9

 

Financing

Raising money for a movie is like hitchhiking—It could be the first ride, it could the thousandth. But you have to stay out there with your thumb out and just wait. And you also have to know when not to get into the car.

JOHN SAYLES

Director

Shuffle a pack of playing cards. Now spread them out face down and pick one card. If it is the ace of spades, you win; if it is not, you lose. Your chances of getting the right card are one out of 52. These odds are better than the odds of finding independent money for your film. Do not be discouraged, though. Many filmmakers face these odds each year—and win.

Film is probably the worst investment anyone could ever make. It is considered risky and capricious. If risks were measured on a scale of 1 to 10, movies would rate a 15. One might as well go to Las Vegas and throw the dice—in fact, those odds are probably better. Why would anyone invest in films, then? From a purely financial standpoint, it is a gamble for which there is a big payoff. In addition, there are many subjective reasons for investing in films, such as personal ideals, creative participation, and being part of the glitter and glamour. The specific people and firms that are likely to fund films change, but the modus operandi remains the same. Some of the different sources of financing will be relevant for your situation; others will not. Some are dynamic; some are static. As studio executives and production companies go through cycles, so do forms of financing.

By this point, you are well on your way to a finished proposal. You have explained the basic information—your company, your film(s), the industry, the market, and the distribution process. You have your goals and objectives well in hand. Now here is the kicker. Popular agent lore (spread by agents) is that if a script is not interesting after the first 10 pages, it gets thrown onto the “forget it” pile. Something similar can be said of investors and business plans. Investors typically read the Executive Summary first and the Financing section second. If they are still interested, they read all the delicious text between the two. This does not mean that all the in-between material is irrelevant, just that the primary emphasis is on the ins and outs of financing and how the numbers look.

When thinking about investors, most people picture a singularly rich person who swoops in and says, “Here’s an extra $10 million I found in my drawer. Go make a film—no strings attached.” Or they imagine a country suddenly passing a law guaranteeing you 100 percent of your film costs just for showing up. This is the stuff of which movie plots are made. Not impossible scenarios, but improbable ones. You may get lucky early on, but it is more likely that there will be false starts, dashed hopes, and months or years of frustration.

As the saying goes, “If it were easy, everyone would be doing it.” The truth is that finding financing is hard work. If you think otherwise, forget it. There are almost as many ways to finance a movie as there are people reading this book. We will look at specific methods, but note that the full financing of your movie may be a combination of several methods.

With a business plan for a new filmmaker or company, there is an additional struggle. Whether you are asking a money source to invest in one film or several, creating a feeling of confidence is not easy. Any anxiety on the part of the investor about funding one of your films is magnified when committing to finance an entire company. Besides making successful films, you have to be able to run that company. The investor will be looking with great care, therefore, at the production team.

In your Financing section, you will discuss how your films will find financing, but you should do this without restating this entire chapter. Only certain financial strategies will be appropriate for your particular projects or for the type of investor you are going after. Too much irrelevant information will only confuse your reader.

This chapter examines some of the specific sources of money: single investors (rich people), presales, co-production and below-the-line deals, negative pickups, limited partnerships, and limited liability companies. In addition, it takes a brief look at bank loans. This chapter is meant to give you general knowledge of how film financing works; the intention is to make a complex subject easy to understand and to give you material for your business plan. It is not meant to be the complete and final word on the subject. For your own knowledge, do additional research on the specific financing techniques that you plan to use.

Before You Start

Before writing the Financing section of your business plan, there are several guidelines to think about and to follow. These concern the following:

• Seeking reality
• Finding the best fit
• Being careful what you promise
• Being careful what they promise
• Being able to explain it

Seeking Reality

The way that one person financed a film yesterday may not be relevant to you today. This statement may appear to contradict what was said earlier about learning from other filmmakers, but it does not. We said it was sometimes the same formula, not necessarily the same people. For example, suppose a filmmaker moves to Cincinnati, goes to play miniature golf, and meets a corporate executive. That very day, the corporation had decided to finance a film, so a deal is struck. That corporation may never fund another film. In fact, no one in Cincinnati may ever fund another film. Do not assume that you will find money in the same place. Learn from the other filmmaker’s method, however; it may prove useful for you.

Finding the Best Fit

Filmmakers often believe that all money is equal; it isn’t. Each source sets different requirements or conditions for the delivery of funds. You will be able to live with some of these, but not with others. For example, there may be too many fingers in the pie. Three intermediaries later, you will be paying out large sums to finders. Or, prospective investors may have requirements that make getting the money not worthwhile. There may be content, length of time, or rate of return demands you cannot meet.

Worse, at the eleventh hour, Ms. Investor may inform you that her husband has to play the lead in the film. Don’t be discouraged. The right source for you is out there somewhere; seek until you find it.

Being Careful What You Promise

Making statements of absolute fact about financial conditions may be dangerous. An investor will hold you to whatever you promise. You might say, for example, “We will seek presales in order to recover at least some of the production financing up front.” That is not a promise, only a statement of intent. On the other hand, saying to people “We will obtain presale commitments” is a promise. Unless you have commitments already in hand, you may be making a promise that you cannot keep. And be careful of implied promises. If you want to tell potential investors the reported Sundance purchase price of Hustle & Flow ($9 million) or Napoleon Dynamite ($3 million), be sure to say that these are festival prices, which tend to be higher than what distributors might pay at an individual screening in Los Angeles or New York. Also, be sure to point out that we don’t always know what the actual deal is in reference to the figures quoted. I have seen investors refuse to approve a distribution deal because they assumed that “normal” purchase prices were twice the negative cost of the film.

The typical verbiage that I use is:

Deals at festivals vary greatly. The prices announced in the press may depend on specific boxoffice results, be advances against future revenue streams, or be total buyout prices with no further remuneration to the filmmakers and their investors. For most of the publicized dollar amounts, the negotiated agreement is not made public.

Being Careful What They Promise

Always take the stance that you have to see it to believe it. People do not have to be con artists to lead you astray; many just like to hear themselves talk. Even investment bankers are seen bragging at cocktail parties about financing films they didn’t. If a money source (finder or actual) is saying, “The check is in the mail,” your mantra should be, “Do not spend any money until the cash is in the production account.” This warning applies to family friends as well as bank executives. Check the paperwork. If you are not knowledgeable about financial terms and clauses, find someone who is. Look carefully in the fine print for how much cash this source is keeping. Do they have the resources to meet your needs, or are they making a promise on behalf of some other entity that has never heard of you and probably never will?

Being Able to Explain It

If you cannot explain a financing scheme, do not include it. To my constant amazement, I often receive business plans to critique that are based on a complicated financing structure, usually in a foreign country, that the producer does not understand or cannot find someone who has successfully used. Not just inexperienced filmmakers but longtime professionals will base entire companies on such schemes. Frankly, not only are many of these too complex for me, but a majority either don’t work or were fictional to begin with. Be especially wary if an intermediary wants a substantial amount of money in advance. A finder gets paid when you have the money in the bank, not before. Remember to request to see all the documents first. If you have to find an investor to make a deal work, you can bet your bottom dollar that your investor will ask for details about the financing, with examples of films financed. They’ll also want a meeting with a principal (person that actually controls the other funding), so be prepared.

Rich People: Them That Has the Gold

Investors are gamblers no matter what their reasons, and film is one of the biggest gambles you can find. Others have personal reasons for investing in film. Private investors are equity players. They take a portion of the profits in exchange for their capital. Until you take in partners, you own the whole pie. As partners come in, you start to slice the pie into little pieces, and as the old saying goes, “Them that has the gold makes the rules.” The nature of an entrepreneur is to be filled with passion to accomplish a certain end. The hardest job for you may be your own emotional involvement when attempting to see things dispassionately from the investor’s point of view.

Who Are They?

The first string of the investment team comprises friends and relatives. Raising development money and the negative cost of films under $1 million is very difficult. Professional investors do not see enough of a return on such small investments. Mom and Uncle Harry are more likely to be willing to give you a chance. Ed Burns raised the initial $20,000 for The Brothers McMullen with credit cards from family and friends. Kevin Smith funded the $26,575 budget for Clerks with credit card advances, the sale of his comic book collection, and a loan from his parents.

Entrepreneurs

Private money comes most often from people in businesses other than entertainment. Entrepreneurial types who have made a killing in almost any industry may feel the lure of film. It takes a high roller at heart to start a firm and prosper with it. You can try the annual Forbes 400 for a listing of billionaires; however, you may have to travel to Hong Kong or Taiwan to speak with them. You don’t have to go that far for what you need.

Investors have all sorts of reasons for taking this risk. Some are after big bucks, some are personal fans, and some want to give back to the community. Despite their reasons, investors are seldom seeking to lose money. I have seen scores of creative people forget their dreams rather than face the reality that, whatever the content, these are business deals as well.

There have always been wealthy people attracted by Hollywood. Many of them invested with studios in the early years. One of the first investors in DreamWorks was Paul Allen, co-founder of Microsoft. Over the past eight to 10 years, however, a growing number of communications, real estate, Internet, sports, finance, and other billionaires have made pacts with experienced producers to start independent production and distribution companies. Phillip Anschutz, Chairman of Qwest Communications International, has started several production companies now combined into Walden Media. He also bought United Artists, Regal Cinemas, and Edwards Cinemas, which currently controls over 6,000 theater screens. Jeff Skoll, a co-founder of eBay, founded Participant Productions, which has invested in both studio and independent films. Mark Cuban and Todd Wagner, the founders of www.Broadcast.com, formed 2929 Productions and Magnolia Distribution, and bought the Landmark Theaters. The partners in Google have co-financed a film; they are also early investors in various areas of high-definition entertainment. Bob Yari, a real estate developer, formed several independent production companies that were combined into The Yari Group in 2005. Gary Gilbert, co-owner of the NBA’s Cleveland Cavaliers, along with Usher and the Chairman and Vice-Chairman of Quicken Loans, has financed several movies, among them Garden State. Sidney Kimmel, a founder of Jones Apparel Group, has formed Sidney Kimmel Entertainment, which has produced several films and has more in development.

These are only a few of the people who have come into the business because they have a commitment to films with a message, because they want to develop new technology frontiers, or because it is fun and they can. However, they are all individuals spending their own money. Presumably there are more out there waiting for the right opportunity. How do you find them? I wish I could tell you. One thing I do know is that these are people who recognize that film operates on a different risk level than the businesses that made them rich. Over the years, several finders working with real estate investor groups have approached me about film, thinking that they could sell the idea to their syndicates. They couldn’t. As a group, real estate investors are putting their funds into projects with less risk than film. However, individuals from those syndicates have expressed interest in investing in LLCs and limited partnerships on their own.

Art

Some investors want to be associated with “art.” To this day, people will tell me that they want to finance a film like the Merchant-Ivory classic A Room with a View. Unfortunately, they want to make it at 1986 prices ($850,000) and reap the box office of My Big Fat Greek Wedding. Using standard inflation rates, the same film would have cost $1.5 million to make in 2005. In such a case, the investor’s goals are unrealistic. You should make an attempt to create realistic expectations for him. If you are lucky, his desire to be associated with quality will outweigh the high return he wants for his investment. On the other hand, if he cannot afford more money and does not want to join with additional investors, move on. Put your energy into finding partners whose outlook and resources are a match for your project.

Special Interests

The line between business and altruism can be a thin one. Few people will become involved in a feature film without considering its commercial possibilities, but investors often have other reasons for funding. If you can find an investor whose sensibilities agree with the theme or purpose of your film, you may be able to create a workable collaboration.

Paul Sirmons’ The First of May was funded by John Goodman of The Goodman Group. Goodman felt the film was inspirational, and it was his way of giving back to the community. He observed,

When you’re a child or an elderly person, without family, without a home, life can feel very sad and hopeless. But it doesn’t have to be that way if you have a friend who cares. That’s why I supported The First of May. It truly captures the spirit of joy that happens when two seemingly hopeless people, a lonely woman and a homeless little boy, rediscover, through each other, the hope life can hold.

And don’t forget nonprofit organizations. Many foundations and similar organizations have funded all or part of fiction feature films that fit with their particular mandate. The increase in the number of inspirational films with themes of good versus evil and redemption have brought more charity-based religious and nondenominational organizations into the market. Having been involved with writing several business plans for filmmakers who were seeking money from such organizations, I caution you to be careful. Refer to the Goldwyn quote in Chapter 5. In order to get a substantial number of people to see your film, your first goal should be to entertain.

Foreign Investors

We hear a lot about European and Japanese investment in the American film community. In the early- to mid-1990s, most of the foreign money went to studios or the formation of large production companies with experienced studio executives; $100 million was a favorite start-up amount. From the late 1990s to 2002, German investment funds grew like crazy. Investors looking for prestige, profits, and extraordinary tax breaks began funding as much big budget output as they could. Some funds existed to fund studio films; others financed independent companies, such as the UK firm Intermedia (Iris, K-19: The Widowmaker, The Quiet American). As some high-budget films failed and the economy started to collapse worldwide, many of these funds closed. However, new ones came along to take their place. Any detail presented here would be out of date before you bought the book.

Generally, this money doesn’t go to novice filmmakers. In tracking foreign money, you often run into finders who claim to have a special relationship with foreign money. Some do; many do not. Remember to check these people out. A finder should be paid a percentage of the money you receive from the investor, and only after the cash is in your bank account, as in any interaction with an intermediary. And, at the beginning of this journey, ask how many people there are between the finder and the money. If that person is going through two other people to obtain the money, have them agree to split one fee. For example, if your finder’s fee is 5 percent, then all three split that money; otherwise, you are paying 15 percent in finders’ fees. Naturally, this is always your choice. But don’t get backed into a corner to pay out three times what you intended simply because you didn’t get the facts straight upfront. And I can’t stress enough, do not give them any money in advance.

Where Are They?

Your own backyard is the first place to look for financing. Few filmmakers are born in Los Angeles; they migrate there. Nor are all the investors born in Los Angeles. They are born and live in Ohio, Michigan, Iowa, Texas, Maui, Florida, and so on. At least, those are areas where many of my clients have found investors. (Don’t call me for a list; it’s proprietary—nonpublic, company-owned— information.) You may find untapped markets of entrepreneurs with lots of money from very unglamorous businesses, to whom the lure of the film world may be irresistible. Your best chance is in an area where there is not a lot of competition from other filmmakers—if there still is such a place. The entire financing deal can be conducted without anyone living in Tinsel Town.

Giving a party is another strategy that I have seen some producers use to find interested investors. Since I am not an attorney, check the details with yours before proceeding. I have paraphrased some of the rules set out by Morrie Warshawski in his book The Fundraising Houseparty (available at www.warshawski.com).Although Morrie is focusing on raising money for nonprofit events, the same principles can be used for film fundraising:

• Potential investors receive an invitation to come to a private home.
• The invitation makes it clear that this is a meeting to launch a film.
• Participants arrive and are served some sort of refreshments.
• The host or hostess explains why they personally feel it is a worthwhile project.
• Participants sit through a brief presentation—appearances by actors in the films, script reading, etc.
• A peer (we might say shill) in the audience—someone articulate, respected, and enthusiastic—stands up and explains why she wants to be part of the project.
• Once you have established an individual’s interest, you can contact her later about investing.

What You Get

Equity investors will want at least a 50 percent cut of the producer’s share in the film; some may even want a higher percentage. No matter how many years you spent writing the scripts or how many hours you spent talking deals, it is their money. The 50/50 split is usually one of those “gold” rules. Before you start complaining, be glad your investors don’t want 80 percent. Venture capital companies and professional film investors often require that much equity to put in seed money.

Before any profit splits occur, investors must be paid back for their investments. Some investors will allow a 90/10 split (in their favor) until the production money has been repaid. They want to keep you alive in case there is reason for a second film. However, I have seen not just strangers but relatives as well insist on a 120 percent payback with interest before the filmmaker receives a penny. In other cases, filmmakers and their attorneys have decided to give the investors a percentage above the actual production cost before the filmmaker receives a share of the profits as a lure for the investment.

Filmmakers have a habit of promising “points” and film credits to people for their work in finding investors or getting the project made. Directors and stars who are too expensive for the film’s budget often are given points as a deferment of part of their salary. These points all come out of the filmmaker’s share. Investors are not responsible for any of these agreements unless they agreed to them ahead of time. Besides points, filmmakers like to give away credits. Be careful what you promise. Only a handful of investors wish to remain anonymous; the majority want to see their name on the screen, and their credit is Executive Producer. Even if you feel you must list your agent, your attorney, and some talent as producers, reserve the Executive title for the money.

Reasonable Risk

Entrepreneurs often want money from investors with no strings attached as a reward for their creative genius. They do not want to be responsible for how the money is spent or for whether investors realize a gain. No doubt, you are a genius. But do not expect to get financing without showing the investor what kind of risk she is taking.

Early in this business, I tried to get financing for an entrepreneur who had a new idea for making films that would have a nontheatrical distribution in malls. One investor thought the idea was “sexy” and that the films could be taken national but that the business plan was so-so. The investor proposed to invest $5 million and then raise additional money from other investors; however, he wanted a revised business plan. My client would have none of this. “After all,” he said, “investors are supposed to take a risk. If these people are not willing to take one, who needs them? I’m not going to waste all this time. Big guys in New York are interested.” You can probably guess what happened. The client never heard from the “big guys,” never got the first film made, and went back to his old job, never to be heard from again.

The moral here is not that people in New York are unreliable. Serious investors, whether they are in New York or Des Moines, will seldom make a final decision based on flash and dash. They want to see substance and detail. Even if someone likes your project, chances are you will hear, “Come back when you have a business plan.”

The Big Payoff

The low-budget, big-return films are the hooks that lure many investors into the film business. Films like Napoleon Dynamite and Open Water will bring the high rollers into the financing arena. Very few other ventures, outside of Las Vegas, offer the potential of a 500 to 1,000 percent return on investment. As a filmmaker, you must be ready to show prospective investors that the chance of making a killing outweighs the risk of losing their money.

Remember, though, that you can never promise a risk-free investment. And you do not want to tell them, “Ten million dollars is typical of advances and/or buyouts for $1 million films.”

When all is said and done, it is the projected bottom line that builds the investor’s confidence. You need to find similar films and track their dollar returns. Whether you are looking at a single film or a company, you must project your revenues and expenses, boxoffice grosses and rentals, and cash flows over the next three to five years. (You will learn how to do that in the next chapter and through doing the exercises provided on the accompanying CD.)

Presales

There are two main activities at markets like AFM and Cannes: seeking presales for as-yet-unmade films in order to finance production and selling finished films. We are concerned here with the former. The seller (you or your U.S. distributor) has a booth or room and entices the buyers from each territory and medium (theatrical, DVD, video, satellite, broadcast, and so on) to buy the ancillary rights (domestic or foreign) to your film in advance. (This is also called a “prebuy.”) In return, you receive a commitment and guarantee from the prebuyers. The guarantee includes a promise from that company to pay a specific amount upon delivery of the completed film. If deemed credible by one of several specialized entertainment banks that accept such “paper,” the contract can be banked. Then the bank will advance you a sum, minus their discount amount.

In exchange for the presale contract, the U.S. or foreign buyer obtains the right to keep the revenue (rentals) from that territory and might also seek equity participation. The agreement can be for a certain length of time, a revenue cap, or both. The time period can be anywhere from five to 15 years, with seven being customary.

Many filmmakers are under the impression that “in perpetuity” (forever) enters into this negotiation. These terms are not unheard of, but they are more likely to surface if you are transferring the copyright, or ownership, of the film. There is nothing to keep people with money in their hands from demanding as much as they can get. The buyer tries to make the length of time as long as possible, and the seller tries to make it as short as possible. Be careful of the stance you take. Some foreign companies have told me that if the filmmaker balks at seven years, they will change the term to 10.

The “revenue cap” is a certain amount of money in sales, up to which the buyer gets to keep all the money. When negotiating these terms, buyers try to estimate the highest amount that the movie will make and then try to make that amount the cap. After the revenue cap is reached, the seller may start receiving a percent of the revenue or may renegotiate the deal.

Being the sole source of financing gives people much more power than if they are one of a group of funders. Yet any of these negotiations still depend on the “eye of the beholder.” Any leverage depends on the desire of the buyer for the film.

Advances

In the past, cable, home video, and television syndication companies were major sources of production financing. Through advances, they funded all or part of a film’s production in exchange for an equity participation and the rights to distribute the film in their particular medium. Although advances do not occur as frequently as they did in the early 1990s, particularly in video, they are still a potential form of production financing. As noted earlier, most domestic distributors prefer not to see fractionalized rights. Always weigh this fact against the benefits of having an ancillary company as your main investor. The advance for a finished film is another matter. It may be a total buyout, have a revenue cap, or combine any number of characteristics common to presales.

Advantages and Disadvantages

The primary advantage of presales is that they offer you the chance to make your film. This source of money continues to be a workable one for new filmmakers. In addition, if you manage to reach your production goal over several territories, it lessens the impact that someone else can have on your film. Presumably, the fewer territories in which you presell or from which you receive advances, the more money you will be able to keep on the backend after distribution.

There are two disadvantages to this source of funding. First, you sacrifice future profits in order to make the film. Selling your film in advance puts you at a negotiating disadvantage. Companies that use presale strategies often give away much of the upside cash flow and profit potential from hit movies. Second, not all paper is bankable. You have to do a lot of research before accepting this kind of contract. Things change quickly, particularly in difficult economic times.

Co-Production and Below-The-Line Deals

International co-production deals are the result of treaty agreements between countries. Qualifying films are permitted to benefit from various government incentives provided by the country in which production will take place. However, co-production agreements are not a charity event. A number of requirements may be imposed on the film by government treaty, including the following:

• The producer must be a resident of the host country.
• A certain percentage of above-the-line talent must come from the host country.
• A certain percentage of the technical crew must be residents of that country.
• Distribution must be done by a company located in the host country.
• A percentage of the revenues from the film must remain in that country.

Another type of co-production agreement can be made with a state or a production facility. Instead of providing hard cash (actual dollars with which to pay people), they provide studio time and equipment at large discounts or even free. Tied to these deals (and sometimes to the international arrangements), a company will provide below-the-line expenses (“soft currency”) such as film stock, hotels, food, and the like. Various U.S. states, cities, and privately owned studios have at some time offered co-production incentives. When studios were built in North and South Carolina, for example, their owners offered a break on studio and technical costs in order to attract business.

At various times, individual states have announced programs for supplying investment credits and/or print and ad money for independent films in their states. The status of such deals is very fluid. By the time word spreads, the opportunity may be gone. Or maybe they weren’t workable to begin with. Do careful research. Usually the state will have details of its program on its website. Currently, much attention is being paid to “runaway” films, such as those made in other countries due to good tax and rebate deals from the governments. With all of this, you have to decide if the bottom line really works for you.

Advantages and Disadvantages

The first advantage of co-production is that the total budget may be smaller because of the advantages of filming in a cheaper locale. Second, because of the readjusted budget, you will have to find a smaller amount of hard cash. The right deal will cover most, if not all, of your below-the-line costs. Many films would still be only a gleam in the producer’s eye if part of the actual cash burden had not been removed by a co-production deal. In terms of disadvantages, you will still need to have hard cash for the above-the-line payroll—that is, the cast, director, writer, and production office staff. No film is made without these people, and they will not take I.O.U.s, although some take deferred salaries. Another disadvantage is that finding enough skilled personnel in a host country could be a problem. If you end up having to fly key technical people from the United States to another country or from California to another state, you may end up with a budget burden that offsets the advantages of the co-production deal.

Negative Pickup

In the days when film companies had more cash, there were many negative pickups. The premise is that a studio or distributor promises to pay the cost of the film negative (production costs) upon delivery of the completed picture. This agreement is taken to the bank, which then provides cash for production at a discount to the total value of the agreement. A discount is a reduction in the stated value of the note.

The catch-22 here is that the bank has to believe that the studio or distributor will be able to pay off the loan upon delivery of the film (often a year from the date of the agreement). In the past, this was not as difficult to do as it is now. In the late 1980s, banks could count on the Majors, a few of the mini-Majors, and a very small number of distributors to make good on negative pickups. The entire situation has changed in the past several years. The financial problems of many of the large production companies are well-known. In addition, the troubles and, in some cases, complete collapse of many financial institutions have created an even more dismal picture. Nothing can be taken for granted. Although there are still companies that will give you negative pickups, this is not a financing strategy that I would count on. As with distribution deals, show the documents for your negative pickup to a bank to see if the deal is acceptable.

Advantages and Disadvantages

One advantage of negative pickups is that the film is made without giving away a share of the company to someone else. In addition, a negative pickup with a major studio or distributor removes the angst of searching for a distributor.

On the other hand, the standard negative pickup agreement contains two loopholes that favor the distributor. First, the agreement has a built-in escape clause that says, in effect, “You must deliver the film we were promised.” Any change in the script, even if it seems minor to you, can cause cancellation of the contract. Second, the contract also states that the finished film has to meet the distributor’s standards of quality. Even if the movie is, shotfor-shot, the same as the script, the distributor can always say that the film’s quality is not up to standards.

Limited Partnerships

Until the mid-1980s, limited partnerships were all the rage. Subscribers could deduct losses calculated at many times the amount of their original investment; taxwise, therefore, the losses sometimes were more beneficial than making profits. In 1986, the Tax Reform Act removed most of these benefits, however, and now the investors have to pray for successful films.

A limited partnership has two kinds of partners. The general partner has unlimited liability with respect to the obligations of the partnership and is active in management. The general partner chooses the investments and does not have to ask for the advice or agreement of the other partners. The limited partners, who provide all of the capital, share any profits or losses and are not actively involved in management. In addition, their liability is limited to the amount of their investment. Gains and losses flow through directly to the limited partners.

With a general withdrawal of investors from the market, limited partnerships in general and film partnerships in particular have had a more difficult time. The legions of medical groups to whom entrepreneurs formerly sold the documents became disaffected and moved on. The offerings are still a valid form of financing, but you may have to find your own investors rather than rely on brokers or other agents.

A public limited partnership must be registered with the SEC (Security Exchange Commission), and, in the case of a public or private limited partnership, there must be a properly prepared prospectus that includes all the facts about the partnership. The overall package should include a business plan (be still, my heart!) and offering with subscription documents.

DO NOT WRITE YOUR OWN LIMITED PARTNERSHIP. In order not to pay attorneys, film producers are fond of cutting and pasting someone else’s partnership agreement. I think I just emphasized that this is a bad idea. When it comes to fraud, working with unofficial documents is only one aspect. Any misrepresentation about the company’s plans also constitutes fraud. The SEC and the Internal Revenue Service are not known for their senses of humor, and ignorance is not an acceptable defense.

Advantages and Disadvantages

On the plus side, the limited partners have no right to interfere with the creative process. Private placements provide a means to raise funds from multiple investors without having to negotiate different deals with each one. The subscription documents contain all the deal information.

There are disadvantages as well. Because of the complicated nature of all SEC regulations and the differences between public and private offerings, participating in one of these formats requires research and expert advice from an attorney. The law is complex, and ignoring any filing regulation (each state has its own requirements) may bring an order for you to cease and desist in your sale of the offering. Another disadvantage is that the producer or the purchase representative must have a previous relationship with the investor before approaching her with a specific offering.

Limited Liability Companies

In the past few years, a new financial structure, the limited liability company, has become widely used. LLCs are a hybrid combination of the partnership and corporate structures. They are an attractive alternative to partnerships and corporations because the LLC provides limited personal liability to the investors, who are referred to as “members.” They have a share in the profits as outlined in the offering document. The LLC also provides a single level of tax. In the standard limited partnership, general partners (read “filmmakers” here) have personal liability for partnership debts, whereas limited partners in an LLC have no personal liability. Theoretically, the worst thing that happens is that they lose their investment. In addition, the limited partners cannot participate in management without jeopardizing their limited liability status.

In addition, an LLC member can participate in the entity’s management without risking loss of limited liability. For federal tax purposes, the LLC generally is classified as a partnership. The same is true in most states—the operative word here being “most.” I have clients who have formed an LLC in Michigan, for example, but not in Florida, where the LLC is taxed as a corporation. As there is no uniformity in the LLC statutes across states, creating an LLC with members in more than one state may be complicated.

The same rule that I stated for limited partnerships exists here: DO NOT WRITE YOUR OWN. Can I say that too often? From what I have seen, the answer is a resounding “No!” When you hire an attorney, however, be sure that he is someone with experience with this particular form of investment. You do not want to pay for their learning experience.

When pass-through of revenue is of primary concern, strict conformance to IRS and state revenue accounting criteria should be considered before the LLC is chosen over other organizational structures. With new tax credit schemes (both state and federal) appearing on a regular basis, you also may need to consult with a CPA familiar with IRS statements.

Los Angeles attorney Michael Norman Saleman prefers the limited partnership structure to limited liability companies (see below). As he explains,

The reasons that I prefer the limited partnership to the LLC have to do with the fact that the law does not adequately protect the LLC Member investors by limiting them to their investment as the total amount of their potential losses, as it does for the limited partner investors in a limited partnership. For example, California law creates personal liability for LLC members if the LLC “veil” of protection is pierced, in the same manner as a corporation. That cannot happen to a limited partner. Also, there is nothing in the law that separates the control of the business from the managers and the members as it does between the general partner and the limited partners in a limited partnership. In the limited partnerships, should the partners attempt to involve themselves in the day-to-day operations of the partnership (i.e., production of the film), they would, by law, run the risk of assuming unlimited liability. With this safeguard in place, the producer may make the picture without having to worry about investor interference or attempts to wrest the production from the producers.

Being Fair to Your Investors

When people invest in an LLC or a limited partnership, there is a payback schedule that is agreed to by both the filmmaker and investors. These agreements include the budget that you state in the financing documents. Production Attorney and Producer William L. Whitacre of Orlando, whose clients include Haxan Films (The Blair Witch Project and Altered) and The Pamplin Film Company, says,

In a limited liability company investors are passive; however, once the investment structure is determined and funds have been accepted, there can be no change in that structure, since doing so would dilute the interests of the initial investors. Accordingly, it is extremely important to budget accurately in the beginning, and to establish an investment structure that will get you to the finish line (including postproduction and completion of an answer print or master) before accepting investment funds into a limited liability company, since your only alternative to raise additional capital would be to sell your own Producer’s shares.

Bank Loans

Bank loans are not associated with business plans per se. However, this discussion focuses on what you will tell potential investors, and bank financing may be relevant to your situation.

Banks are in the business of renting money for a fee. They have no interest in the brilliance of your potential films; they do not care that you are a nice person and have a sparkling reputation. By law, commercial banks (the ones that give you checking accounts) can only lend money based on measurable risk, and the only credit they can take is the collateral, or the assets being offered to secure the loan. The contracts that have already been discussed—negative pickups, distribution agreements, and presales—are such collateral (assets offered to offset the bank’s risk). The bank does not have to worry about when you deliver the film or how the box office performs; it is the distributor who has that worry.

The cost of the loan is tied to the prime rate, which is the rate of interest that banks pay to borrow from the Federal Reserve. It is a floating number that may fluctuate significantly. Home lending rates, also based on the prime rate, are a good example. When the prime rate falls, everyone rushes to refinance their mortgages. In most commercial lending, loans to “low-risk” firms (e.g., major studios) can be 0.5 to 1 percent above the prime rate. On the other hand, a small production company, which represents a higher risk, would pay up to 3 percent above prime. Let’s say that the bank is going to charge 2 percentage points above prime and that prime is 9 percent. The total would be 11 percent. On a $1 million loan, therefore, the bank removes $110,000 ($1 million multiplied by 0.11). To hedge their risk, the bank also retains another 1 or 2 percent in case the prime rate goes up. If the bank charges 1 percent, another $10,000 is added to their retained amount. Now you are down to $880,000 for the film. The bank is not through with you yet, however. It also charges you for its attorneys’ fees, which can range from $15,000 for a simple contract to six figures if several companies are involved. Of course, you will still have to pay your own legal fees.

Once again we come back to the subject of attorneys. The one who represents you must know the ins and outs of all these contracts, so you should hire an experienced entertainment attorney. Costs go up drastically if your attorney is charging you an hourly rate to learn how the entertainment industry works. General corporate attorneys may mean well, but they can be an expensive choice.

Advantages and Disadvantages

The first advantage of bank loans is that the producer is not personally liable for the loan; the bank can’t take your house. A company is established for the production of the film, which is its only asset. In addition, many producers prefer to pay back a loan rather than give up equity. On the down side, the process to obtain a loan is expensive, and several parties and miles of paperwork are involved. Also, if the distributor defaults on the loan, the bank takes possession of the film.

Completion Guarantors

Misunderstood by neophyte filmmakers is the role of the completion guarantor. This is not the person you go to for the rest of your production money; the guarantor’s role is to provide an assurance that the film will be completed and delivered to the distributor. The contract with the producer or distributor allows the guarantor to take over the film to complete it, if need be. For the bond itself, the guarantor charges a fee based on the film’s budget. The charges have been flexible over the past few years, depending on the state of the completion business. The bond is not issued until after funding is in place, however, and this fact is often difficult to explain to investors. To make matters worse, small films have trouble getting bonded anyway. The risk is too great for most guarantors to bond low-budget films. In the past few years, several of the biggest bond companies lost their financing from insurance companies when high-budget films failed. The active companies had their hands full with major productions, leaving them little time or inclination to consider your $1 million film. New companies have come into the market, making the completion bond more accessible for some smaller films. However, their staying power depends on the insurance companies that back them.

In many business plans for low-budget films, I no longer mention a bond, as I know they have no chance of getting one. Bonders seem to be constantly going in and out of the market and changing their requirements. Check the market before deciding what to say in your business plan. One suggestion is that you say you will “seek” a bond. If you say that you “intend” to get a bond, it implies a promise to the investor. Never promise what you don’t already have, whether it is a financial document, an actor, or a director.

A completion bond is always desirable to protect both you and your investors financially. Accidents and bad weather can happen, but investors have the right to decide what exposure they want to have. As always, honesty is the best policy with your investors and yourself.

What Do You Tell Investors?

A section on financing assumptions is required as part of your business plan package. Give investors only relevant information, not everything in this chapter. Based on the assumption that your readers are not film sophisticates, you should explain what constitutes a presale agreement, a negative pickup, or whatever form of financing you will pursue. Be prepared to answer investors’ questions.

They may ask you about the forms of financing that you have not included. You should be conversant enough with the pros and cons of various strategies to explain your choices intelligently. As mentioned earlier, it is unproductive to include financing methods that you do not plan to use. If you plan to use a limited partnership, for example, the business plan will be part of the offering; otherwise, there is no reason to discuss this form of financing. To do so would be to create a red herring for investors, confusing them with a nonexistent choice.

Along the same lines, you should be careful about considering options that may no longer exist. What Canada or Australia is doing in 2006 may not be relevant in 2008 or later. Financing patterns, like everything else in our culture, can be in or out of vogue from year to year. It is important to keep current with the business climate through the trades and other sources while writing your plan.

Filmmaker Paul Sirmons advises,

The most important thing an independent filmmaker must realize is why an investor puts money into an independent movie. He is investing in you, in his belief that you can actually deliver everything you tell them as a finished, professional movie. They must believe that you really can pull together the story, the script, the actors, the crew, the shoot, the postproduction, and the distribution deal. If you don’t feel that you can convince people to believe in you, then partner with a producer who has those skills … but passion is also important. It will give the investor that extra confidence to invest in your movie. And the patience to wait for the returns. And wait. And wait.

European Film Financing

This section is courtesy of and written by Thierry Baujard, with assistance from Frauke Feuer, Peacefulfish, a consultancy for financing the Content Industry, Berlin, Germany.

Co-Productions

In Europe, co-production is the option most used to finance projects within a country or with other countries. The term can be misleading, as co-production can simply be collaboration between two companies or a collaboration that follows very strict rules that are indicated in official contract between two or more countries. When raising funds for a film project, all options need to be considered. One possibility is to find a co-producer. Co-production can mean to share production costs, rights, and profits with another production company from the same country as your own company. It can also stand for international co-productions. If you co-produce with a company from a different country, it can be that by doing that you gain access to other sources of funding. If that is the case, it depends on whether there are any co-production agreements or treaties between your country and the foreign one. Regarding Europe, there are two types of agreement to keep in mind: the European convention and bilateral treaties.

European Convention on Cinematographic Production (Council of Europe)

The Convention aims to support European co-production by enabling a film production to benefit from all national supports available through the participating producers. There have to be at least three established producers from different countries. Only the countries that have ratified the Convention are relevant. If a producer from a non-member country is involved, her contribution must be no more than 30 percent of the total budget.

Bilateral Treaties

There are numerous bilateral treaties between European and non-European countries, which also enables co-productions to benefit from both countries’ support schemes. For the latest information, visit the following websites:

• UK: www.culture.gov.uk/creative_industries/film/coproductionagreements
• France: www.cnc.fr/
• Germany: www.bundesregierung.de/Bundesregierung/Beauftragter-fuer-Kultur-und-M-,12733/ Bilaterale-Filmabkommen.htm
• Canada: www.telefilm.gc.ca

State-Funded Subsidies

In Europe, subsidies play a key role in film production. There are state-funded grants on three levels: the European level (provided by the European Union and the Council of Europe), the national level, and the regional level. Subsidies have to be applied for and are granted if a project is approved by a board or commission depending on business and creative criteria.

European Level

At the European level, there are two relevant schemes: the MEDIA PLUS program (European Union) and EURIMAGES (Council of Europe). The European Union (EU) is a community of currently 25 European member states that collaborate to a level where some national sovereignty is handed over to EU bodies in order to make democratic decisions on specific matters of joint interest. The Council of Europe (COE) is an organization of currently 46 European states that aims at increasing the awareness of a European identity and providing control and monitoring for human rights and democratic processes. The COE has no legislative powers.

MEDIA PLUS (EU)

The MEDIA PLUS program supports the audio-visual industry in Europe in the areas of training, development, distribution, promotion, and cinematographic festivals. For aspiring filmmakers, the area of interest is mainly support for development. To be eligible for support, the applying company has to be registered in a country that participates in the MEDIA program. Currently the MEDIA PLUS program has 24 members. The scheme could therefore also work for non-European companies in the case that they enter into co-production with an eligible company. Apart from geographical eligibility, there are also requirements regarding the existence of the applying company (registered for at least 12 months) and proof of previous experience. However, there are no specific requirements of a company’s turnover or profit. The amount of support granted can be up to 50 or even 60 percent of a part of the budget, depending on the kind of support and the respective threshold. For application forms as well as more information and deadlines, visit the EU’s MEDIA website at europa.eu.int/comm/avpolicy/media/devel_en.html.

EURIMAGES (COE)

EURIMAGES is a funding program initiated by the COE aiming to support co-production, distribution, and exhibition of European cinematographic works. Support is divided between co-production, distribution, and exhibition for feature films, documentaries, and animation projects of at least 70 minutes in length. To be eligible for co-production support, the project needs at least two producers from different EURIMAGES member states and has to have a European origin. Financially, that means that at least 51 percent of the funding has to derive from EURIMAGES member states, and no more than 30 percent of the funding can originate from non-European an sources or one non-EURIMAGES country. For filmmakers outside EURIMAGES member countries, this means that the program becomes only of interest in the case of a minority co-production. For more information, see www.coe.int/Eurimages.

National Level

Throughout Europe, most countries provide state support for the audiovisual industry. Foreign filmmakers can benefit from these support schemes through being part of a co-production with one or more of these countries. If the participating countries have agreements with one another, national subsidies are accessible for international co-productions as well. In the following sections, different schemes are outlined based on their support budget, eligibility and selection criteria, funding aspects, and recoupment strategies.

UK: UK Film Council

The UK Film Council has an annual budget of about GBP 38 million, derived from the National Lottery. Support is available in the areas of development, feature film production, distribution and exhibition, and short films as well as in a range of other related fields. Applicants need to be production companies based in the UK or the EU, so non-UK-based production companies need to find a UK co-producer. The Film Council’s executives assess eligible projects for their creative merit and, depending on the scheme, also on commercial prospects. Once funding is offered, the actual amount granted depends on the individual project and can vary between 15 and 50 percent of the budget depending on the support scheme and the individual case. All support is given in the form of an equity investment and will be recouped on a pro rata, pari passu basis with those offered to other equity investors. For more information, visit www.ukfilmcouncil.org.uk/.

Germany: FFA (German Federal Film Board)

The German Federal Film Board is funded by a film levy from video exhibitors and distributors and has an annual budget of about EUR 70 million. Support is available in the areas of production, script development, and distribution as well as in a range of other related fields for feature films of at least 79 minutes or children’s films of at least 59 minutes as well as short films. To be eligible, the responsible producer has to live or the production company has to be registered in Germany, or in the case of an international co-production, the German co-producer has to have the majority. Furthermore, the producer has to come up with at least 15 percent of the budget. Support is granted only if the project is deemed to improve the quality and profitability of German cinema. The decision is made by a board on the basis of screenplay, budget, financing plan, cast and crew lists, and, if applicable, the distribution contracts. Selected projects can receive EUR 250,000 on average and up to EUR 1 million in special cases. The grants are conditionally repayable, interest-free loans, and recoupment sets in at 10 percent of the revenues accruing to the producer after his initial recoupment of 20 percent of the FFA-recognized production costs from the film’s exploitation. For more information, visit www.ffa.de/.

France: CNC (National Center for Cinematography)

The National Center for Cinematography (CNC) offers support in the areas of development, feature film production, distribution, and short films as well as in a range of other related fields. For first-time feature projects, a selective support scheme is available. Applying projects need to be shot in French and either completely produced by a French production company or an international co-production. The CNC’s executive director and a commission of industry professionals assess eligible projects. Funding is offered either as an advance against takings before completion or as an advance after completion and amounting to about 12 percent of the budget on average. The actual amount granted depends on the individual project, and the conditions of repaying the advance are also based on the individual case. There is also a support scheme for foreign language films, which still demands that a French production company be involved, but the film can be shot in a language other than French. For more information, visit www.cnc.fr/.

Regional Level

Most European countries also have film-supporting agencies on a regional level. In the following sections, the three biggest regional agencies in the three biggest markets, the UK, Germany, and France, are outlined.

UK

The UK has nine English regional support agencies and one each in Scotland, Northern Ireland, and Wales. Among the biggest are Northern Ireland Film & Television Commission (up to GBP 600,000 per project), North West Vision (up to GBP 250,000 per project), and EM Medie (up to GBP 250,000 per project). Eligibility mostly depends on local spending and/or residence in the area, while the involvement of local talent/cultural relevance is often preferable but not obligatory. Selection is made by the funding agencies, and individual contracts are then set up. Most agencies do not give grants, so money has to be repaid. All film boards also help with other aspects of production, such as location scouting. For further information, visit the following websites:

• www.ukfilmcouncil.org.uk
• www.niftc.co.uk
• www.northwestvision.co.uk
• www.em-media.org.uk

Germany

There are several regional film funding bodies in Germany, of which the biggest three are Filmstiftung North-Rhine-Westphalia (EUR 36 million annual budget), FilmFernsehFonds Bavaria (EUR 30 million), and Filmboard Berlin-Brandenburg (EUR 15 million). Who can apply for support differs from fund to fund. Requirements can include a German-registered company, a certain percentage of money spent in the region, or a certain percentage of the budget invested by the producer. Eligible projects are then assessed for their cultural, artistic, and commercial value by the board, and a selection is made. Selected projects mostly receive an interest-free loan, which is repaid only on the basis of success. All film boards also help with other aspects of production, such as location scouting. For further information, visit the following websites:

• www.filmstiftung.de
• www.fff-bayern.de
• www.medienboard.de

France

There are 19 local and regional supports in France. The biggest three are Rhône-Alpes (EUR 300,000 average support, five to seven projects per year), Ile-de-France (EUR 300,000 average support, three projects per year), and Loire Valley (ceiling of EUR 150,000, five projects per year). Support is available for screenplay writing, development, production, and postproduction of feature and short films as well as other formats. Only French companies can apply, and the application needs to be in French as well. Support ranges from subsidies over co-financing to co-producing and is usually granted before principal shooting has begun. The actual conditions and obligation depend on the region and individual project and will be stated in a contract between the applying (and selected) company and the administration. When planning to produce or fund your project in France, it is very handy to know the French language since a range of websites are only available in French so far. For more information, visit the following websites:

• www.filmfrance.net
• www.idf-film.com
• www.comfilm-rhone-alpes.fr
• www.apcvl.com

Tax Incentives

Besides state subsidies, many European countries have set up tax incentives to attract film production to their territories. In the following sections, some of the most popular schemes from the UK, France, and Hungary are introduced.

UK

In 2006, the popular sale-and-leaseback scheme, also known as sections 42 and 48, was replaced by the new tax relief system for film. For lower-budget films (<GBP 20 million) there is a net tax relief of 20 percent; for higher-budget productions (>GBP 20 million) it is 16 percent. Both relief systems apply only to the qualifying UK portion of the budget. There is also a threshold of minimum UK spending, which is 25 percent of the budget. In addition, there is an enhanced deduction available of 100 percent of the qualifying UK portion for lower-budget productions and 80 percent for higher-budget productions. The payable cash element is 25 percent of surrendered losses for lower budgets and 20 percent for higher budgets. Furthermore, in order to get support, films have to pass a test to see if they qualify as culturally British films, which are composed of cultural content, cultural hubs, and cultural practitioners.

France

The French have set up two schemes, one called SOFICA, which are film investment trusts aimed at tax deduction, and the other called credit d’impot, which is a tax credit. Individuals or companies invest in SOFICA to qualify for tax deductions. The SOFICA invest in production or production companies on the basis of individually contracted recoupment conditions. The credit d’impot aims at nourishing production and postproduction activities in France, hence only production or postproduction has to take place in France. French producers can choose between a cash rebate or a lowering of corporation tax of up to 20 percent of below-the-line costs.

Hungary

The Hungarian tax incentive scheme is service production oriented. The model involves a service agreement or co-production agreement between a foreign and a Hungarian production company and a Hungarian corporate company. The corporate company sponsors up to 20 percent of the Hungarian production budget and qualifies for a reduction of its corporate tax. In order to qualify, the production has to be registered at the National Film Office in Hungary, which assesses the Hungarian production costs. If approved, the NFO gives out a tax certificate to the Hungarian corporate company.

Distribution

Regarding distribution in Europe, there are structures similar to those in the United States in terms of theatrical distribution. In addition, the TV broadcasters play an important role. Most TV broadcasters are buying finished films or are involved in presales. Hence, when looking for funding, take the relevant TV markets into consideration.

UK

In the UK, the most important player in the TV market is the BBC. In February 2006, the BBC announced that it plans to invest GBP 15 million per year into film production, that is, British productions and British-International co-productions. Furthermore, the BBC partners with the UK Film Council to support British Film activities.

Germany

The German TV market is the largest in Europe and the second largest in the world. In Germany there are about 30 nationwide free TV broadcasters, among them 15 TV channels under public law and eight private ones. One channel that is especially active in film co-production is “arte,” itself a co-production between Germany and France aimed at cultural understanding. “arte” has an annual budget of about EUR 4 million for co-productions. Language is not an issue, presuming that the production budget of an English-language film includes dubbing into German. Subtitling is occurring but rarely on main channels and during prime time.

France

All European countries are held to dedicate the majority of airtime to European productions following the European directive “Television without frontiers” from 1989, revised in 1997 and 2005. In France, the government even set the quota to 60/40 in favor of European works. This also enhances French-international co-productions.

Banking

Banking in Europe is limited to a few countries: the UK, France, and Germany to a certain extent. Gap financing is very little developed, and a discounting contract is relatively well used even though mostly performed only in the home country.

In the UK there are some banks involved in film financing. However, due to the tax regime implemented in April 2006, many financial institutions are reconsidering their engagement in film financing.

Two French credit institutions specializing in the audiovisual sector are Cofiloisirs S.A. and Natexis Coficiné S.A. As a security for the banks there is the Institute for the Financing of the Cinema and Cultural Industries (IFCIC). Banks can apply for a financial guarantee of 50–70 percent of the loans they are granting to production companies. The IFCIC assesses the film projects and issues the guarantee if the project is approved.

There are also activities in other countries such as Germany (namely, Deutsche Bank, HypoVereinsBank, Kölnische Stadtsparkasse) and Hungary (mainly aimed at prefinancing funds based on the Hungarian tax credit), even though these activities are moderate.

On the European level, the European Investment Bank is getting involved in film financing. So far, it is active in France, but support for specialized banks in other European countries is possible.

Case Study (Fictional)

Let’s do a short walk-through example of how you could fund a film project in Europe. Before we flesh out the example with some numbers, here is a list of questions you may wish to consider when looking at co-productions:

Where is the main production company located?^∗

1. Is your country part of a bilateral agreement with a European country or a member of the European Convention on Cinematographic Production?
2. Is your country part of the European Union?
3. Has your country signed the EURIMAGES agreement?
4. Are there national subsidies in your country?
5. Are there regional subsidies in your country?
6. Are there tax incentives in your country?
7. Are there broadcasters involved in presales or co-production in your country?
8. Are there banks specializing in film financing in your country?
9. Which countries are most promising for entering into a co-production with (choose your candidates and go through the previous questions for each of them)?

An Example

Our fictional film project involves four production companies from France, Germany, Canada, and the United States. The budget is EUR 4 million.

As in every co-production, be it national or international, involved companies have to decide on their individual share of rights, territories, profits, recoupment positions, revenue corridors, etc. In a traditional co-production, a co-producer from a certain country normally receives the rights for that particular country and neighbor countries using the same language. The co-producer can also look for distribution (theater and TV) in that country.

France and Germany both have a bilateral agreement with Canada and are members of the European Convention on Cinematographic Production.

The bilateral agreements and the convention secure the same option: to benefit from the co-producing countries’ national supports. But if the convention is applied, the share of the total budget (and hence shares of rights, profits, etc.) for the United States and Canada can only be up to 30 percent (EUR 1.2 million). Through the co-production treaty, you will be able to access funds from the other country, but do not forget that you will have to spend at least 150 percent in the country or region where you will get the subsidies from.

That might not be enough considering the efforts such a multiinternational production causes. However, even under the bilateral agreements with European countries, the obligation is that the majority needs to be held by European producers. France and Germany are both part of the European Union as well as members of EURIMAGES and are hence eligible for European subsidies. Both have national and regional subsidies. France has a tax shelter and a tax credit. The German-French broadcaster “arte” could be involved in presales or co-productions. France and to a lesser degree Germany have banks involved in film financing.

This is only a very rough idea of the complexity of international co-productions. Don’t forget that there are extensive rules and obligations for each country referring to each financing tool. Due to local spending, majority requirements, and cultural relevance, finance might not be as easy to get as it seems at first glance. Many funds on the national level are selective aids. However, that can also be an advantage for producing in Europe since funding is not primarily aimed at commercial projects. In addition, there are excellent production facilities and professional staff capacities available in central Europe for a fraction of the price of the ones in established countries.

If you are going to produce in or with Europe, it will be wise to get some professional help in dealing with the business plan, the financing strategy, and the legal aspects involved, as well as to benefit from an already established network of contacts in the European film industry.

After this initial financing strategy, the next step is to work on the cash flow for the project, which is basically the same as in American productions and is explained in a later chapter of this book.

Peacefulfish is a consulting company based in Berlin, Germany. The company can help you understand the process, create the business proposition to financial partners with a sound financial strategy for a single film or a slate of films, identify the right partners to raise money, and develop the right business and finance plans vis-à-vis the co-production, tax, and private equity opportunities in Europe. For more information, log onto www.peacefulfish.com or contact [email protected].

 

 

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