Reviewing the IIFF Film Financing Townhall
I attended the IIFF and Film Financing Townhall last night organized by Tyler Pukatch, in Hollywood at the LA FIlm School. They had a solid panel of guests, which included: an attorney I’ve worked with in the past Matt Thompson (Stroock), entertainment banker Brian Stearns (Union Bank of Cal.), Bill Sutman (CFO, Relativity), bankable sales agents *Nadine de Barros (Voltage) and Ruzanna Kegeyan (IM Global), and financiers Joe Cohen (American Entertainment Investors), and Clint Kisker (Screen Capital). My expectations were high going in for this group.
One thing that all the panelists could agree is that the good news and the bad news about the state of the film market are the same: film production is down 30% year-over-year. This is good news because for those who manage to get movies made will find less competition in the marketplace competing for distribution (foreign and domestic). The downside is that less capital is going into indie films. This is mostly due to poor returns on investment Wall Street received from the gold rush of 2003-2008, when they were drawn to Hollywood because of its appeal as a non-correlated asset class (meaning it has no relationship to the stock or bond market), coupled with that lottery mentality.
The topics of P&A, presales and gap loans, equity investors, and tax credit advances were covered ad nauseum.
A great take-away from the evening was Matt Thompson’s simple rules for establishing credibility for your project:
- Have the rights you say you have;
- Have the attachments you say you have (and understand that unknown actors have no value);
- Get a real budget done and make sure it’s rights (music, VFX, contingency, are often under-budgeted);
- Hire a reputable financial advisor to advise on the structure of your financing and assist in the closing of your films, “they’re worth their weight in gold”;
- Get to know the bond company and get them to know your project.
Expanding on Matt Thompson’s establishment of credibility, Clint Kisker discussed how paying a small retainer to respectable a finance attorney, and getting a short form agreement with a bankable sales agency are two ways of getting sponsorship for your project. These kinds of key alliances also function as a form of endorsement currency for you and your project that can open doors and predispose people to considering your project. In other words, this is not the time to be miserly with your cash.
Bill Sutman reminded the audience that film financing is a game of losers, and that one winner will make up for a multitude of sins. Translation: the film gods owe you nothing, so just because you produce a slate of 15 films, doesn’t mean one will hit. They could all tank, even if they’re all good. But if one does hit, it could offset the rest. He also conveyed some interesting statistics: in 2009 video sell-thru was down 14%, whereas rentals were up 7%. The profit margins on sell-thrus are in the dollars, whereas rentals are in the cents. Kiosks, Netflix, and Red Box are showing the most gains in the rental space. Blu-Ray is also showing enough promise that Wal-Mart is allocating more shelf space, so that’s potentially good news for all.
Nadine and Ruzanna gave insights into how foreign buyers are your film’s real audience. They can’t market your project to your intended audiences; they need to market it directly to the buyers and distributors. Those are the ones who call the shots on for that piece of your financing.
Brian Stearns gave some interesting insight from a bankers perspective, that when it comes to financing presales, the financial risk on a film is lower if the project is bigger. Buyers are more inclined to pay for big films than they are for smaller films, and their gap loan is more inclined to be covered on higher budgeted films. For the record, a small film in this case is anything under $10m.
This audience had more film students than normal, so I tried to let the redundancies of how film financings are structured slide. I also would have liked to have seen more conversation and questioning between the panelists. All-in-all I thought it was a fresh group for IIFF with some sound advice, and potentially good news:
Due to the film financings status as (1) a non-correlated asset class, (2) having decent but not great returns, (3) having a chance of getting a film that pops, and (4) long-term alternative to (now out of vogue) short-term/currency trading, we may be seeing (cha-ching!) the return of Wall Street money shortly.
*And lastly, during the Q&A Nadine de Barros gave a shout-out to FilmClosings as the best place for information on the foreign sales market and the indie film finance business as a whole.