Posts Tagged ‘Film Funding’

After several attempts of earning higher-than-normal returns, rich global investment companies and individuals are turning to films as an alternative to hot stocks, IPOs and hedge funds. However, unlike the past, the investor is making a more educated, calculated and diversified plunge into the world of film investing, all thanks to a Chicago based company called Noci Pictures Entertainment This company teaches wealth advisors, portfolio managers, financial planners, accredited high net worth affluent investors and family offices about film as an investment avenue. Some of their lessons include concentration on diversifying the investment over 10, 20 to 50 films to minimize risk and increase theatrical distribution, the commercial viability of a story, as well as international distribution instead on concentrating on the very fancy monte-carlo model or allocating money in too many tranches of collateralised debt structures. Defying the norms, the company has opened up information which was previously available only to an inner VIP network of individuals. As other investment avenues look gloomy, their timing couldn't be better in providing advise on films, which account for the number one export of the United States "Historically investment in film was either structured without any risk minimization or the junior equity was crushed by the repayment of mezzanine & senior debt in large studio film slates", states Yuri Rutman, CEO of Noci "We have a lot of wealth advisers, portfolio managers, financial planners, and accredited high net worth affluent investors and family offices ...

Ever since Hollywood established its powerful hold over the global imagination, its leaders have sought outside investors to help pay for their movies. The list of these "civilians" stretches from William Randolph Hearst, Joe Kennedy, and Howard Hughes in the 1920s to Edgar Bronfman Sr., Mel Simon, Paul Allen, and Philip Anschutz in more recent times. The problem with such super-rich investors is that they want to participate in the selection, casting, and production of the movies. Other civilians, such as the thousands of investors in Disney's Silver Screen partnerships, sought only the tax-sheltering benefits. Yet, by the 1980s, those loopholes had been almost entirely eliminated by the IRS. Studios can borrow money, of course, but such debt does not look good on their books. Indeed, the studios face a perennial hurdle: how to get equity money that does not dilute their shares or their control. Isaac Palmer, a young senior vice president at Paramount, came up with a brilliant solution. Studios could offer hedge funds a cut of their internal rate of return. This internal rate of return is not limited to so-called "current production," or the theatrical releases, on which studios almost always lose money. Rather, the rate subsumes every penny the studio makes from every source—including pay-TV, DVDs, licensing to cable and network television, in-flight entertainment, foreign pre-sales, product placement, and toy licensing Minimal return was 15 % This return also included the profits from more arcane ...

"Screen Australia’s Feature Film Production Program aims to assist the creation of a diverse range of successful Australian films that resonate with audiences. Marketplace attachments are required, but the marketplace by itself is not the only criterion for determining what to invest in." "The program is open to films of any budget range, including low-budget non-Offset projects, ie films with QAPE below the threshold of $1 million, as well as to Offset-eligible projects. Where relevant, applications for large-format projects or theatrical documentaries can be made under this program." "Low-budget feature films: For feature films which could, in the opinion of Screen Australia, reasonably be produced with a total production budget under $1.5 million, Screen Australia may exercise flexibility in the application of these guidelines, particularly where they refer to market components." "Post-production completion funding: Projects seeking post-production funding must apply using the Production Investment application form available on this page and are considered in the same way as applications for production investment." Source

"If film companies need the actual cash to make the film, they need only take the concept of the Exchange one step further (as is my hope and expectation) and raise cash directly  from investors in exchange for a return that is tied to a percentage of the box office results of their films, as a proxy for all other revenue streams. As with the Exchange, there would be a flood of capital available if investors could know the value of their investment by opening the paper, rather than waiting for months only to receive arcane accounting statements that they don’t understand." "Right now, we are in a serious trough, with the last wave of financing from New York equity and hedge funds long gone. We need to have a sustainable approach to raising vast amounts of financing, and the Exchange will do just that." Source

  "The movie business now. It's always on the lookout for new investors to help finance the growing cost of big-budget films and now there's a new idea floating through the studios getting Wall Street hedge funds to finance an entire year's worth of movies. Hedge funds are private, unregulated and often risky investment schemes, but they can bring in loads of cash. Edward J. Epstein writes about the business of Hollywood for our partner at the online magazine, Slate." "And hedge funds, I should say, have, according to The Wall Street Journal, $1 trillion under management. The hedge funds would buy the entire year's portfolio, or a percentage of the films, and have no control whatsoever. It wouldn't show up on the books of the movie studios, and it would basically simply be capital they could use and don't have to show that they're using the capital." Source

"Hedge funds have been a major source of capital for Hollywood studios over the past three years. Drawn by projections of double-digit returns with minimal risk, they pumped $13 billion into 150 major pictures. Typically, they helped finance "slates" consisting of as many as several dozen movies." "There are a variety of strategies to improve investor returns by engaging the studios," said Stephen Prough, founder of Salem Partners, a Los Angeles investment bank. "You can get their attention." "Future deals probably will resemble Dune Capital Management's arrangement with 20th Century Fox. The deal provides production capital for all Fox films rather than a limited selection. That helps ensure that the hedge fund will share in the studio's hits as well as its failures." Source

In our effort to make FilmFundingSources.com a one-stop source for information on film finance, we present below one of the many professional outfits that connect filmmakers with investors. “At Green Light Film Funding we pride ourselves on honesty and our ability to structure unique funding solutions that are not available in the traditional lending arena. The Funding Options, like those of any other industry, have changed drastically within the last 12 months. However, with our combined 34 years of experience we know how to structure these difficult deals in today’s always changing environment.” “Whether your film has most or none of the funding required we can provide solutions that exist outside the traditional sources. Our investors realize the potential of funding films and that your film may be the next "Juno", "Garden State" or "Passion Of The Christ". “At Green Light Film Funding we EAT, SLEEP AND DRINK FILM FINANCING. Whether you are a film maker or potential investor we look forward to sharing your vision and working together with you and your team in the near future.” Source

"According to Aegis, the film industry is set to be one of the hottest investment opportunities of 2010. The   financial crisis has meant the banks that traditionally financed films have pulled out of the sector. This has provided a window of opportunity for other investors, especially as the worldwide box office remains buoyant having reached another all-time high of USD28.1bn in 2008."  "The Aegis Film Fund, which has returned 8.32 per cent in the first six months since its March inception and is on track to return over ten per cent by year end, provides finance to producers and distributors of films operating like a media focused bank. This finance is in various forms of loans or debt on a short to medium term basis. The fund only invests in asset backed corporate debt and does not take equity stakes in a film, minimizing the risk to investors. The fund is targeting at least 10 per cent annual returns."  “Whilst investors see the possible high returns that can be made in the film industry, they want to invest in a way that is accessible and minimizes risk. This is why the fund only invests in debt rather than equity and why we have now launched these new share classes which appeal to sophisticated investors." Source

"Recent successful films are in a long line of private investments that are being bankrolled by high net worth alternative investors and large private equity funds. With new Federal Tax laws offering 100% writeoffs on film investments, coupled with a risk minimization for investors that includes co-financing multiple films, covering a portion of a film’s budget with various distribution guarantees and benefits of tax credit financing from such states as Louisiana, Illinois, Hawaii, etc., territories such as Canada and numerous other locations, film investment in ‘A’ product still remains an attractive alternative investment.” “Apart from privately financed films outside the studio system winning Oscars, and combined with high dollar sales of the films  at the Toronto and Sundance film festivals,  high net worth alternative investors are seeing far greater returns in a shorter time span with movies than they would see with a lot of other investment vehicles.” Source

"The government is committed to supporting the British film industry and the important role it plays in our economy. Today’s figures are excellent news for the industry, highlighting the success of the UK’s film tax relief which is helping to stimulate investment in domestic film production. Film tax relief will continue to provide valuable assistance to this vibrant sector over the coming years." “So while this GBP100m in tax relief will no doubt have been a boost to the UK film industry, a balance still needs to be achieved between tax relief and incentives to help the film industry maintain the successes of recent years. We very much support the reintroduction of income tax incentives to encourage individual investment in British films,” Nickson concluded. "In November, 2006, it transpired that the UK's new film finance tax credit scheme was attracting   investors too, with a new hedge fund planning to raise GBP150mn to finance films in expectation that they will make enhanced profits due to the tax credits." Source

"More recently, the likes of Goldman Sachs, along with giant hedge funds, poured billions of dollars into groups of movies called slates. The idea was that investing in a dozen or  more movies at once, with the return calculated in aggregate after all had been released, was a sure-fire way to invest wisely. In many cases, though, it was not. Although the movie business has been hurt along with nearly every other industry, it is proving far more resilient to recession than most."  "If you can find the right film executives, people who consider themselves fiduciaries more than producers, it's one of the best bets you can make right now," Crown said.  "It manages risk to investors through a variety of routes: preselling its films to foreign distributors, casting commercially tested actors, taking advantage of state tax incentives for filming. With that approach, Edelbaum at the outset was able to promise her investors a risk floor of 70 percent on the chance that none of iDeal's films succeeded." Source

"With film projects, Production companies earn a transferable tax credit on the total eligible production costs, and wage expenses. That can translate to 20% – 30 % of the total production cost for a film, in the form of a tax credit issued directly to the production company. It can be used to offset state tax liability, or sold to another taxpayer." "In the last several years, numerous other international capital markets groups including Dresdner Kleinwort, Merrill Lynch, Goldman Sachs and other institutional investors and hedge funds have bankrolled both studio-co-financed films and standalone film finance and production companies." "The usual structure was to have several layers of senior and mezzanine debt and bottom position junior equity. While the structures in some cases were unique, the portfolio risk was not as many of the funds are on shaky grounds." Source

"The second part of the success factor is that the total cost of larger films in the $6-10 million dollar range. An investor puts up 20-30% in equity, and in some cases, if the film has strong cast, the entire budget is financed through foreign sales and tax credit finance. Add a DVD and Cable deal to the equation and sometimes investors can see revenues on a film before it’s even made."  "The best partner is either a solid and ethical private equity placement agent or a high net worth investor who recently sold his company for 50 or 100 million dollars, is sitting on an island without any clue what do with the next phase of their life, and has always secretly wanted to be in the movie business with someone who is ethical and whose main objectives is to focus on investor’s return and long term company growth as the prime objective. Plus, I have an innovative exit scenario and long term growth strategy that is superior to any competing entity. The bottom line is its a privilege to be in the film business, not an absolute. I just happen to have an innovative business model." Source

"As a non correlated asset class, films and film finance has outperformed every non correlated asset class in the world", states Yuri Rutman, head of media finance and consulting firm Noci Pictures ( www.noci.com ). "If you look at the more than $6 billion dollars poured into motion picture finance deals in the last 3 years, the IRR across the spectrum for both studios and independents are resilient to global economic declines in other industries."  “The reason Wall Street, Silicon Valley, the Middle East, Asia, or European investors are all secretly wanting to be in the film business is that there is an exponential growth in terms of distribution channels. With digital cinemas on the rise, digital print costs minimal, the evolution of same day theatrical and video on demand releases, as well as leveraging global social media and marketing for lower cost advertising and word of mouth branding, filmed entertainment will always have revenue streams." Source

"Instead of dazzling investors with smoke and mirror Monte Carlo simulation models that offer various IRR’s and scenarios based on unpredictable film revenues streams and junior equity to trigger senior and mezz debt, the key is to offer an absolute return on investment utilizing international and U.S. public tax incentives that in certain instances can guarantee 100% or more of invested capital prior to revenues by leveraging equity positions with non-recourse debt vs. recourse debt." Source

"Film budgets are determined by what the market will bear to purchase the film once completed. In order to deliver a film within the budget, many costs may be deferred for payment at a later date, paid out of revenues generated from the film once its distributed. Many times the producer must defer his/her own fee for producing the movie, in order to meet the budget. The hard costs of physically producing the film vary dramatically depending on the film, with low budget films ranging from $200,000 to $1 million, high budget films usually around $50-$75 million, and blockbusters − like the recent James Bond film "Casino Royal" − which was produced for $150 million."  "Typically the high-budget blockbusters, which are financed and/or released by the MPAA companies, generate the most money in the movie industry. In the example of Casino Royal, between its release on November 17th to December 3rd, box office ticket sales in North America were reported to be $115 million. As of April 2007, the movie had grossed over $593,352,994 globally.6 However because of the huge negative costs − in addition to marketing, promotion and advertising costs, company overhead etc, that they incur − these films do not necessarily generate the highest returns."  "Much of a producer’s success or failure when producing a film independently hinges on obtaining funding from a bank or equity investor. Many producers have patchworked creative combinations of equity and debt finance with ...

"Get a company to back you. Big and small companies always need new and innovative ways to advertise their products. So search for one that has a product that can be easily placed in your film. For example, if your movie has a soda drinking character that is always on the go, approach Coca Cola and ask for financial assistance. In return for their investment funds, promise to show their product in a few reels in order to promote it."  "Seek out a grant. Grants are given yearly to struggling writers, filmmakers and other artists trying to get a special project off the ground. You can "Google" the words "Grant and filmmaker" and go through the results list. Also, ask around. You'll be surprised who knows a company or school that is seeking good candidates for a grant. They want to invest funds into a creative project, but just need help finding the right one." " Approach an actor for help. Actors who are looking for work or want a "real" role sometimes help fund unknown filmmakers. It offers them the platform to showcase themselves in a different light. This kind of relationship can be a win-win situation. You get a recognized name and investment funding for your film and the actor gets a chance to shine in a new way."  "Take out a loan. Get a loan that will help you make your film, but won't be impossible to pay back. ...

Under the TRIP program, France, like so many other countries, offers excellent rebates to foreign companies, whose projects are completely or partly made in France. Although the rebate is capped at 4 million Euros, certain projects can qualify for more incentives. Your project can receive free help in myriad different ways ranging from logistics to finding film crews and locations. Your project will have to pass a cultural test for the French connection (story, locations, landmarks, crew etc.) but it does not seem difficult.   Under French law, a film is a piece of art than an object and enjoys strong support from the government. Co-producing with French companies has its own benefits that have been explained in the Incentives Guide 2010. In 2008 and 2009 there were more than 40 foreign films made under this arrangement. This is more than any other film community in the world. Of the 230 movies qualified by the CNC, a financially independent public administrative org under ministry of culture, in 2009, 48 were foreign productions with minority French co-producers. Since 2009, France has established a Tax Rebate for International Production that reimburses 20% of eligible costs of foreign movies and TV productions shot in France, providing that they comply to a set of requirements. This refundable incentive that can reach up to euro 4 million is also open to animations and VFX works made through a French studio. In the ...