim low: $10,000 in a three week campaign, ending the night before our World Premiere at the Forum in the Berlin Film Festival.

We had around $7,000 within the first 48 hours. We were excited, but also realized we set the bar much too low for what we actually need to finish the film and the amount of support we were going to be able to drum up.  We pushed on with individual emails to key friends, family, and industry, paying particular attention to people who could be helpful in not only contributing but spreading the word.  I sent around 2,000 emails in a period of a couple of weeks.  We passed our goal, and in the final days were able miraculously climb to $20,624.  It helped that we found a generous soul in New York City who signed on as 1 of 2 available Executive Producers at the $5,000 level (note, there is still one more slot open, inquire within).

Though we exceeded our initial goals, we learned a lot along the way and think we could have done even better. My sense is that we reached about 65% or so of our realistic potential with the campaign. Personally a lot of my emails went out late stages due to all the pressure and chaos with finishing the film.  Getting these emails out in the first days to encourage blog posts, Facebook mentions, tweets, mass emails, etc is crucial to get people aware and donating early. Regular updates to these folks also helps keep the momentum going.  We did some of this, but we certainly could have done more.

We also quickly reached our friends and families, but could have used more planning in branching out to a wider audience.  It is crucial to hit people who are key in spreading the word, and also those outside of your social and film circles.  It seems nowadays I get emails daily from friends with Kickstarter projects, and I want to help them all, especially those that helped us.  But Kickstarter is about a lot more than friends giving money to each others projects.  When you are able to get posted on list servs, blogs, and have people forward to institutions outside of who you know,  the power of the campaign really comes together.

I found the experience with Kickstarter very pleasant overall. While Kickstarter isn't a necessity to set up donation levels and raise money for your projects, the program legitimizes your requests, allows for you to build a community around your campaign, and gives you an excuse to ask people to donate without feeling uncomfortable about it.  It feels very official, the site looks nice and is inviting for people to browse, donate, and view other projects. It was a big confidence booster to realize over $20,000 in grassroots support.  We did shop the film around again in the post-production stage, and although people seemed to like what they saw, we again were unable to get any firm money commitments and found ourselves back at square one.  Kickstarter provided a much-needed alternative for financing in a way where we could directly connect with friends and fans, without pre-selling any rights or losing control of the project.  It provided us a way to tap into the Baltimore community and beyond in ways which seemed unreachable just a few months back in our brainstorming session.

We had a few complications with withdrawing our funds following the campaign, but the Kickstarter team was helpful overall with customer service, although it is a small crew with an ever-increasing group of projects being launched.  I’ve turned into one of those old school phone people, and it was a challenge not having a direct number to call to get concrete answers when we needed help.

Another reality we are facing is that the campaign is over, but the costs are still spiraling.  We are facing difficult decisions with music rights, and are working on figuring out how to finance striking a 35mm print for proposed German distribution in the fall and hopefully eventually US distribution as well.  We have decided for a limited time to continue our campaign through our own website,, which Kickstarter has thankfully given us full approval to do. Thanks to a recent Washington Post article on our campaign and recent positive reviews as our SxSW screenings get underway, we are continuing to receive traffic on our site and donations.

There are definitely other ways of crowd funding and alternative sites, but I think Kickstarter definitely has the right formula and feel to continue to help not only independent films but projects of all natures for years to come.  It feels similar to what iTunes did for mp3’s in some respects or Netflix for DVD’s; the system makes sense and is currently leading the way, although due to the nature of the game, there are always opportunities for viable alternatives.  As it stands, I am looking to set-up another Kickstarter Campaign in the future with UnionDocs, the nonprofit documentary arts center in Williamsburg, Brooklyn where I program (often documentary films) for some of our many financial needs.  I imagine we’ll be back for fundraising for Matt’s next Baltimore film as well…

Good Luck, Steve Holmgren

Steve Holmgren is a New York-based Programmer and Producer.  He is the Programmer at UnionDocs and also works with the Robert Flaherty Film.  He was integral in developing Metal Gods, as well as Putty Hill. He continues efforts to distribute Porterfield’s first feature,Hamilton which will have a rare NYC screening at BAM on Monday, April 12 with Director Matt Porterfield joined by Richard Brody of the New Yorker for discussion

How About Some Bad News For A Change?

Where does the money come from that funds all those indie films applying to all those festivals?  I am imagine 80% of it is somehow related to the directors of the work, but I have never been so lucky to have that situation. 

Most of the movies we make over at This is that are funded at least 50% by private equity.  We haven't gotten money from hedge funds or venture capital groups, but still these stories/figures below gave me some cause to pause.  And not that it was anything that everyone didn't already suspect, but still unsettling none the less.  Here's hoping that there are still high net worth individuals who believe in the power of art and the future of entertainment.  Feel free to give them my number when you meet them.
From your friends at Dow Jones:
We have a lot of great projects to make this year.  It's going to stay interesting that's for sure.
But then again this kind of news is pretty crushing:

Locavesting: Is it applicable to film?

Mind you most of film finance is probably classifiable as Loco-vesting, but I was struck by one of the ideas cited in the NY Times' excellent YEAR IN IDEAS roundup.  Locavesting is simply the practice of investing in local businesses.  

A region's benefit in incentivizing locavesting is akin to the logic around state tax credits: money spent in film is again transfered to the region's other businesses generally.  Civic leaders recognizing this might come up with additional incentives to encourage it.  Certainly a savvy producer would be sure to foreground this with any locally-based investor-wannabe.  The promise of regional cinema could be grounded by such a locally based film slate investment fund.
This is that excerpt from the article:
Perhaps you’ve heard of locavores: people who eat only foods that have been produced within a 100-mile radius. Now some people — call them locavestors — are investing in much the same way. The idea is that, by investing in local businesses, rather than, say, a faceless conglomerate, investors can earn profits while supporting their communities. To help match mostly local investors with capital-hungry local businesses, regional stock exchanges are starting to spring up around the globe.

Consider InvestBX, which was formed to serve businesses looking to raise relatively small sums in England’s West Midlands region. In February, InvestBX’s first listed company, Teamworks Karting, which runs an indoor go-kart center in Birmingham, raised more than $735,000 to open a new track in nearby Reading. In November, Key Technologies, a high-tech firm with 232 employees and annual sales of some $26 million, floated shares worth nearly $3 million. To list on InvestBX, a company must be based in the United Kingdom and have a significant part of its operations in the West Midlands. Companies can raise about $3 million from “local and U.K.-wide investors.”

Local exchanges address a financing gap for smaller companies, which may not be able to attract venture capital and for whom the major exchanges may be out of reach. “Small businesses need funding options more than ever in today’s recessionary climate,” says Trexler Proffitt, a professor at Franklin & Marshall College in Lancaster, Pa., who recently completed a feasibility study for a seven-county Lancaster exchange. (His conclusion: affirmative.)

In a way, we’re coming full circle. Until the 1950s, when they began to consolidate, there were thriving regional exchanges all across the country. “Globalization has been advantageous, but we’re starting to see the sacrifices we’ve made,” Proffitt says. “People are interested in figuring out how to connect to their local communities again.”