Producers have a number of ways of financing their films:
- Equity. Equity turns a script into a film in progress. If an intelligent approach is maintained, Equity investors can see spectacular returns. The most famous example of such was The Blair Witch Project. This film was made for only about $60,000 by rank amateurs and went on to gross $249 million worldwide. Of course, such spectacular successes are not the rule, the potential in the film industry can surprise investors with blockbuster dynamics
- Senior Debt. Senior debt accounts for a significant portion modern film finance. Traditional providers of senior debt (such as JPMorgan Chase) require a security interest in the film and all revenue streams associated with it in priority to equity. So, before a film is completed, a producer might sell the distribution rights (including theatrical, home video/DVD, pay TV, free TV and other rights) for various countries. The producer can then use the value of these contracts as collateral against a production loan from a bank.
- Soft Dollars. ‘Soft dollars’ or tax credits for shooting your film in a certain state or country. Some years ago Germany offered such financing on their Neuer Markt – now, the UK has EIS (Enterprise
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Investment Scheme) which are often used in film finance.
In the USA, some states (Connecticut, for example) offer tax credits, but the film must actually be produced in that state, and the producer can only get the tax credits after documenting such. Some creative directors have tried to swap the right to the tax credit for cash that can be used to further finance or finish the film. To sweeten the deal, the producer/investor could ostensibly sell the tax credit at a discount. For this sort of deal to work, credits must be transferable—no financier will be interested if the rights can’t be assigned directly to him. The Connecticut tax break could only be used by a corporate tax payer with a tax obligation to the state.
Pennsylvania had a simliar scheme which would actualy cut you a check upon submitting expenditure documentation.
- Print and Advertising Financing. The typical P&A budget today can be equal to the film budget, if not higher! Such financiers can provide millions in senior debt at rates as
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high as 20%. P&A Financing has no security – more risk traditionally equals higher rewards. The rights in the film are not the security, but the debt is senior by virtue of the order of payment, which is effectively like being senior secured in that the revenue from the film—after the distributor is paid—pays P&A first. Last in, first out.”
- Slate Financing. A slate of films, as it’s called, is the safest way that investors can hedge their bets, as there is no 100% guarantee that a single film will be profitable.
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financing arrangement in which an investment group provides capital to film fund for financing a slate of films in an effort to spread risk.
Slate financing funds can offer senior, mezzanine or equity packages, depending on investor risk appetite.
Product Placement. Producers can also earn money from product placement (imagine having the rights to Mickey Mouse dolls, Darth Vader products, etc.).