Film Funds: It’s Not You, It’s Them
From 2004 – 2008 there was a flood of new capital that poured into the film industry. Most of this money came from institutional investors like hedge funds, private equity firms and investment bancs. The bulk of that money went to the studios, but when their coffers were full, it trickled down into the independent markets. Hundreds of millions of dollars were invested into independent film funds like Grosvenor Park, Aramid, Oceana, Winchester, 120db, Newbridge, Barbarian and many more. As competition for viable projects increased, lending practices decreased. Soon, finance plans were looking for films, instead of the other way around.
Some of those funds are still around, but most are not. There were so many films financed during this boom time that the indie film market became saturated with product. At the same time, the global credit crunch struck and many international buyers lost the lines-of-credit they used for acquiring films. The product saturation created a bottleneck and the acquisition glut created a clog in that bottleneck that took two years and hundreds-of-millions-of-dollars in financial Drano to root-out. The good news is that the crash of 2008 brought a halt to film production, which effectively turned off the product spigot, allowing the clog to slowly drain. This two-year production glut had the added benefit of eventually bringing talent fees (and overall budgets) back down to earth.
Fast forward to Sundance 2010, where the acquisition of fifty films marks the first indication of a freshly cleared distribution pipeline. Distribution slots were finally available to be filled, but due to the production glut, there hadn’t been enough films to fill them, so distributors went on a buying spree.
The lack of funding options also created an opportunity for new financiers and funds to enter the indie market, which in turn has created an uptick in the number of projects that are being financed. New gap funds, equity funds, tax credit funds and banking divisions are popping up. Some are new faces, but many are survivors from the previous storm, and they’ve comeback more sophisticated, and more conservative, then their predecessors. The 30%-40% super gap is gone. Lenders are taking fewer chances on foreign buyers (and discounting them accordingly); coverage ratios for gap loans are more conservative and restricted to primary territories. All of which is place more demand on Equity, who in-turn is demanding more collateral coverage (like first position against the U.S. and tax credit overages.)
So this is the landscape most independent producers now find themselves in and it’s important that they understand what most of these financiers have been through – especially if they want them to finance their movies. For starters, each fund has a set of codified mandates that dictate what types of films they can invest in. These mandates can be based on budget size, genre, type of financing, minimum tax credits, etc. So the investment criteria for a film fund might sound like: “We only do debt financing (no equity) for thrillers with budgets over $10mm, that shoot in states with incentives over 25%, and that have presold 30% of the budget (including two major territories). Also, no first time directors and no animation.” This may sound well thought-out (and I’m sure there’s a spreadsheet to back it up), but really it’s more of a reflection of the laundry list of promises the fund managers had to make in order to procure investments in their fund. Nonetheless, it’s important that producers know to whom they’re speaking (and why) before they submit their projects for financing– otherwise you’re wasting your time and theirs.
Understanding the funding criteria of the film finance community is Job #1 for producers. Bringing together presales, gap, tax credits, equity and bridge financiers is no small feet. It’s time consuming, it’s expensive, it’s frustrating – it’s herding cats. Which means, producers have to be prepared, professional, and willing to pay for services. If producers want to be taken seriously by any financier then they need to have a budget, a schedule and a finance plan, which means who you hire to create these documents is just as important as the information they contain. You should also know what date you want to start production – people respond better to a ticking clock (ideally 3 – 6 months from now.)
A producer need not know how to create all of these documents; they just need to show they can assemble the right people to put them together. No talent relations? Fine, hire a casting director. Also, nobody wants to hear that the script needs work. Funds are not in the script development or talent attachment business – that’s the producer’s job.
So the first thing an independent producer needs to ask before taking on a project is, “Is this worth investing $10,000 – $25,000 of my own money?” At a bare minimum, that’s what it costs to get a script ready for primetime: budget, schedule, finance plan, incorporation, script option, casting director, investment package, cash-flow schedule, and sales estimates. These are the tools of the trade and, therefore, the costs of doing business as an independent producer. Don’t skimp. You get what you pay for.
With those items in hand, you (the producer) will know everything there is to know about your project and will carry yourself accordingly. That is how you get financiers and funds to pay attention.