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Kingsley Marshall: How hard is it to find movie financing in 2010?
JEFF STEELE: It’s very, very tough out there for single-picture, indie films. There are about six entertainment banks left that are actively lending, down from 12 in 2008, and only a handful of gap funds, down from a zillion in 2008. Wall Street equity, like hedge funds, has pretty much abandoned the single-picture finance business as well, but is still present in slate financing structures. And yet, films are still getting made.
Kingsley Marshall: How much is the credit crunch to blame?
JEFF STEELE: The credit crunch definitely played a key part in the production freeze in 2009, where the streets of Cannes and Toronto were paved with dead deals. 2010’s glut has to do more with (1) the plethora of bad film deals that were made during the go-go years of 2005-2008 that have barely recouped this budgets, (2) high net worth individuals not having the disposable income they once had (or thought they had), and (3) the lack of U.S. distributors (and P&A) available to the indie market. The credit crunch is definitely having a direct impact on the ability of foreign buyers and distributors to finance pre-sales and pre-sales deposits, which are critical elements in indie film financing.
Kingsley Marshall: Who/what has stepped into the vacuum left by the exit of banks and Wall Street from movie financing?
JEFF STEELE: I’m seeing new equity coming back into the market, as well as some gap funds, so business is definitely starting to pickup.
Kingsley Marshall: How different are these new financiers from their predecessors, if at all?
JEFF STEELE: The new financiers (both equity and debt) are so far proving to be more sophisticated and informed than their predecessors — they are either drawing from their own prior experiences or utilizing finance advisors to back them up. They demand more transparency in their deals (which is great for everybody), they’re more interested in partnering with other similar financiers (instead of trying to be the sole debt financier or equity investor), they’re generally not interested in financing 100% of the pictures, and they’re insisting on utilizing production tax credits.
Kingsley Marshall: You have discussed that traditional financiers tended to fund commercial and unchallenging films. My piece is about the rise of challenging independent film in times of change (60s/70s/recently). What effect do you think on movies does the source of the money have?
JEFF STEELE: So much of indie film financing is predicated on pre-selling international territories to buyers and distributors, that those buyers have become a de facto voice in the development of indie films. However, this is not necessarily a bad thing because (contrary to popular opinion) the #1 criteria for pre-buying a film these days is the script. If the story is not on the page, then they’re not interested in buying (unless it’s a slam dunk like Van Damme action flicks). So in this sense, the buyers have become much more selective as to which films they’re going to put their credit-crunched deposits into. This can be good news for challenging independent films that have great scripts, but might not be considered a “high-concept” sell (like The Hurt Locker). If a producer is going to take on a challenging film, then they should strongly consider attaching a director that has a successful track record of delivering compelling or mainstream films.
Kingsley Marshall: Do you think these factors are always inherently linked?
JEFF STEELE: Financiers aren’t interested in taking a backseat in the development process, and nor should they be expected to. They’re not interested in taking the lead either, but they do expect to have a meaningful voice in the packaging of the creative and financial elements. It is their investment, after all. There is nothing more tedious (or litigious) than dumb money.
Kingsley Marshall: Do you think the success of challenging films such as Precious and The Hurt Locker will draw more adventurous financiers to film?
JEFF STEELE: Precious, Hurt Locker, District 9, and Paranormal Activity are all good for the independent film business. They remind potential financiers that audiences will turn out if you give them something interesting and challenging. However, I would not recommend using them in your film’s business plan because that level of success is so remote. Success is relative, so managing your financiers’ expectations from Day 1 is essential to a productive relationship.
Kingsley Marshall: What are the differences in risk between studio funded and independently financed film? Is there a sense of the inmates taking over the asylum?
JEFF STEELE: Most studios are focusing their attention on blockbuster and franchise films (bet big, win big, market your audience into submission); this is a wholly different model than indies. Indies, if financed properly, can stand a reasonbly good chance of turning a profit, but it takes a lot of discipline and determination. Studios have output deals with international distributors that guarantee a level of return based on box office performance. Indies are just trying to get their equity investors paid back with maybe a 20% premium and some back end, so that they’ll reinvest in the producer’s next project.
Kingsley Marshall: How common are angel investors?
JEFF STEELE: “Angel Investor” is a term not generally used in film financing. If a producer can find somebody to pay for their script development, then I suppose that’s a form of angel. Somebody who funds pre-production is generally perceived as either an equity investor or a bridge lender. An “Angel” is generally the third stage in the fund raising lifecycle of a startup: Bootstrap, Friends/Family, Angel, Series A, Series B, IPO/Acquisition.