My Film Finance Theory: As Goes Real Estate, So Goes Film
I have this theory that film financing follows real estate: as goes real estate, so goes film. Not necessarily the home buying market, but real estate development investing. This is nothing I can quantify with statistics; it’s a gut feeling, solidified over time, observational, not empirical.
One factor that piqued my renewed interest in this theory are the numerous “good news, bad news reports” – yesterday afternoon on Marketplace, yesterday morning on Good Morning America, for example – about how the European debt crisis has resulted in increased investment in U.S. Treasury bonds.
For background, you can read reporter Neelabh Chaturverdi’s report in the Wall Street Journal Online. Libor (London inter-bank offered rate) has hit a 10-month high, meaning that the overnight rate banks charge each other to borrow money has, in Chaturvedi’s words, “been creeping higher.” William L. Watts, in his column yesterday about Libor for MarketWatch, writes that this is a sign of “growing unease over the possibility that Europe’s crisis in sovereign debt could turn into a banking crisis.”
This is definitely bad news, and as I’ve written before, the European debt crisis is relevant for independent producers when it comes to pre-sales, equity financing, and international distribution.
Like every other important industry of our time, production is a global enterprise. Problems abroad are problems at home.
But there may be an unintentional upside for Treasuries.
Marketplace‘s Alisa Roth, reporting a conversation she had with senior economist Beth Bovino from Standard & Poors, said the bump in Treasury bonds is “important because a lot of mortgage rates are based on Treasuries.” Thirty-year fixed mortgages are at historic low rates, and that’s good news for the real estate market.
So the domino chain goes something like this:
- Sovereign funds are rushing to buy US Treasuries (which drives down treasury rates);
- Mortgage rates are tied to Treasuries (which brings down mortgage interest rates);
- Lower mortgage rates (coupled with lower home prices) incentivize people to buy houses;
- Home purchases increase real estate developers’ cash liquidity;
- Increased developer liquidity facilitates further real estate development and (by extension) overall film investment, because… as goes real estate, so goes film.
It looks like real estate investing could be picking up, and if my theory holds weight, that means greater liquidity in film financing.
A few weeks ago, when U.K. academic and critic Kingsley Marshall interviewed me about film financing, I said I was starting to see this new equity coming back to the market, but that the new financiers were more sophisticated and informed than their predecessors. Solid financials are crucial for every deal, meaning good business plans, in addition to solid scripts, proven producers, experienced directors, and cast attachments that work for the project.
This is similar to the more stringent requirements for real estate investing: no one is giving away money for nothing, not anymore.
What do you think? Poke holes in the theory – add your own perspective. What else should I be looking at that I’m not?
Portugal: The Straw That Breaks the Back of Independent Film Financing
Earlier observations about how both the European debt crisis, and attempts by the EU and the IMF to solve it, could affect independent film financing.
UK Film Finance Mag Interview
A conversation with Kingsley Marshall about the current state of film finance investing.
Top Independent Producers, Take Finance Plans Seriously
Covers basic components of the film finance plan, and why it’s crucial to have a good one.
Star Power is Anything But
About the importance of script, producer, director, and cast – in that order.
Nicolas Chartier and the Hidden Hands Who Financed The Hurt Locker
In case you missed it, one of my early posts about Nic Chartier’s journey to make the film that ultimately won the Academy Award – that he wasn’t allowed to accept in person. It serves as a case study of the path many independent producers take in their search for equity investors and foreign pre-sales.