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.


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.

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?

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.

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.

The Possible Benefits Of Film Futures Exchanges, And...

By now you've probably heard that the US Congress has approved two different film future exchanges, (i.e. commodity exchanges).  Variety, among others, have been covering the story in what we have to recognize as an inflammatory way (then again, why should they not be like the rest of the media). The  press has uniformly been very biased in the way the story is told, always positioning the exchages as "a gamble" and a haven for speculation.  Sure, I suspect that these exchanges will prove to be a very disruptive influence, but that does not mean they are shouldn't be allowed.  And yes,  I am all in favor of far greater government supervision of our financial industries, but again that does not mean new mechanisms shouldn't be given a chance.  There is a great deal more to the story of these exchanges that needs be put on the table, as they offer us many benefits beyond what the press would have us understand is a simply another opportunity to gamble.

I am grossly disappointed in the lack of action from film industry leaders to do anything to help to establish a sustainable investor class for the entertainment industry. Not once, and nowhere, have any articles or anyone spoken up, as to any alternative vehicle to the film futures exchanges that could offer investors a mechanism for managing risks.  Let's not get into the fact the Hollywood's approach to equity investors is treat them just like another in a long line of suckers.  The Industry's historic attitude to equity investors in the film biz is so dismal, it makes something unknown and unproven like film futures start to look very appealing in contrast, at least to me that is.

There is no discussion within our industry, even in the Truly Free circles, as to what could support, build, and sustain investors.  Without serious discussion of this subject, and reasoned action around it, the days of an independent film INDUSTRY are numbered.  Investors are a key stakeholder in both the business and art of film, and their needs must be addressed.  I plan to consider more fully in future posts some things that would help maintain an investor class, but that is for later blogging -- I want to consider these exchanges.

One thing though that always comes up in discussing investors' needs is managing their risk, which is one of the main selling points of film futures.

I hoped that Indiewire or some other non-MPAA mouthpiece might cover the story from a truly indie angle, but alas, it has not been so.  We are forced to read in between the lines to get some semblance of what these exchanges may offer the indie community and our investors. Variety pointed out:

(Lionsgates') Burns said in his letter that Cantor's exchange "would allow a diverse group of motion picture industry participants, including studios, film distributors, theater owners, investors and other financial intermediaries within the motion picture industry to manage their risk and exposure to new film releases."


(Cantor's) Jaycobs said the goal of Cantor Exchange is to assist the motion picture industry by expanding the breadth and depth of financing sources. "Enlarging the potential sources of film financing will lower the cost of making a film, help create American jobs, and contribute to stabilizing large and small numbers of the industry alike as they face the challenge of raising financing in the high-risk endeavor of filmmaking," he said.

In the LA Times Sunday, they point out however that film futures is not like other commodities as the interests of buyers and sellers are not aligned.

There's also a fundamental difference between a futures contract on, say, gasoline prices and one on a movie. Paul Glasserman, an expert on derivatives at Columbia Business School, notes that both buyers and sellers of gasoline futures have legitimate risk-management motives. A buyer (such as a trucking fleet) might worry about prices rising, while a seller (such as an oil company) might want to keep them from dropping sharply. But there's no such symmetry in movie futures, in which investors trying to hedge their bets on a film will have to rely on speculators to shoulder the risk.

In Variety, interim MPAA head, Pisano said the MPAA's position is that the proposed exchanges are not in the public interest and are not useful to hedge risk. "Although it may appear in theory that establishing a short position in a futures contract could be a 'hedge' against poor box office performance, in the reality of the marketplace, selling a motion picture 'short' after production would invite catastrophic collateral consequences, both for the particular film's success and future relationships with financiers, directors, actors, exhibitors and others."

What do I know, but I don't agree.  I think these exchanges do offer investors an opportunity to manage their risk -- and they should have that choice.  I think these exchanges enhance the opportunity to demonstrate audience demand and expectation.  I think these exchanges offer a new marketing platform to an industry desperately in need of such opportunities.  I think these exchanges offer another cog in what is a difficult endeavor to help audiences discover new work.  Most of all, from an independent perspective, these exchanges are entirely elective.

But truly, we need other perspectives.  Why has the discussion been so one sided?  If we can't come up with mechanisms to help introduce new tools for investment, we are going to watch our diverse and ambitious culture seriously diminish.

Luckily for all of us someone's tried to explain it for the community: Jeremy Juuso over at the AKA Indie Film Blog.  In looking into who will be eligible for even being listed he points out:

From public statements and press reports, it appears unlikely that films will be listed for futures trading unless they have plans to open at well over 650 domestic theaters. Also, based on the CX movie futures listing standards, it appears unlikely that a film will be listed if the film’s release date is scheduled for more than one year, or less than one month, from the date of consideration.

Under these guidelines only a few of my films will have ever qualified for this listing, and with it so goes the possibility of it supporting much indie film investment.  Further, as I can only imagine that theatrical release patterns of specialized content will be changing greatly in the days to come, the chances of even more films from being excluded from listing.  So where does this leave us?

Juuso's post is quite extensive and informative.  I was very glad to have read it and recommend you do so too. He makes a particularly good point about who will most likely use the film future exchanges, along with the citing the difference between "speculation" and "gambling".   I look forward to more of his posts.  I've read and commented on Juuso's posts in the past, and like where he's now heading.

Update 4/29: It's nice to see that TheWrap.com is starting to cover the other side of the story.