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!