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How to Finance Your Independent Film
Wed, 07/01/1998 - 01:00
Over the years, film financing has become one the most complex and risky investments. Yet, here are viable avenues for independent filmmakers to secure financing.By Robert C. DiGregorio, Jr.
Since the first audience watched a motion picture flicker on a screen in 1895, the art of filmmaking has exploded into a megaplex of ideas and images that have entertained audiences for the past 103 years.
Over the years, film financing has become one the most complex and risky investments. Though it is easier for the DeMilles, Hitchcocks, and Spielbergs of the world to land financing deals, there are viable avenues for independent filmmakers to secure financing.
The Game Plan
The most obvious choice for film funding is industry financing. For example, there are studio development production deals, independent distributor financing, talent agency financing, end-user financing, and completion funds.
Studio Development Production Deals
When a studio gets involved in your project, you can expect a tough road ahead of you. The first phase will be a "Development Deal Memo," which is a short form written contract between you and the studio. The Development Deal Memo will simply outline the agreement, salary, time schedules, screen credit, and percentage points. Most studios will give points of the net profit to unknown talent. By doing so, this gives you a false sense of security while ensuring the studio to make as much money as possible. Typically, net profit deals do not pay-off. Studios tend to juggle financing for different projects and use creative financing so most films do not "make money" (at least, on paper). For example, a studio will put the advertising budget of your film and that of another film in your budget creating an inflated advertising cost for your film. This means that the studio not only recoups their 30 percent distribution fee, but also recoups the extra money spent on the advertising that was not associated with your film. Therefore, the film's break-even point will be in flux enabling the studio to continue to generate money from your film. At the same time, their bookkeeping reveals a deficit to eliminate virtually any chance of the studio having to pay net profit participants their due.
The studio will make Development Deal Memo's contingent on a "Step Deal." A Step Deal is when the people working on the development of your project are paid incrementally as the project develops. In addition, the development work is reviewed and evaluated at each stage. This may sound great on the surface, but the real deal is that the studio has the right to stop development of your project at any given point.
However, a Step Deal offers you a few key advantages. You will be able to use the studio's money, as well as the studio's development companies. Because you are using these resources along with their professional script developer, you can ultimately make a bigger picture.
On the other hand, Step Deals offer many disadvantages. First, having Paramount actually pick up an unknown filmmaker's project is very slim. Second, there is the "Hollywood System," which is a relationship driven business. Third, there is theft! It is not uncommon for the studio steal your concept and have their development team work your idea in a new way. Therefore, you have to be careful with whom you share your ideas and to remember that scripts and treatments are copyrightable, but ideas are not copyrightable. Fourth, there is also the potential to lose your material to the studio if your project is delayed by the studio. Fifth, with Step Deals you can be fired at any stage, namely if you are not meeting the studio's schedule or if your work is not up to their standards. Once you are fired, you lose the rights to your project unless you negotiated properly before-hand. You must also protect yourself and your ideas against slipping into "Studio Limbo" (i.e. having the studio purchase a perpetual option on your project). Finally, you may run into a situation of not having your film adequately developed. Most studios tend to overbook the number of release pictures in a given year. If a studio picks up your film to meet their quota, then you can expect very quick development, production, and post-production time.
If you are seriously considering studio financing it is highly recommended that you hire an experienced entertainment lawyer. A seasoned studio executive will have more leverage than you and having a good lawyer on your side will only improve your situation.
Independent Distributor Financing
The advantages of Independent Distributors are few. First, they can distribute smaller films. Second, you can negotiate a better deal, because you and the distributor are on the same level. Third, they will offer more personal attention to you, as well as, support the film. Finally, you have a better chance of receiving net profits.
The disadvantages of Independent Distributors are that they have limited financial resources to put into your picture. This will impact the number of theaters in which your film will be screened. Also, you will have less collection clout with theater owners and overall smaller revenues. Lastly, Independent Distributors have a higher bankruptcy rate.
Talent Agency Financing
Talent agencies will not fund the project outright. Some agencies will help arrange financing through their resources such as, below-the-line facilities deals, international co-production deals, foreign government subsidies and presale arrangements. Through talent agency financing, you have more financial choices, whereas with a studio, all financing is done through that one entity.
One stop shopping is one advantage to using talent agency financing. Through the agency you may acquire actors, directors, and possibly a distributor. From the agency's point of view, this is not only good public relations, but it increases their chances of getting paid when the film is complete.
The disadvantage of talent agency financing is fierce due to conflict of interest! First, the agency is attaching two or more clients to the same project. Second, the agency is arranging financing. Therefore, it seems like the agency is making the film for itself, rather than you, the filmmaker.
The advantage of end-user financing is that you are in the best position to make money. Because the end-user is generating revenue in their own territory, they have the most control over this portion of the revenue stream. If you decide to go this route, you should ask yourself the following questions: a) who are the end-users; b) how much will they pay for specific rights; and c) what form will the investment take?
The biggest disadvantage is piecemeal financing. You will have to obtain commitments from a number of end-users to cover production costs. Also, established producers will have a better chance of obtaining both foreign and domestic financing.
Completion financiers successfully negotiate a higher per dollar percentage in the film. The reasoning is that, without the completion financing, the development and production financing has little chance of being recouped.
With this type of financing, your only advantage is that the completion financier is sharing in the risk as opposed to lending you the money.
Your disadvantages are two-fold. First, you have a weak bargaining position. Because completion grantors are providing the completion financing, they are in a better bargaining position. Secondly, completion fund financiers will not invest large amounts of money in your film because funds are limited.
For your information, Florida recently adopted a P&A (prints and advertising) Fund. Essentially, it is an incentive for filmmakers, such as yourself, to produce films in Florida. The Florida Film and Television Investment Trust Fund was established through private investments and state funds. This fund has the authority to invest three million dollars to be used on completing films that spent 40 percent or more of its production budget in Florida.
The next part of this article (in August 1998 issue) will discuss lender financing and include interviews with different local filmmakers about how they obtained financing for their projects.
Books on Film Financing
Cones, John W. "43 Ways To Finance Your Feature Film A Comprehensive Analysis Of Film Finance." Southern University Press, 1995.
Cones, John W. "The Feature Film Distribution Deal A Critical Analysis of The Single Most Important Industry Agreement." Southern University Press, 1997.
Litwak, Mark.. "Dealmaking In The Film and Television Industry From Negotiations To Final Contracts." Silman-James Press. 1994.
Also see part 2 of this article.
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