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.

The New Model Of Indie Film Finance, v2011.1 Domestic Value & Funding

This was once going to be a single post.  Today is part three.  There will be at least two more to come.  I started it here. And then yesterday we tried to determine the factors for accessing foreign value.  Today, let's look stateside. Until the double whammy of Toronto 2010 & Sundance 2011, it looked like the US acquistion market for feature content had fully collapsed.  No reasonable P&L would have shown more than a modest six figures for US acquisitions.  Hybrid & DIY models have not been developed yet to consistently deliver returns in excess of this amount (or even at these figures).  Perhaps this is now changing, but it would still be foolish for any filmmaker or investor to expect this and we can't budget for such expectation.

How many of the 7500 films produce in the US annually return 20% of their negative cost from US licenses?  Although it puts emerging filmmakers at a great disadvantage, I think the surest determining factor for predicting US acquisition potential is the filmmakers' track record.  If you have found buyers previously, you are well suited to find them again -- and even still exceeding that 20% is the exception and not the rule.

When the US market was depressed, I often had sales agents & finance experts challenge me with the claim that the market wasn't down; it was just that there were no good films.  People like to think that good films sell for good prices.  If 7000 American films can raise money to fund their works and no films are selling, what are those investors thinking when they fork over their cash?  They can't be thinking that are actually helping their children or nephews and nieces when they give them money only to recognize their failure?  They must be thinking that they are making good films, and all 7000 can not be 100% wrong.

Clearly we are at a point in US film culture where the infrastructure is not serving either the investors, the creators, or the audiences.  Good films are getting made but not being delivered to their audience.  Last year I went to a film investor conference. Several other producers were invited and we all asked to pitch projects.  None of us left with funding, but the investors said to me that I was the only one that addressed how we would deal with the reality of not just getting our film to market, but bringing it to the ultimate end-users -- the audience.  As artists build communities around their projects in advance of actual production, they are developing a plan to give domestic value to their films.  It is hard to imagine that any artist will be able to do enough pre-orders to predict 20% of negative costs from the USA -- unless they are working on microbudgets -- but taking a step forward is still a better plan than surrender to the unknown.

So where are we now in the process of getting your films funded?  If you've gotten your foreign sales estimates, and you can somehow reasonably anticipate a 20% of Negative Cost US Acquisition License, you are in great shape.  That is, you are in great shape if you have foolish investors.  The wise ones will still be wondering about how they cover sales fees, sales expenses, and the opportunity costs on the money.  Those numbers are still routinely ignored in many business plans for indie film I find.  If you are working with semi-literate investors, you will still be scrambling to find another 25% or so of your negative costs.

How will you fund your film if you can not predict full recoupment from the combined US & foreign licenses?  Fortunately, if your film is set in America, you can pull in some tax credit relief.  Otherwise, I hope you carry a foreign passport, and qualify for foreign subsidies.  If you plan on cash flowing any of this soft money, don't forget to discount them and budget for the additional legal expense.  From personal experience, I find it hard to justify the costs of cash flowing soft money on the type of budgets we are talking about  -- but that's good news.  In the NMOIFFv2011.1 you are wise to treat this soft money as revenue towards the project so that such aforementioned costs will be covered.

If you are fortunate enough to have all of these rare qualities (foreign value, US acquisition potential, strong team with a track record, soft money qualifications, and cash flow partners) inherent to your project, you probably are still wondering where's the upside.  How do we get to profit?

I think we now have a subject for tomorrow's post.  Stay tuned.

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.

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.

Breaking the Rules: To Screen or Not to Screen Before the Festival Premiere

Today's guest post is from attorney Steven Beer. Steven's contributed to HFF/TFF before, and was one of the original Brave Thinkers.  With Sundance around the corner, Steven offers some perspective of a question on many filmmakers' minds.

To screen or not to screen for distributors prior to a festival premiere?  This question often plagues producers in the months prior to festival season.  Hypothetical Scenario: Shortly after you receive an invitation to premiere your film at a prestigious film festival, an established distribution executive calls to request a screener.  She congratulates you and says that she has heard wonderful things about the project.  Sadly, the acquisition executive reports that her company may not be able to attend a festival screening due to schedule conflicts.  If you screen the film for her company before the festival, however, the company may be able to make an offer and announce a deal at the festival.  What does a producer do?

In the past, cynical producers and their representatives viewed such requests as a professional seduction and respectfully declined.  Conventional wisdom discouraged filmmakers from screening their film prior to a high profile festival premiere for a variety of reasons.  Nothing compares to the satisfaction derived from screening a well crafted film in a state of the art theater -- the optimum venue for which the film was created.  After pouring vast sums and sweat into producing a film that was created for the big screen experience, who can blame filmmakers for resisting requests to distribute DVDs before their premiere.  Invariably, producers prefer to showcase their projects to acquisition executives in adrenaline-charged premiere screenings brimming with enthusiastic audiences.  Given this scenario, one can appreciate the cardinal rule against pre-festival screenings.

The traditional way of thinking is beginning to give way, however.  Industry colleagues are observing that more and more films are circulating this year in the weeks prior to Sundance 2011.  Why are producers and their representatives reconsidering their stance against pre-festival screenings?  Distributors are acquiring fewer films in general, and even fewer at major film festivals.  In times of cost cutting, the economies of sending an acquisitions team to a film festival are under scrutiny.  Consequently, distribution companies are sending fewer buyers to festivals and covering fewer films.  Given the declining number of indie film distributors and perceived surplus of films seeking distribution, acquisition executives are less motivated to compete with other distributors for a film.

Distributors claim they are ambivalent about film festivals.  While they appreciate seeing how a film screens and an audience reacts to a film, acquisition executives are reluctant to participate in an auction-like atmosphere where they risk overpayment for a title.  Moreover, distribution executives assume that many films will be available after the festival reviews are published and awards are granted.  In support of their DVD request, distributors claim that most consumers will view the film on a television or computer screen so they should not have to attend a screening.  Distributors feel it is more important to evaluate how a film looks on the small screen, outside of the comfy confines of the art house theater.  Without A-List stars or a headlining director, ensuring that the right people even screen your film, with or without interruption, can be very difficult.

The realities of today’s indie film marketplace compel producers to re-consider the cardinal rule against screening films prior to a premiere.  Some producers believe that pre-festival screenings can raise awareness and generate momentum for a film within the marketplace before the cacophony of a major film festival.  Such screenings can serve as a head start on the festival crowd and may contribute to a sale prior to or during the festival.

Other producers, however, remain skeptical of pre-festival screenings.  They advise others to consider the genre of the film when analyzing the options.  Certain film genres, such as comedy and horror, depend upon a crowd to set the atmosphere.  Screening such films without the benefit of an audience to laugh or scream with can lessen the impact and adversely affect the chance the film is acquired.  Some producers caution that distributors that have screened a film prior to a festival are incentivized to talk the film down to other distributors in order to lower the acquisition price for themselves.  Others state that even if a pre-festival screening is wise, the filmmaker or producer must be prepared to position the film for the distributor.  They will need to know and be able to convince the buyer of the story angles that can be pitched to journalists, who the target audience is and how they can be reached, and must also be able to speak on what they can contribute to marketing and positioning the film.  In short, the filmmaker’s team must be prepared to sell the distribution company on the marketability of her film.

The traditional rule against screening a film prior to festival premiere was based upon the premise of a more competitive market in which distribution companies had the time, money and desire to see as many films as possible.  These assumptions may no longer be valid.  Producers should re-evaluate their options in light of established goals and the challenges of the marketplace.  To screen or not to screen?  The answer to this complicated question requires careful consideration.

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.