To Defer or Not to Defer
Knowing where to put your money is one of the most difficult challenges for independent film producers. It doesn’t matter if you’re backed by a fund, have your own operating capital, subsidize with a day job, or are receiving one of the coveted government film grants that many indie producers rely on.
As an independent producer, every day can be a struggle to move your projects forward while trying to preserve precious capital resources.
When everyone simply can’t be paid upfront due to insufficient funds you’ll have to try and get as many people as you can to work for free or deferred fees.
Who will/would agree to this? 1. “The Unknown” anyone who is looking to build up their portfolios. 2. “A-list Talent” those who have enough money, but haven’t won any awards yet. 3. “The Has-Beens” those who aren’t working and want back in the public eye.
Who won’t agree to this? 1. “The Scorned” anyone who has deferred their fees before on a film and got stiffed. 2. “The Working” those who have reached a level of success in their careers where their track-record speaks for itself. 3. “Lawyers” no explanation needed there.
Here’s the deal. Many producers believe their project is going to get made and because of that people won’t mind deferring, to be paid out of the budget. The problem is few projects are getting financed, so convincing someone to defer has become increasingly difficult.
Here’s a lineup of what professional producers (begrudgingly) pay for to get their films into production:
- Lawyer for producer, lender, equity investor, tax credit lender (deposits required from producer)
- Title company for escrow fees
- Chain-of-title costs
- Expert to assist with finance structure, tax credits, foreign pre-sales, budget, cashflow schedule, film closing
- Expert to assist with VFX breakdown, post-production workflow, story boards (for bond company)
This doesn’t mean that absolutely every person involved in the closing process needs to be paid up front, but just as the key to controlling costs in post-production is to plan for it in pre-production, so too must a producer be keenly aware before they start the closing process of who and what they need to pay for and when.
If you don’t have a track-record in the business of actively producing finished product you will need to differentiate yourself from an increasing number of charlatans that can run-up tens of thousands of dollars in fees, only to dissappear when it’s time to cut the check.
Getting Technical: Payment for work related to physical production can often be defered by the service provider in anticipation of getting the job when the movie goes into production (i.e. a UPM doing spec budgets/schedules). Legal fees however are incurred by all parties, including the producer, lenders, and investors and they are all billable to the production. In addition, the producer’s lawyer will want a retainer ($5,000) and the lender and equity financiers will usually require legal deposits of $10,000 – $25,000 each, to cover fees they incur while vetting your project. In addition, the financing parties as well as insurnace and bond companies need specific documents to be provided prior to closing by approved experts (i.e. tax credit analyses for pre-certification, finance plans, chain-of-title reports, and so on.) When more films were being financed a few years ago, most of these services were also deferred to be paid out of the production. Now, with most projects not surviving the finance closing process, the few service providers that are left are having to bill for their time. Like the legal deposits, it’s the fastest way to separate producers with viable projects from those who may not be ready (or are just testing the waters.)
Actual conversation with a lit. manager attempting to package the financing for his client’s project:
JEFF: I had a chance to take look over the project you just sent over and, unfortunately, it’s not something I can take on.
MANAGER: Why is that?
JEFF: Well, for starters, your estimates have no presale value because your foreign sales agent isn’t bankable and your financier is too slow for the limited amount of time you have until start of production.
MANAGER: Ahhh DAMN IT!! If I’d known that beforehand I could have saved 6 months of headache.
GI JOE: ….and knowing is half the battle.