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The 3 biggest obstacles to getting a movie made are unions, agents and producers. They're self-serving, only say "no", and care most about their credit.

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Film Funds: It’s Not You, It’s Them

by Jeff Steele

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.

  • On second thought

    Next question: what premium do I get for being first money in with my $10-25,000?

    Oh right, nothing. Equity gets first position return and vig and 50-60% of profit and I share what’s left with writer, director, cast and sometimes key crew.

    And I’m doing this job why?

    (Rhetorical question.)

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    • Jeff Steele

      If you’re not willing to invest in yourself, why should others? Financier’s like to see producers have some skin in the game; alternatively, you could budget those costs for reimbursement, or try to sell the “package” to the production for a premium.

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      • http://pangofilms.wordpress.com Michael Walker

        That money can come back out of the budget.

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

        Thanks Jeff for stating the obvious that so many are in denial.
        100% funding for those with no skin in game is fantasy land.
        Further more that average film even when it has equity is actually debt-equity combos. An Avatar at 60% was one of the few with such a high ratio of equity. the norm is closer to 70-30% debt-equity to leverage funding.

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  • andy halmay

    No argument here except the cost. The more expertise a producer develops in an eclectic manner within the field, the less he has to farm out to “experts” and thus the less cash to lay out. I used to be allergic to using tools until years ago I had problems with a sink in a little house I was renting in Boston. My landlord was language professor at Harvard or Boston College and helpless in all disciplines but language. He mentioned the outrageous fee a plumber wanted to fix the problem. I wouldn’t let him spend it. I went to a hardware store, bought a plumber’s wrench and some other tools, took the whole sink apart, scratched my head, fiddled around, and fixed the problem (whatever it was; too long ago to recall) Since then I’ve never needed a plumber unless I was too busy. In 2000, after moving to Toronto from L.A., I read on a Friday that the Canadian Radio & TV Commissiona (Canada’s FCC, but more) sought applications for new digitalspecialty cable licenses. U.S. Cable channels need no licenses but in Canada everything is licensed. I hear one will soon need a license to use a washroom. This call for applications had been open for a few months before, but I’d just caught up with the news – and the applications needed to be in on Monday, one working day later. The application called for budgets and projections plus a consumer study by an independent research company that would prove that the proposed cable channel would appeal to the public and get an audience. I had only the weekend to get it done and couldn’t bring in lawyers, accountants and research companies. My application was for The Global Village Theatre Channel. It wasn’t a matter of cost – it was time. I got it all done except the research study and I covered that by advising the CRTC that I had spent two decades on Madison Avenue and was intimately familiar with that type of consumer research which more often than not gave faulty indications. I stated that I did better than consult…

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  • andy halmay

    (Whoops – continued) – I stated that I did better than consult with the public. I checked with Willy Shakespeare who told me “All the world’s a stage and all the men and women merely players.” This told me that all God’s children love theatre and that is why the channel would attract an audience.

    I faxed some twenty odd pages of application to CRTC and my only cost was the long distance phone bill for the fax. There were hundreds of applications from existing broadcasters and new entrants in the industry. I heard that some had spent as much as $75,000 or more on their applications and didn’t get the license.

    I spent a weekend and some sweat AND I GOT THE LICENSE. Eventually I let it expire because my original program plans were too rich for the limtied Canadian market. I hoped to get sufficient pickup by U.S. cable operators so as to concurrently launch in both countries but there wasn’t enough interest in the U.S. and so I let the license expire without going on air – but it cost me nothing.

    There used to be a simple definition of what a film producer is: “A guy with a phone who knows what he’s doing.”

    I add to this, it’s a bit like farming. Farmers can’t afford to hire a lot of expert consultants so they become expert in growing crops, fixing machines, doing their books, negotiating with banks and distributors, on and on and on.

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    • http://www.primematesthemovie.com Rudy Luna

      Hey Andy,
      Awhile back you posted something about a European Co-production to be shot in Mexico…did you ever get that off the ground? I ask because I have a script set in Mexico that I’ll be producing shortly. I have a pretty established director attached now, and a budget. Any help would be appreciated.
      Thanks!

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  • Anand Varma

    Excellent Article Jeff, beautifully written. Keep writing and thank you for educating us with your analysis.

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  • Jan Van Tassell

    Nice to see Andy still plugging away, how you been? What a crime you didn’t get the channel on air. We would have had a blast pitching programs to you, Andy. How’s “100 Naked Girls” doing? Has it sold? Any hits? Next time I win the mega lotto we have to produce it! If you still own it. Best jvt

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  • David Weinberg

    Curious as to how you can find the new players on the scene and what they require. I’ve seen a lot of 20/80 deals…bring me 20% equity, a great attached cast, at least sales estimates, and prefereably presales/u.s. distribution, and then we will consider doing the rest, as long as it is in a tax credit state.

    As you mention, there are the few fund survivors from 2008. But I’m missing the new guys. Any idea on how to find them?

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    • scott hillman

      good anwser to your question David: The States themselves. The reps from states film offices do business with a lot of people, and since there job is to pimp there states they can be suprisingly good at passing business along to people. since they don’t make any money from films, they can do a pretty good job at telling you who to contact, by who contacts them-this can be stuff like studios, but i have found good money, and financing leads from state officers.

      Actually in general just talk to as many people as you can-studios, unions, editors, Insurance agents-people know people and you can be suprised at what they offer you.

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  • http://www.declarationpics.com Kent Probst

    I have a Regulation D investment offering that was professionally prepared, as well as a business plan (cash flow schedule, finance plan and sales estimates) production schedule, budget, shooting script, casting director, publicist, and an LLC formed for the film. I wrote the script myself.

    Can you clarify what you mean an investment package? I’m assuming that’s my Regulation D private placement memorandum.

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  • http://www.Globalcrossroadscapital.com SinCityFinancier

    Thank again Jeff for mentioning “skin in game” Your absolutely right and we beat that issue to death on our blogfeed.

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  • Joe Orlandino

    Good stuff Jeff!
    (here kitty, kitty)

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  • Nick Olivas

    Hey Jeff,

    I hate to break it to you but there are some stuff in your blog that is inaccurate. The part where you say ” Funds are not in the script development or talent attachment business – that’s the producer’s job.” is inaccurate.

    You can always get development funds, studios do all the time and also independent film makers, its called Investment group A and they issue funds for the sole person of talent acquistion.

    I found this out through experience with a lawyer. In fact the only reason a producer would use their own funds would be to secure a lawyer to draft some of the necessary documents especially for a PPM.

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