What is a good annual rate of return on Wall Street? 10-12%.
While film production investment is a high- risk venture, there are several hedge funds companies and production companies capitalizing on the huge profits that can often be realized with some of these ventures.
Some of the Film financing deals we are currently working on include a combination of equity and debt finance with government grants and subsidies, as well as hedge funds, high net worth individuals, tax credit buyers and private equity firms.
TYPES OF FILM FINANCING
STUDIO DEVELOPMENT DEALS
Studio finances everything from negative costs to distribution, which includes marketing and advertising. In this scenario, Studios often exercises a greater degree of control over project.
NEGATIVE PICK UP
In this type of deal, a producer enters into a contract with a distribution company and the distributor agrees to purchase the movie from the producer for a fixed sum on a given date. The producer is responsible for financing the film until the point of completion and delivery, and must pay any additional costs if the film goes over-budget. The producer can then take that contract to a bank for a traditional bank loan or to equity investors as collateral.
While the terms of negative pick-up deals vary, the studio/distributor typically pays for all distribution, advertising and marketing costs once the film is delivered. The studio and producer will then share profits. Because the producer has taken the responsibility of financing production, he/she can usually negotiate a better definition of profits – on a net-profit basis or even gross profits if warranted – than if he/she made the film with studio financing.
GAP FINANCING
This type of finance is obtained when the producer obtains a loan secured against the film’s unsold territories and rights. Banks will want to evaluate the collateral for the film since this type of loan carries a higher risk, and is often accompanied by higher interests and fees accordingly. This type of lending becomes a SUPERGAP if the loan required extends beyond 10% of the budget.
TAX CREDITS & SUBSIDIES
These incentives are provided by more than 30 states in the US and by a lot of foreign countries. The way this typically works is by a “sale” of the tax credit and through other incentives and grants provided by the local or state governments. Many local companies in those regions will often enter into co-production arrangements with the producer, in order to help obtain subsidies. This often requires shooting in these areas and utilizing about 75% of the production crew and staff.
CO-PRODUCTION
This is when two production companies, which can also be two international production entities, work together on a film production. Some of the benefits of such a partnership include pooling financial resources, partnering government’s incentives and subsidies and gaining access to a larger market, as well as securing locations and obtaining resources that are cost-effective.
PRE-SALES
This is when the rights to distribute the film are sold to different territories around the world before production commences. The sale is often based on the commercial viability of the script and casting talent.
ANGEL INVESTORS
These are high net worth individuals who provide funding in exchange for convertible debt or equity. These deals can be attractive to them since they are constantly seeking higher return on Investment. When Angel Investors pool their resources together to fund a project, they are often referred to as SUPER ANGELS.