ASK & DISCUSS INDEX

10 years, 7 months ago - Lee 'Wozy' Warren

The producer probably is, but I don't know the guarantor myself. He's still got his investments tied up with the current movie. Just wondered if anyone one else had any experience of either being the producer or the guarantor on this type of set up.

10 years, 9 months ago - Alève Mine

I wouldn't take any kind of loan to make a film. In essence it means you're financing it yourself fully. There is this thing - which takes a larger pool on either side - called diversification investors need to have, although it is best not done blindly, to some degree to keep a healthy future. And that is the reason why you shouldn't finance your films out of your own pocket even if you're a star. Nor from family or too small a circle of people, relatively to their other investments. Some may have had much luck, but that doesn't change the state of affairs. I gave the same advice to a tech entrepreneur who was sure his startup would soar because he had enough wealth not to need investors, but I failed to explain to him why. So here is the explanation. I hope this helps.

10 years, 9 months ago - Dan Selakovich

Paddy: "Dan, is the $20M fee in real money though, or is it $1M, and a shit-ton of equity, or contractual first money out, etc?"

Yes, most of the time it's real money. Those days of backend funding are mostly gone (piracy and studio accounting). Think of it this way: does it really cost between $100 and $200 million to make a film? Most of those big budgets are actually made for between 30 and 60 million. That additional cost goes to stars and big director salaries. Gywneth Paltrow knows Robert D. Jr. is making 50 million. Do you think she is going to settle for a lousy million bucks? And up the budget goes.

If a name DOES take a backend deal, it is usually based on gross, not net profit. And usually that gross is based on what the Hollywood Reporter reports as gross, so everybody can see and there are no studio shenanigans going on. So if a star is taking a percentage of gross, it's easy to see why investors don't make a dime.

Typically, it is hoped that a feature breaks even at the box office, then profit is through DVD sales and other outlets. Thanks piracy! The theatre making little or no percentage on ticket sales is incredibly rare. That's saved for "Star Wars" and those films like it that have an incredible theatre audience draw. Films that can be really terrible and still pull in customers (Attack Of The Clones) can only make that kind of deal. And that kind of deal doesn't last. Maybe opening weekend plus 7 days. It really depends.

I agree with Paddy about investor/producer breakdowns (and everything else). That's typical. Though I don't agree with the method. I personally feel that investors should get 100% of money coming from the distributor until they get 110% of their money back, then split the points 50/50. The reason is pretty obvious: do you want to make another film? If an investor loses, you can't go back to them for another picture.

Aleve: any savvy film investor knows that "Letters of intent" are bullshit. It's not a contract. Getting the star SIGNED is a contract. With Letter of Intent, the star or director can pull out any time. All it shows is the star is interested. That can sometimes be enough. But a very established director I know is on at least a dozen "letters of intent", and that hasn't gotten the producers anywhere. But hey, it's nice to have. At least if you have George Clooney and Big Director on a letter, they can talk to EACH OTHER on how they are going to get the film made and talk to investors to push them over the fence they are sitting on. But a letter of intent from unknowns is worthless in raising money.

Franz: big names are not for the selling of films in the market place. Big names are for investors and distributors. They believe a name brings in money (and if you're Bruce Willis in Die Hard 3, it does). Years ago, I was salvaging a film for a distributor. I noticed a list of actor names with percentages on the sales agent's desk. When I asked what it was, he immediately shoved it in a drawer. After much pushing, I found out how it worked: The goal is to get 100% or more in your cast. So Ellen Page might be worth 10% before "Juno" and 60% after. Let's say you have an actor at 70%, then you need to fill your cast with a 30% actor, or two 15% actors. It's mainly based on grosses of their films. I've asked other distributors over the years, and they all say the list doesn't exist. But I've seen it! And it really seems like that's they way distributors and producers think. So I think if you could get four 30% names, you'd be in good shape. A single big star probably isn't going to help, because distributors or savvy film investors are going to want you to balance that out with another big co-star. But on the bright side, if you have two stars, it will be easy to raise the money if the cost is reasonable. It can be much easier to raise 16 million dollars with stars than 2 million without.

10 years, 7 months ago - Lee 'Wozy' Warren

Interesting! Has anyone had any experience of majority financing a film through a loan? Either directly or through a guarantor? I don't mean 5k or 10k sizes, but £1m+

I know of one film that was shot in 2013 that used this approach for a $3.2m. It's currently breaking into the black as we turn into 2015...

If so, would you be willing to share your experiences?

10 years, 9 months ago - Paddy Robinson-Griffin

>>What proportion of that would actually get back to the investors after cinema percentage, sales agent fees/commission, any percentages for stars, director, writer etc?<<

It'll vary project by project, but not untypically... The gross/theatrical figures count for very little, it's what the sales agent managed to get in terms of sales to distributors (less SA commission, maybe 15%) which will count. That money will go back to first paying off investors, then an investor bonus, then split 50/50 (varies) between the production and the investors. The points for cast, etc will come out of the producer's profits.

The theatre will do a 50/50 split on box office with the distributor (worse initially, probably for 2 weeks), but the distributor will pay for all the P&A out of their slice, plus any other costs they can get away with. What's left will go back to the production (if anything - seriously, it's structured like the advance system for musicians). That's probably not a whole lot if anything. After that, PayTV/Blu-Ray/Streaming sales revenue, but al least it's boosted by the promotion money the theatrical distribution spent. Free to air TV and stuff are down the line (unless they also invested)

The ideal position is to repay the investor money from tax credits, sales to distributors (and assume you'll see little beyond that from theatrical), merch presales, even DVD presales, etc., then know you'll see a slice of any further action, if you've not already presold it to finance the production. Don't take film accounting at face value from Box Office figures, it's a lot more complicated. As Marlom says, they probably made a very modest profit despite the numbers seeming so huge that everyone should be flying solid gold helicopters - the costs and repayments will be significant!!!

10 years, 9 months ago - Alève Mine

Wait a second. Then why did I get a Letter Of Intent to sign to act in a feature? They said it would help them raise funds. But it doesn't add up with the above, does it.

10 years, 9 months ago - Paddy Robinson-Griffin

Re Letter of Intent - unless you've got any sales appeal, no, it won't make any difference. Maybe they are a little naive in thinking LOI's from relative unknowns count for anything.

10 years, 9 months ago - Marlom Tander

Aleve - http://www.people.hbs.edu/aelberse/papers/hbs_06-002.pdf worth a look.

10 years, 9 months ago - Alève Mine

Erratum: nature of the numbers as Paddy says.

@dan then for equitable distribution of risk&return, the writers need to star in their films, and stars need to write their films. :)

Yes they didn't break it down by genre, did they. Glad scifi stands out. That's what I've got.

10 years, 9 months ago - Marlom Tander

If it cost 19 and grossed 68, did it make a profit for the investors?

Deduct VAT, so effective gross is 55 ish.

What proportion of that would actually get back to the investors after cinema percentage, sales agent fees/commission, any percentages for stars, director, writer etc?

I'd guess it made a small loss or small profit, which tax breaks then pushed into, or further into, the black and DVD/TV sales consolidated.

That's a profitable movie, but anyone who does numbers and money looks at those numbers and thinks "they were so nearly toast. I'm glad I wasn't in that one".

If I really wanted to refer to that movie to make mine, I'd use the gross but not mention the costs. I want them to hear that "films like this get X box office, and ours will cost X/10, so offers great scope for high profits." That way at least you get onto the "why our film will cost X/10 rather than X/5" but that's where you the filmmaker should know your onions. The potential investor is at least still listening.

10 years, 9 months ago - Alève Mine

Thanks for the link Marlom. It would be interesting to also know the impact of the nature of the numbers as Dan says.

So, roughly, stars make a difference, although not always as much as expected, but then they take the difference's check with them. And it is best to think of teams of those, which I a lot do :)

Then again. In the light of the general unpredictability of returns, sticking to historical numbers for future decisions doesn't really make sense. Except for mainstream more-of-the-same-but-new stuff until people are fed up. But the very usage of historical numbers may make these numbers a statistically self-fulfilling prophecy. That may not matter to many, and I suspect it can serve as cooperative advantage to unanimously declare that talent is otherwise undifferentiated. Indeed then you have some basis to trade, as opposed to dark matter.

It looks like the film industry is a different beast from other industries in that the projects are in a way (viewed) as individual "companies" - stars as shareholding "companies", all that creating a network - and the actual production companies only administrative entities there to enable that as part of the business structures applied across industries.

In conclusion, we can just continue whatever it was we were doing, I guess. Just not take any loan.

10 years, 9 months ago - Alève Mine

@dan would you perchance have a link to the proof that stars don't add much box-office value to a movie? That would be helpful for my business discussions. :)

10 years, 9 months ago - Alève Mine

@franz it seems to me big names would like to work on a project like yours. When they know about it. Try and reach more than one...

10 years, 7 months ago - Lee 'Wozy' Warren

Loans that are recourse to a guarantor, not the producers.

10 years, 9 months ago - Paddy Robinson-Griffin

Whoever was backing such a scheme without guarantees/security would have to stop pretty quickly - have you *seen* just how many films are for sale at Cannes? Compared with the number you've heard of in your local cinema, you get an idea just how many films 'fail'.

Actually there are some short-term debt finance companies backing films, but they require securities - for instance a sales guarantee letter from a recognised sales agent, tax credits, VAT returns, Equity escrow. And they need to know they can trust you to repay them in time.

10 years, 7 months ago - Lee 'Wozy' Warren

Well, that is the bottom line as to what a guarantor does. But it's the bleakest picture!

Any quality, in-demand, star attached, etc etc etc project has the potential to make money from numerous revenue streams. I won't list them all here but you can google them if you don't know them. And that revenue comes in at different points of time in the distribution cycle. Revenue, after distributor/agent fees, is used to pay back the loan at predetermined points from, say, year 3 onwards. During the period of guaranteeing, the guarantor is paid an interest for his position from the loan company. Once the loan is paid, the loan company has no additional position in the revenues of the film, so the profits are split in what ever way the producers and guarantor had agreed initially. From my knowledge of the example I mentioned earlier in the discussion, it was 50/50...

So yes, there are risks. There are always risks. Filmmaking is risk. At any level. But if an investor had the options of tying up his capital with no liquidity for 3-5 years and risk losing all of it then taking any profit... or guarantee a loan where his money stays liquid, earns interest and still partakes in the profits... from a loan to fund a movie point of view, the later makes sense.

Obviously, the devil is in the detail. This is just the basics. For anyone else who may be interested in hearing more, for their own projects or just for educational purposes, email me.

10 years, 7 months ago - Paddy Robinson-Griffin

Wozy, interestingly I think it'll be easier to get a loan/guarantee against a larger amount of money than a smaller one. Smaller budgeted films cannot get completion bonds because bonds are based on union rates (so any crew member can be replaced in a heartbeat is needs be - no time to balance rates and availability and do deals when the project is burning tens or hundreds of thousands of dollars a day by standing still). And nobody in their right mind is going to guarantee a loan for an unbonded project.

For anyone here who's unclear about what guarantors do, they promise to pay the lender if the party that's taken the loan defaults. They have the same obligations as the actual loan holder, but even greater risk. The only way a guarantor will back a loan is with a huge amount of trust, a huge amount of money, mental illness, or just not understanding what it means to be a guarantor!

10 years, 9 months ago - Marlom Tander

As described, you want a for your movie that you'd pay back before your movie has actually generated any revenue.

If you can afford to repay on those terms , you don't need the money.

In general - if you have a house to risk, you can get money to spend and risk as you wish, and sell the house if the bet fails. But if no house, lenders would be mad to lend without security and so tend not to. Not film making sized sums anyway.

Be aware of Advance Fee Fraud. This is a very common con where people claim that loans/investments can be arranged, but that you'll need to pay a small % up front to secure. The money doesn't exist but the con artists prey on those with dreams. Arrangement Fees DO exist in real life, but they are taken from the money on it's way to you, i.e. from success. You apply for 100K, you get 98, and the broker keeps 2 off the top. The difference between the con and real is timing :-)

10 years, 9 months ago - Dan Selakovich

Thanks for the link, Marlom. Definitely going to find some time to read that today.

Aleve, I don't have proof, as in a study. I've just been around a long time. It seems when a film is a huge hit, the star (or star director) get the credit. If it flops, the screenwriter gets the blame.

I think at one time, Stars did add value. But then the price skyrocketed. A star can ask anywhere from 15 million to 25 million, and get it. To me, that's insane. If, on average, 50% of the cost of a ticket is goes to the distributor (not the producer or investors, by the way), just how many tickets would you have to sell to get a 25 million dollar break even, just for a star salary? And forget P and A. Now, to add insult to injury, the 50% gets funneled through the distributor, to the producer, then finally, the investor. Think about that for a second. The person that paid the 25 million dollar salary is getting chump change on the back end. Bruce Willis has had more flops than successes, yet can easily get 20-25 million. If he is a huge box office draw, there shouldn't be flops.

Only if the budget is low enough, can a star add value. Look at The Ides of March, starring and directed by George Clooney. He made that film for 12 million. It grossed 40 million. If he, and the other actors, took their standard salary, it would have been a huge flop. That particular group of actors; Gosling, Clooney, Hoffman, Giamatti, added a value. But think about the gross again. Those are some of the best actors of a generation. 40 million?

You can't make "Iron Man" without Robert Downey, Jr. But does he really bring in his price of 50 million? But since you can't make it without him, studios pay that price and take the gamble. That kind of paycheck requires cross promotion. You simply can't make an Iron Man without a theme ride, video game, and a tie-in with MacDonalds. Kind of leaves indies out in the cold.

The value a star brings is promotion. They can let people know that the film exists. But even that needs a solid promotion plan that costs money. I'm amazed at the amount of films with actors I really like in them, but I'm unaware of the film's existence until I'm thumbing through the DVDs. How is that possible? I'm in the industry. I pay attention. How did I miss the theatrical run? More importantly, how is the factory worker in Tulsa Oklahoma going to be aware? My guess is that the star salary took a huge bite out of the promotion budget. So again, the salary hurt the film in the balance of a name helping it.

Now look at the converse: films with little known actors or character actors that were huge hits. There are a ton. Right now, Juno comes to mind. How many "no-name" scifi films were huge? Scifi seems to be one of those genres where names don't matter. Star Wars, Alien, Transformers... I could make a huge list, all with minor celebrities.

So it's all a big balancing act. Unless you're making "Iron Man", a star salary should top out at 2 million, I'd say, because the typical indie feature isn't going to break 20 million at the box office. And if they truly believe that they are worth 20 million, and bring that kind of value, let them put their money where their mouth is, and take a back end deal.

10 years, 9 months ago - Paddy Robinson-Griffin

Alève, that's exactly how it's structured - every film *is* a company that exists solely to produce that single movie. This is to financially isolate liabilities between films, and so yes, as you say, you can have various levels of shareholding/creditor.

10 years, 9 months ago - Dan Selakovich

There are banks that lend, in fact. But it's usually only for gap funding. Let's say you've raised 10 million on a 11 million dollar budget. A bank will loan you that million (large banks have an entertainment division) to close the "gap" in your budget. Having said that, the only way an unknown will get gap funding is with a very experienced producer, a star or two in your film, and a very hefty completion bond.

As Paddy says, it's always about the money. To get the typical film investor to throw cash at you REQUIRES bankable names in your picture. And that name usually needs to match the genre they are known for. Bruce Willis may really want to do your teacup drama, but unless he shoots somebody, you're probably not going to attract typical film financing. Also, the fact that stars don't add much box-office value to a movie is irrelevant. Investors THINK they add value, so it is what it is.

10 years, 9 months ago - Paddy Robinson-Griffin

Dan, is the $20M fee in real money though, or is it $1M, and a shit-ton of equity, or contractual first money out, etc? Big numbers make people moist, but are as much a part of the sizzle as the Oscars. We all know how budgets and big numbers can be creatively reported and not accurately reflect the cash position on the ground.

Also, some of those blockbusters, they have the theatres on the hook for 95¢/$, the theatre gets the popcorn money.

10 years, 7 months ago - Marlom Tander

Lee - fair enough, but not many people know anyone able to stand as guarantor for millions. So, is he interested in doing more ? :-)

10 years, 7 months ago - Marlom Tander

Lee - what type of loan?

There is a huge difference between a loan secured against the film on the basis of a sales agents report and no recourse beyond company funds, and one where the company directors have provided personal guarantees and thus, in effect, put their houses up as security (though a lot of directors don't always realise this).

10 years, 9 months ago - Franz von Habsburg FBKS MSc

Yet I'm told I can't shift my www.MargeryBooth.com without a big name, although the genre of WWII spy dramas become highly collectable DVDs as is proved many times. The recent Book Thief, comparable with mine, is a purely European film
with nothing in it for Americans, all locations, characters etc being European, cost $19m and grossed $68m, $21m of which was taken in the US. Although it had the odd name, it was the genre which sold. Look at Berlin Express from 1958 still sells, and the TV SOE drama Wish Me Luck has just been relaunched as a DVD boxed set.

10 years, 9 months ago - Paddy Robinson-Griffin

It's about investment, of course. The word 'showbusiness' is one-third 'show' and two-thirds 'business'. It's ALWAYS been about the money. If you want to demonstrate that, take the same idea and two directors, one with a track record and one without - see who gets the money more than half the time.

10 years, 9 months ago - Lucas Jedrzejak

I think more alternative ways to finance film becomes very popular and the fact that you can control most distribution rights becomes a huge incentive. To those, I would include private sector investment, product placement, crowd funding and
pre-sales. I think loans are very risky these days where with private finance you offer a stake of the film, if it doesn't work out at least your backers have marketing exposure and tax breaks all the way through the process of making it. There are many companies that would be willing to back a good project. "Press Pause Play" was funded entirely by a Swedish telecom giant, Somers Town funded totally by Eurostar, there are many examples with car manufactures, airlines, software/security developers and even food chain stores wiling to come on board. I think the finance structure changed a lot in the last decade and looking at alternative ways of financing becomes a fact of everyday life. I wonder how many people would know that David Lynch funded his films with the help of Canal Plus but also a Polish businessman (tights manufacturer!). And one of his last movies Inland Empire shot entirely on PD150, dispite Arri 2 kit available from Lodz in Poland.i would recommend a very good movie shot by Pawel Pawlkiowski last year "Ida" on a shoe string budget and compare that with any fat investment movie. It's all about content, right? Or is it about an investment...

10 years, 9 months ago - Alève Mine

@paddy I thought it was unexpected, too. But of course I've got sales appeal ;)

Next thing I know they apparently signed a truly big name, that even I would recognize, for another feature of theirs, and completed funding!