We Need To Make Indie Film Work For Investors!

It's pretty simple.  When people make money doing something, more money enters that system.  And it is pretty simple in the reverse: when some people make a bucketload and those that invested in it make virtually nothing, less money flows into the system.

If distributors don't pay creators their fair share of the profits, their won't be movies made. Or maybe the investors will get wise and stop selling the distributors the film.  After all we are at a time that you can really do it yourself (by doing it with others).  And to be clear, "fair share" doesn't mean paying them what contract swindles them out of -- it means paying them an ethical cut.  And that sure in hell ain't 12.8% of the profits -- which is what happened on one of the most successful indie films of recent times.

If there is one simple goal for the new year, every filmmaker should make sure their investors get paid what they deserve.  It is for all of our benefit.  If there is more money available for indie film investment, more movies will get made and hopefully they will be more diverse and ambitious.

It makes me furious when I hear of a film that generated tons of cash and very little flows back to those that support the work.  It makes everyone feel that the system is corrupt.   It makes investors think that they can't win.

Film distributors are supporters of our cultural institutions -- especially the specialized ones.  Wouldn't you be embarrassed if you released a film on DVD and it generated $139 Million Freaking Dollars and you only shared 12.88% of that tremendous wealth with the people who created the movie?  Wouldn't you expect that filmmakers would all be wearing t-shirts this year at Sundance that point out that 12.88% is not a fair profit share?

That is what happened with Napoleon Dynamite.  Read the shocking story here.

 

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

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.

Film Finance Overwhelm (pt.2)

Stacey Parks returns with a guest post -- and a sequel.

Because Film Finance Overwhelm (Part 1) was such a popular post, I decided to do a Part 2. And because many of the comments and emails I got came in the form of questions, I decided to make the format of this post in Q+A form. I think seeing the answers to some of the most commonly asked questions will clear things up for many of you.

As a refresher, the 4 Film Financing components I talked about in Part 1 – the ones that are working in today’s market to independently finance films outside of the studio system are as follows:

1. Tax Incentives
2. Partnering With Production Companies
3. Pre-Sales
4. Crowd Funding

So let’s move on to Q+A…shall we?

Q: What are the benefits from both sides of partnering with a Production Company or more experienced Producer?

A: The obvious benefit to the new or less-experience Producer is pretty obvious – you get to leverage someone else’s track record to get your film made. But what about the benefit to the other Producer (the bigger one)? The benefit to them is that you are bringing them a killer concept and/or killer script that they didn’t have before. In my own pitching experience I find that every single one of the Producers I speak to says they are always looking for the next killer project – and they don’t really care where it comes from! Enter YOU. One of the keys to this approach is that hopefully you can bring more to the table than just a script, for example some kind of unique expertise. What areas of expertise do you have that you can contribute? Do you have existing relationships with foreign distributors for instance? How about marketing expertise? Are you a producer who can qualify for international co-production funds because you have a European or Australian or New Zealand passport? Think along those lines of some unique contribution you can bring to the partnership.

Q: What does it take to make a Pre-Sale when you don’t have the typical ‘package’?

A: It’s a fact that the majority of Pre-Sales these days are done on ‘packages’ – meaning a script with Director and Cast attachments. So what if you have an atypical package meaning not a name director or big international stars? Well I’ll tell you… I’ve seen this past year a few projects be successful at Pre-Sales by attaching the right Producer or Executive Producer. Yes, Producer and EP are also part of your package! Mind you these projects were also very commercial concepts, and not in the art-house/drama genre. Which brings up something else – sometimes, and I mean only sometimes, if your concept is so strong and commercial, you can mange a Pre-Sale or two ONLY based on that, even without having a big director or stars attached. In those cases what happens is who ever is buying from you, may insist on attaching an experienced ‘name’ themselves, so they can increase their level of trust and mitigate their risk.

Q: Aren’t the administrative costs extremely high when closing a tax finance deal?

A: Yes, actually they are. They can be anywhere from 15% to 25% of your budget by the time to take into account the discounting that banks do, legal, financing fees, interest, etc. For this reason, it usually only makes sense to take advantage of tax incentive deals when your budget is $2 million or more (and some say $5 million or more). Because tax deals can be expensive to administer many Producers prefer to finance with equity rather than tax incentives, but equity isn’t always available, and unless you are experienced with a track record, can be difficult to secure. Obviously the higher the budget of your film, the more tax incentives make sense for your production – for example when you start getting into the $5-$10 million budget range the numbers starting adding up even better. Having said that, I personally think it’s always worthwhile to look into the option of shooting in places that offer favorable tax incentives, and run the numbers to see how everything pencils out. I know Producers who have resisted this for a long time, and have finally given in because not taking advantage of 20%-40% in rebates is considered simply irresponsible at this point.

Q: What percentage of budget can you actually raise with Crowd Funding?

A: Certainly I’m seeing people raise 100% of their budgets doing crowd funding campaigns, especially with budgets of $200K and less. However in most cases, I think if you can raise 20%-25% of your budget with Crowd Funding then you can wrap a traditional financing structure around that. The thing to keep in mind with crowd funding is that you want to keep your campaign donation-based instead of investment-based, as anything investment-based can put you into legal grey area. Obviously sites like Kickstarter and IndieGoGo are terrific platforms for running your Crowd Funding campaigns and the thing that I like best about raising money through crowd funding is that it can be a great way to raise development funds in the beginning, when you need things like a website and other presentation materials to get the ball rolling. By contrast, I’ve also seen Producers use crowd funding very successfully to raise finishing funds, because by then you actually have sample footage to show people, and there can be an increased level of trust that your film will actually be completed.

Q: What are the downsides to raising International Co-Production financing as opposed to International Pre-Sale financing?

A: International Co-Production financing is second nature to most European producers because that’s their ‘traditional’ financing model. Nowadays however, even American producers are getting in on the action and the two biggest downsides I see with seeking International Co-Production financing are 1) The amount of red tape it takes to apply for government film funds, and 2) the amount of time it takes to get a project off the ground when you’re relying on international co-production funds. With so many new ways of financing your film these days, even European producers are looking outside their traditional model of ‘free government money’ because it’s simply just so much more efficient to cobble together the financing in other ways (using the 4 components I talked about above + private investors). And yes, most U.S tax rebate programs are much more efficient than the European government funds – quicker to get approval on and quicker to get cash-flowed.

So there you have it — I’d love to keep answering questions so please if you have any more, place them in the comments section below!

And if you want to delve deeper into Film Financing 101, check out the Virtual Intensive I’m putting on after Thanksgiving!

In the – Film Financing 2.0 Essential Training - I’ll be covering these 4 components of financing in-depth over the course of a few weeks. Take a look at the details of this small group program, and grab a seat before it sells out. Join the movement to get your film financed for 2011!

Film Finance Overwhelm

Guest post from Film Specific's Stacey Parks.

As I’m unwinding from AFM last week, it occurs to me that while many of you are experiencing Distribution Overwhelm, even more of you are experiencing Finance Overwhelm. Why? Because unless you have 100% cash in bank to make your film, what can you do to get your project off the ground?

The way I see it is we’ve entered a time where ‘cobbling together’ different forms of film financing is necessary to make the whole. Sure, private equity (or cash) still plays a role in this new model, but there’s also other methods that need to be explored and implemented to finance your film

Case in point – many filmmakers today are using private equity or cash for development funds, tax incentives and pre-sales for production funds, and crowd funding for finishing funds. Is that too many financing components? Let me put it to you this way….

Ignore a diversified approach to film financing at your peril!

So how and where do you begin on this journey then to cobble together financing for your film? Let’s forget the private equity or cash component for a moment b/c that’s usually the hardest piece of the puzzle, and let’s focus on financing components we actually have more control over in order to create some initial momentum with your project:

Tax incentives – you’ve probably heard this before but if you’re not investigating locations to shoot your film that offer tax rebates and credits, you’re simply being irresponsible. Research both U.S and international states, countries, and provinces which offer attractive tax incentives for you to shoot your film there. Use the individual Film Commission offices as your starting point and they’ll walk you though the process and procedure, which in my experience are shockingly simple. Get budgets drawn up for shooting in different locations so you can compare where you’re able to make your film in the most economic way possible.

Partnering With Production Companies – This may not seem like an obvious choice at first but let’s just say this – if you don’t have a track record yourself, if you’re a first or second time producer, writer, or director and you want to fast track your production, you should consider partnering with a more experienced Producer or Production Company and leverage their track record to get your project made. There are so many other benefits to this approach too – not least is the fact that if you manage to attract a bigger producer with a track record to your project to partner with you, you can ride their coat tails for this project, get introduced to their whole network of ‘relationships’, and be in a prime position for your next project to go it alone, using all the contacts you made. I’ve seen this happen many times, and it seems sometimes what holds people back in this scenario is their pride. Wouldn’t you rather swallow your pride and get your film made?

Pre-Sales – Here’s the facts: Pre-Sales are not dead. I don’t care what anyone says, Pre-Sales are alive and kicking for the right projects. And that’s the key here – the right projects. What does that mean? That means for projects with a killer concept, an experienced director attached, and great cast, pre-sales are in fact a reality. Now I know this might seem like a long shot for some of you but hear me out….If you are a first time director, focus on a killer concept and cast. If you are a first time producer, focus on attaching a ‘name’ director. You can in fact build a package that attracts pre-sales, it takes time, and often money (development funds) to pull things together but it’s possible.

Crowd Funding – Crowd Funding has actually been around for a while but only recently popularized by sites like Kickstarter & Indie Go Go. However, as many of you know, Robert Greenwald has been crowd funding his movies for years. His moves, being cause-related in nature, actually quite nicely lend themselves to being crowd funded (by people who are passionate about his causes). But what about if you have a narrative feature (as opposed to a cause-related doc)? The truth is, Crowd Funding can work for you too but the success of your campaign will be predicated on your ability to build an audience for your film while you’re still in the financing stage. No easy task but by leveraging the internet and social media, ti’s entirely possible provided you have a subject in your film, or are covering a topic or theme that people are actually interested in. Have you researched the concept of your film yet to determine if in fact there’s a potential audience for it that will be interested in seeing it? That’s the key to crowd funding right there.

These 4 components are what I see as the basic building blocks of a Film Financing plan in today’s market. And by building blocks I mean you should be using a combination of a few if not all of these to get the job done!

So what are your thoughts about Film Finance Overwhelm? Which of these methods have you used successfully, or not so successfully? And what questions do you have about any of them?

I’ll be kicking off one last Virtual Intensive for 2010 dedicated to Film Finance Overwhelm because I know that many of you are looking ahead at 2011 and you want to get your films made next year come hell or high water!

In my Virtual Intensive – Film Financing 2.0 Essential Training - I’ll be covering these 4 components of financing in-depth over the course of a few weeks. Take a look at the details of this small group program, and grab a seat before it sells out. Join the movement to get your film financed for 2011!

Stacey Parks is an expert in the area of Film Distribution, and the author of "Insiders Guide To Independent Film Distribution" (Focal Press). After several years as a foreign sales agent, in 2007 Stacey launched www.FilmSpecific.com as a Virtual Training hub for Producers seeking to get their films made, seen, & distributed worldwide.


How To Pitch Investors

This article on how to pitch VCs could apply equally well to pitching new film investors. I consider my 60 feature productions equivalent to 60 start ups. I recently had the good fortune of participating in an investors' forum and got to speak to the other producers a bit after. From the conversations, it sure sounded like all the other film producers could have benefited from this advice.

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.

Reinventing The Wheel, Again and Again and Again

If I had to state one of the most crucial things we need to focus on in the indie film world right now, I would say that working to establish a sustainable investor class ranks right at the top.  If only it did not take a bit more than simply stating it... I have made over sixty films in about twenty years.  Each film is a new start up with a new structure and new investors.  It is not a very efficient system.  Folks from The Business Community often express interest in trying to bring some greater reason to our world.  I hope they succeed and I am available to help, but it is not so easy a mission.

One of the reasons that each film has it's own financial structure is that every film has its own needs.  We are not making a standardized product, but we are working with artists who have developed unique talents for getting their visions and emotion up and out there.  Filmmakers need a protected environment to work in.

At the same time, Investors need access to the process to trust their needs are being taken care of.  These needs are most often quite different from the filmmakers'.  How to provide trust, confidence, and comfort is part of what makes producing such a challenge (and pleasure).

Films need to be budgeted based on market realities and there are very few realities to base things on.  Flexibility and rigidity are both needed by the investment structure. Sometimes budget increases enhance commercial prospects, but the threat of increases destabilize any trust or confidence that has already been established.  There lies the rub...

Investors have different needs too so I don't think there is any more a set model for them than there is for the filmmakers.  Many producers simply assume that investors want to make a profit and want to make a good film.  It is far more complicated than that though.

Everyone wants to be protected, and that again is the producers role.  Both Filmmakers and Investors need to declare their needs and be willing to live with what they say.  Creative Control does not always come from legislation; relationship support can be the strongest asset to getting a vision widely seen.  Commercial concerns may limit critical acceptance which in turn decreases commercial prospects.

It's going to take a lot of work to demystify this process of protection.  I don't think there is template but I do think, with some focused effort, we can build a sustainable investment base for independent culture.