To most, Portugal is simply a southwestern European country located on the Iberian Peninsula.  Soon Portugal may be referred to as the country that brought the independent film world to its knees. The runaway production problem is about to be replaced by an evaporating production crisis.

Last week, Portugal’s credit rating slipped from AA to AA-, the euro fell to its lowest point in nearly a year against the dollar ($1.33), and the euro-zone nations, led by Germany and France, along with the International Monetary Fund (IMF), approved a contingency plan (a no-bailout bailout) for debt-ridden Greece. But before you scratch your head and say to yourself, “What’s this got to do with me and the movie I want to make right here in U.S.?”

Let me assure you – it’s got everything to do with the state of filmmaking worldwide and no one is talking about it.

Independent producers, still reeling from dried up senior and gap lenders, and an equity exodus, have been scrambling to cobble together the financing for their films, which has put a greater emphasis on state tax credits and an even greater dependence on pre-selling foreign territories to cash-strapped and credit-crunched buyers.

Not all buyers are equal.  Europe, as a whole, is the #1 international buyer of US independent films and the UK, France, and Germany reign supreme among them.  Germany alone is the 5th largest market in the world and as such, has been placed in the driver’s seat for bailing out Greece, a fellow EU member whose debt has been spiraling out of control.  While every country that uses the Euro has pledged to help Greece, Germany and France – the most prosperous – will kick in the most. This might have been okay, except now Portugal is teeing-up to be the next bailout recipient.  EU members are justifiably balking at taking on that much more debt and some have called for the International Monetary Fund (IMF) to step in.  If the IMF does intervene, then the value of the euro will most likely plunge to new lows, because the EU will basically be telling the world that it can’t take care of its own and that their currency is only stable during the good times.

So the tightening of credit and the reduction of capital will affect all the euro-zone countries and will have an impact on filmmaking here at home.  European buyers will have much less buying power, which means much less buying of American films.  They will be forced to look inward for more European films that they can purchase for Euros instead of dollars.

The repercussions could begin almost immediately. Recently, I saw a contract provision from a European buyer that stipulated a Euro exchange rate that, below which, they reserved the right to reduce the value of their minimum guarantee (purchase price) by $100,000 USD.

It’s bad enough that fewer foreign sales (and pre-sales) are going to be made, but now the value of those sales (and overall value of Europe as a whole) is decreasing.  It’s one thing to roll the dice on whether or not your film will be able to make its key sales, it’s another thing to watch the potential value of your film evaporate before your eyes.  Now even if a producer does pre-sell enough territories to get their film made, what are the chances those European buyers will still have enough money (or credit) to pay a producer two years from now when the film is delivered?  If the Euro keeps dropping, then a film that a buyer agreed this year to buy for $300,000 USD may end up costing them $375,000 USD down the line.


When producers can no longer secure financing through foreign sales, they’re forced to look elsewhere, and that means tax credits.  According to the Economist, “all but seven American states and territories and 24 other countries now offer, or are preparing to offer, rebates, grants or tax credits that cut 20%, 30% or even 40% of the cost of shooting a movie.” California isn’t one of them, which is why, according to figures released by the state film commission, California’s share of studio films is about 30%. By her own estimation, California Film Commission director Amy Lemisch terms the state’s incentives “modest,” and points out they’re due to expire in 2014.

One should assume that “modest” probably means that cash-strapped California’s tax credits will come in the form of IOUs, since politicians hate to be seen “cutting checks to Hollywood”.

On a local level, a new non-profit with an idealistic and slightly patriotic-sounding name, the “Bring Hollywood Home Foundation“, was announced earlier this month. They’ll advocate for additional government incentives and educate voters about the benefits of retaining L.A.-based production. Does this mean no more “hush money” whenever a location manager hangs a “notice of filming” on your front door?  Former campaign consultant Sharon Jimenez is the executive director.  Jack Kyser from L.A.’s Economic Development Corp. and City Council President Eric Garcetti are also onboard.

Kyser estimates that a $32 million movie creates about 140 jobs and generates $4.1m in sales taxes and income taxes. The Bring Hollywood Home press kit states that “If California had kept 30% of the production jobs lost in the last 14 years, we would have no budget deficit.”

But the fact is, California does have a massive deficit, so who knows what kind of significant and lasting incentives Bring Hollywood Home and other advocates can wrest from Sacramento or other States. In the meantime, Europe, the biggest buyer of U.S. films, is hunkering down for more serious retrenching. The impact on film finance is serious. And in the short term, if you want to get your movie made, be prepared to pack your bags.

If your packing your bags now… my recommendation inside the U.S. is  Michigan (you’ll have to bring in your own crew). Outside, I recommend Canada (time to dust off your Canadian passport), Puerto Rico (if your ATL is low), Isle of Mann (weather permitting), Germany (while it lasts), China (if  you can handle all the red tape).


    • You’re welcome. I think people who work with international sales estimates on a daily basis are probably more sensitive to these types of global economic repercussions. I’m sure it will be the talk of Cannes.

  1. Another option is European co-production which can take a lot of patience. I’ve got one at the dialog stage right now with a German outfit for a little film to be shot mostly in Mexico. With una poca suerte und ein bischen Gluck, it might work. I’ll let you know.

  2. As you know Jeff, a smart independent U.S. production company can easily hedge out currency exposure for their European sales agents at the time the contract is executed. Peace of mind for all – great article!

  3. Great news to start the week, Jeff!
    “You know, they call it Stormy Monday (but Tuesday’s just as bad).”

    This kind of analysis and experience is why I recommend FilmClosings to a lot of people (and your genial mug). I hope you’re seeing traffic build.

  4. Other than the ever strengthening C$, it would seem that Canadian producers are well positioned to take advantage of what, for them, is not necessarily a new financing world: a healthy, certain and predictable tax credit system, smart domestic cashflow lenders (and even some risk tolerance for gap) and experience partnering with European producers and navigating the shoals of treaty co-productions and co-ventures. Challenges aplenty … bring it on!

    • If you have a Canadian or EU passport, then that is indeed your best bet. If you’re an American, then you have to be more creative. Co-pros are definitely back in vogue.

  5. Very astute observations but I must point out that some of the issues you mention are par for the course in the international pre-sale arena. When Germany is down one year, Russia is up. When Brazil can no longer be counted on there is South Korea, until it cannot be counted on.

    When debt becomes to expensive there is equity, or a hedge fund.

    When the Euro is up, sales are easier. When it is down, pricing adjusts downward.

    And when you talk about tax incentives, some would argue that this only promotes the production of more films that might not otherwise be made. In other words, films with limited market potential can come to market simply because there is a tax incentive.

    While I agree with your analysis I think that the real focus needs to be drawn to the harsh reality of the problems evident in the current distribution model. The internet is a game changer as content creators now do not have to rely on traditional distribution models for their films to gain an audience.

  6. Thanks for the post. Great site. Just curious why you suggest bringing your own crew to Michigan… is that because there’s just not enough local crews to go around?

  7. Those producers from countries who are party to co-production treaties or the European Convention have been working with tax credits, subsidies and “cultural” investment for years. Technically, a co-venture between a US producer and a European partner, who then co-produces with another European country via a treaty, is possible, albeit with a lot of head-scratching. The problem is, many of these jurisdictions have cultural as well as commercial remits, and they can be very protectionist indeed – at one point the DCMS in the UK would not allow American producers to be credited as producers, even if they originated the project and put the co-prodcution structure in place. On the other hand, The Machinist (made by an American film-maker as an American story, sort of) was 100% funded by a Spanish company, which was eligible for local subsidies – so who knows?

  8. Great article.
    Loss in sale due to currency fluctuation could be hedged by forex contracts.

    Additonal options:
    1. sales in eastern markets in India and China
    2. cost cutting by outsourcing some work (I see so many Indian media companies in advertising).
    3. additional sales in Digital Media (using Red Box, Net Flix channels)
    4. if you can beat eastern piracy market. Deliver same original movie at $1.

    What I know is that in late 90’s bollywood movies switched the gears and started making movies tailored to Indian living abroad. It allowed local viewers foreign trip in $1. At same time allowed foreign viewers to connect back to their homeland. Allowed producers to multi $ market. Which they allowed to gain access to modern hollywood technology.

    • Forex is always an option for hedging currency risk (it’s not just for physical production.) Unfortunately, it won’t offset foreign buyers overall decreased buying power, which is already taking effect.

  9. California does have a Film and TV tax credit that provides 20-25% tax credit on mainly BTL spend here in California. It’s a tax credit, so no checks will be written – tax credit certficates will be issued. Another $100,000,000 allocation will be available June 1 of this year. Here is the CA Film commission website. It is working and the modest credit when you don’t have to pay travel expenses many times beats other travel locations. Also there was a very important changes – recently, independant films where a company can sell the credit was $1-$10 million budget, now its $10,000,000 of CA spend so budgets can be significantly higher and still be considered an independent film and thus qualify for credits that are assignable, bankable and sellable. We are working on the Audits for Indpendent Feature films, Studio Web Digi Movies, features and several TV Series. It’s working. People are staying here for the credits when they prpobably would have traveled.

  10. I made a deal to get my financing from Micheal Jackson after I get back from my extended vacation where I stayed free of media. He’s WHAT??

  11. Western Europe’s screenwriters are trying to appeal to their Eastern neighbors with storylines out of their traditions, because the typical American storylines don’t resonate with these countries.

    It would be nice to see the Hollywood system finished up for good.

  12. By far, a very in-depth article there Jeff. What a take on the ‘butterfly effect.’

    As my company name implies, I’m gearing towards credits and incentives in Louisiana. I’m biased as I grew up there. However, they have about the same crew problem as Michigan — limited depth. Several of my projects in New Orleans suffered from lack of quality crew talent. Hopefully, the quality will increase over time.

    Oh look, The Economist has an article about shooting in Louisiana.

    The line from The Economist which chills me the most, “California’s world share of studio films (ie, those made by the six biggest studios) dropped from 66% in 2003 to 34% in 2008, she estimates, and has fallen further since then.”

    Cold hard facts.


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