Divergent and the Illinois Film Tax Credit

A big studio film every few years is not sustainable. It's time for Illinois to acknowledge the resources it lacks and modify the credit to be inclusive, not exclusive, to the global industry.

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Highlights From The 3rd Annual Film Finance Forum: Part 1

by Jeff Steele

Winston-Baker & Variety’s 3rd Annual Film Finance Forum concluded this week, at the Universal City Hilton.  With a standing room audience of mainstream financiers, producers, executives, attorneys, and more, this annual event has become the preeminent financial gathering of its kind.  In addition to attending several panels, I also moderated the panel on crowd-funding.

One thing that sets this forum apart from most others are the prep courses offered the day before.  Two 3-hour courses are presented concurrently: one is a primer for new entrants/financiers, and the other is a primer for independent producers.  The former was taught by attorney Steven Fayne of Akin Gump, and the latter by Philip Fier of Focus Advisory.  These courses are essential for attendees that are hoping to digest all the information and jargon they are going to be inundated with over the following day-and-a-half.

The forum kicked-off with a State of the Industry overview presented by Roy Salter, of the Salter Group.  There were lots of statistics but the overall assessment was rather inconclusive.  This intro was followed by the first panel: Five Reasons to Get Into the Film Business Now, moderated by the Brothers Kisker (of Lionsgate fame and my alma mater Screen Capital International.)  The panelists were Hyde Park’s Ashok Amritaj, Sierra/Affinity’s Nick Meyer, JPMorgan’s David Shaheen, and DreamWorks COO Jeff Small, and Roy Salter.  The overall consensus of the this group was (1) that the financial crisis that pulled the plug on financing for the past two years has passed, and (2) the distribution bottleneck of indie films that was created by the proliferation of film funds that saturated our industry with capital and content has also passed.  The take-away being that the film industry is recession resistant, but not saturation resistant.  The irony is that most if not all of those myriad film funds that sprang-up between 2004-2008 were armed with a Salter Group business plan, replete with Monte Carlo Simulation.  Salter Group is certainly best in class for what they do, but did any of those plans contain a caveat that there might be 25 other plans running loose on the streets of New York and London?  Pick-axes to prospectors.

All the panelists agreed that the new dominate criteria for whether a foreign buyer picks up an indie film is the actual screening the completed film.  This trumps script, director and cast.  This means that execution is everything — it’s not enough to have a script, director and cast.  Nick Meyer underscored this by poignantly asking, “Can the producer who develops the script also manufacture a good film?”  While not mutually exclusive, they are nonetheless two very different skillsets.  Development is an editorial pursuit, while physical production is manufacturing and processes.  Sophisticated producers need to be comfortable with what they know and what they don’t know and should surround themselves with those who know more.

The panelists also concurred that financiers are returning to the indie marketplace, but they are exponentially smarter than before.  They’re not interested in cutting a check for a film that might perform.  They are demanding quantifiable risk mitigation: tax credits should be used to reduce the loan, not enhance the budget; films need to be commercial with an identifiable market; producers need provide solutions for territories that don’t pre-sell and need to come to terms with the fact that territories that don’t pre-sell generally don’t sell at all.  Salter admonished the audience that before the film is greenlit “producers must have contractual access points to powerful distributors”.  Which in turn puts a lot of demand onto the shoulders of a small group of bankable sales agents.  It also raises the bar on what types of project those sales agents will consider. Ashok cautioned that due to the bottleneck of projects trying to find sales agents, “Sales agents can’t spend time on projects that haven’t been thought through.”  In other words, you need more than just a script. Much, much more.  The panel provided some insight into navigating the current film finance climate, but not a lot of thought about what lies ahead.  I think it’s important to note that most of these panelists built their success in the traditional finance models and therefore could have an interest in preserving the status quo.  This isn’t a demerit; it’s just human nature.

The next panel was Business Models for Digital Content and Electronic Delivery, moderated by the effervescent Kara Swisher, of All Things Digital.  Panelists included Logan Mulvey of GoDigital Media Group, Michael Murphy of Gravitas Ventures, Cliff Plummer of Digital Domain, and media executive Adam Rymer.  Kara started the panel by announcing that the previous panel will be obsolete in ten years.  The theme of this panel is that consumers want to watch what they want, when they want.  Digital has replace physical ownership, and rental is replacing digital ownership.  It’s interesting to note that 70% of people use VOD, but few pay, because they watch the free stuff like TV series.  It’s even more interesting to note that there are more people in India that read English, than in the United States.  I guess you can scratch the Hindi track off your foreign delivery schedule.  During the Q&A somebody asked the panel if they saw a future in crowd-funding; Rymer dismissed it as something that wouldn’t evolve beyond being a marketing gimmick that allows people to pick a script or cast a film.  He couldn’t be further from the truth.  Stay tuned for my recap of the panel: How to Make Crowd-Funding Work for Filmmakers, where Kara’s panel is declared obsolete.

  • CL Thomason

    If consumers intend to watch what they want, then will that supplant decisions by ‘the industry’ on what gets distributed?

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    • Jeff Steele

      Consumers can only watch what ultimately gets distributed by the Industry. Distributors (in some form or another) will remain the curators, but the conversation will be in reel time.

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  • BenL

    Thank you Jeff. I appreciate you insight.

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  • http://www.lauferfilm.com Tiffany Laufer

    It was a pleasure to hear you speak/moderate the panels. Thank you for this great breakdown.

    I look forward to attending again in the future.

    Best,
    Tiffany Laufer

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    • Jeff Steele

      Glad you liked it. I’ll be a panelist at Digital Hollywood in May, come check it out.

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  • Andy Halmay

    What I glean from this is that it is going to get harder to get a project off the ground since presales are out. Crowd funding, from the first time I heard of it, struck me as a hopeless idea, but now I look forward to your “How to Make Crowd Funding Work for Filmmakers.”

    Of course there is always the advice of that old man from Brooklyn who told his grandson, “Remember, you can have anything in life that you want if you walk in with a big smile… and a gun.”

    Aside from all the palaver at Forum, Jeff, did they give you any laughs?

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  • Bruce Holsten

    It’s ironic as in Wilmington, NC, we have everything necessary to be a true “Hollywood East” including exceptional production talent, great studio facilities and even a strong tax incentive. What we don’t have is the one reason we may be nothing more than a well equipped and staffed location, and that is financing resources. Apparently now we should also add Sales and Distribution services as well.

    I wish I could have been there … but thank you for your valuable insight, and it may be one more good reason why we might be retaining your services in the near future to see if you can help bring my company, and the Cape Fear Coast, into the 21st century.

    R. Bruce Holsten
    American Harbor Capital Strategies Ltd

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    • Scott Hillman

      From my limited experience poking around in north carolina, i would state its also has the problem of having basically one production facility worth mentioning in the state-which is just a tricky thing to deal with. The fact that facility(agian from my limited experience) is owned by a big studio, and doesn’t seem super keen to go for smaller films may not help it.

      However i do wish you luck there-north carolina does seem to have a lot going for it which i hope you can help execute on.

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      • Bruce Holsten

        Thanks, Scott, and the state (NC) does have many natural and human assets to build our film capability around, as well as a very accessable tax incentive program that aids both big and small productions. And our “one production facility,” Screen Gems EUE, is actually privately held and an exceptional facility with 10 sound stages and the largest water tank on the east coast. Although not a true Studio in that (sadly) they don’t actually finance or produce for their own account, they have been very actively involved in the independent film and TV business regionally and have been active helping young and old film makers with much needed resources, just not the much needed capital necessary to build a true homegrown industry.

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    • Jeff Steele

      Bruce, I feel the same way about Chicago, which is why I’ve opened an office there. Unless the region invests in itself it will never evolve beyond production services, and will remain in servitude to the whims of Hollywood and New York. London is also in the same boat as NC.

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  • http://MichaelRBarnard.com Michael R. Barnard

    Jeff, thank you again for another insightful, informative post.

    As one who has failed to fit into the mainstream financial world, I find the information is nonetheless important and indicative of filmmaking overall.

    The best information is the declaration, “All the panelists agreed that the new dominate criteria for whether a foreign buyer picks up an indie film is the actual screening of the completed film. This trumps script, director and cast. This means that execution is everything — it’s not enough to have a script, director and cast.”

    That’s where my hope lies. Mainstream financing presents no opportunity for me, but the fact that execution is now the main criteria opens up tremendous opportunity; that’s something I can control, and will with the finance-less NATE AND KELLY (http://Nate-and-Kelly.com)

    Crowdfunding continues to be a a hot topic. As I’ve always maintained (https://michaelrbarnard.wordpress.com/2010/08/29/crowdfunding-reveals-vibrant-new-class-of-citizen-funding/), crowdfunding is evolutionary; we are watching the beginning of a new paradigm. It’s not there yet, but new paradigms never are at their beginning.

    Some efforts have been made toward moving from donations to investments. http://profounder.com is new and investor-oriented for a realistic $1 million. Unfortunately, after my discussions with the creators during their formative stage (and probably because of my discussions), profounder has chosen to specifically eschew films from their support projects. (Damn!)

    This week saw the announcement of http://www.yourmoneyyourmovie.com a new investment site and movie-oriented. At this point, they just crowdfund investors for their single movie project.

    These will evolve. I think that if the day comes that Kickstarter and IndieGoGo can get SEC approval to crowdfund equity positions of various movies to the public, we will see an exciting development.

    We have to hope that such a scenario doesn’t cause a burgeoning…

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    • Jeff Steele

      Michael, YouMoneyYourMovie.com (aka Audience Productions) was on the panel I moderated on the second day of this forum. I brought them, Sokap, and IndieGoGo together to show producers an end-to-end crowd solution for filmmakers. Adam Chapnick (IndieGoGo) was adamant about never wanting to sell securities through IGG. Kickstarter probably feels the same way.

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      • Bonnie Kanner

        I am working with a Man that has an the only issued Patent for crowd funding a movie. For a film to be successful the subject would have to have a big fan base or A list celebrity. We will be going public very shortly.

        Bonnie

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  • http://www.Globalcrossroadscapital.com Jeffrey Allen

    Crowd funding is still primarily donating. And donating isn’t investing. Crowd funding is also called peer-to-peer funding. Such sites while are really lending are essentially small-cap hard money lenders usually under $25K. There is one crowd film fund that is actually registered with the SEC to offers shares but is restrictive and can offered in only 19 states.

    But crowd donating still isn’t in the same league as DPO’s or Direct Private Offerings of of marketing shares to ones own customers, employees, suppliers, & distributors (a crowd).

    Variety has good take on film crowd funding dated 8-07 from the viewpoint of institutional investors.

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    • Jeff Steele

      See my Comment above.

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  • Scott Hillman

    Sounds like very intresting. Now that i learned today my primary financing has pulled out of my project, i feel i really should have gone to this. oh Darn. Ahh well.

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  • Anand Varma

    Hi Jeff,
    Thanks for this lovely article. Your information is focussed and PRACTICAL. Look forward to more.
    Anand

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  • http://www.mujaan.com Chris McKee

    What obstacles do you see for indie filmmakers to get viewers to pay $1 to download their films on demand thru iTunes or a similar service? Can you envision a way for video distribution to cut out the middle-men and still potentially make money?

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    • Jeff Steele

      I do see a way — and it’s the subject of my next post…

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  • http://www.jkmetromedia.com Margaux Monet

    Hi Jeff,

    I attended the Film Finance Forum and found your insights clear and to the point. I look forward to meeting you personally.

    Best,

    Margaux Monet
    VP, Business Development

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  • http://NOMPCo.com Stan Gill

    While I wished I was in town to attend, I’m very glad you are distilling your insight on the forums.

    Thanks Jeff!

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  • JB

    Hi Jeff!

    We’re thinking on putting together our own investment group in europe to collect investments for film projects.

    However, when I took a look at some of the film investments in europe all the funds seem to hold 30% of the investment; what is the average commission these funds tend to charge on each investment they collect? And what is the 30% for that they hold from investment amounts?? How does this system work?

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