American Film Market 2016 – Global Film Finance – Now and the Future

November 10, 2016

The interesting irony about the film business is that as much as things change (technology, distribution platforms, executives,) as much as things stay the same—primarily film finance structures.

Tried and true strategies were reinforced this week at the AFM Conference, which hosted 6 days of high-level panels sponsored by Entertainment Partners and Greenberg Traurig law firm. Two of those panels focused on film finance—from the bird’s eye view of the global marketplace, and how equity plays in the funding schematic. The predominant theme throughout was:

Getting your movie funded in the independent market, no matter the budget, requires you to find that key intersection of a quality script and cast that can deliver, and a budget that is commensurate with the genre and cast.

There is no secret sauce. The structure that has been used over the last 25+ years, still works:

  • Foreign Sales covering 50%-60% of the budget
  • Tax Credit/Rebate
  • Equity
  • Gap loan if necessary

The reason this works time and time again is that the investor needs to see the possibility of return. Therefore it’s important to get foreign sales estimates which provide strong market validation from the companies on the front line with the buyers in each territory.

Yolanda Cochran, a producer and production consultant, formerly at Alcon Entertainment, noted that once you have those foreign sales estimates in place, you can formulate a budget at a “price point where you can demonstrate a reasonable rate of return,” which is what you and your investor are looking for.

What has changed, is that many foreign sales agents now wear several hats such as sales agent, producer and co-financier. When they get involved at the early stage—with a script and possibly a director attached—they can give you a clear indication of how you can get 50, or even 60-70-% of your financing out of the international market, by devising a strategy that includes cast, budget and soft money benchmarks.

Myles Nestel, Co-Founder/Partner with The Solution Entertainment Group, reinforced this idea when he said,  “…in order to build a fiscally sound model for financing, you must start with market validation from a foreign sales partner.”

That being said, the pre-sales market has gotten more challenging to satisfy, requiring producers to deliver higher level cast in order to get a decent pre-sale. Many buyers are looking for “theatrical releases” and believe that well known talent will be the ticket to drive box office revenue. Therefore it is important to work closely with your sales agent early on, before you commit to an actor, to determine which talent works best for which market and for which genre. This way you make sure you are attaching the right talent for the right film.

Second to foreign sales, the tax credit or rebate is the next most important piece. This soft money as they call it, can cover 14-25% of the budget, which can have a meaningful impact on your financing. One of the first questions you must ask is where should the movie be shot? Location impacts the creative, and has financing advantages.

Don Starr, Chairman and CEO of Grosvenor Park Media, noted that it doesn’t mean that a movie focused on Los Angeles traffic nightmares should be shot in the desert of New Mexico, just for the tax credit. You must pic a territory that has both a good incentive and is good for the picture.  Starr quipped, “Nobody’s paid $10 to see a good deal.”

The only time you would bypass shooting in a tax subsidy state is if the talent requests to shoot in their home town and they are willing to reduce their fee in order to do so. When this happens, the talent is effectively subsidizing your budget and giving you the same benefit as a tax credit.

The second element to consider is how are you going to monetize the credit? A straight tax rebate from a territory will give you the full amount of the credit, but you must wait until that year’s company tax returns are complete. This could take 6-18 months in order to realize the money. Whereas if you work with a transferable tax credit, you must find a purchaser of the credit before you can attach value, (which might be sold at a discount—say 85 cents on the dollar,) however you will get your money quicker, albeit at a lesser amount.

The key to understanding the various deals, contracts and strategies available to you is working with a good entertainment lawyer who can help you navigate these complicated waters. Choose a lawyer that understands independent film finance and sales and he/she can work with you to determine the right path.

And do your homework. Understand the target market for your film. Research the best platform for that target market. Theatrical is not always the best path for every film to reach its maximum audience. Speak with several foreign sales agents to find the right agent for your individual project, as all sales agents are not the same. Work with your chosen sales agent and team to attach the talent that makes sense for your project, budget and the target market. It is not a one size fits all business, and when you hit upon that perfect combination, you can create magic.

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