Pre Sales - How it works

Let's talk about pre-sales and why they are important for producers today and why some say pre-sales are less common today than before. If you are interested in other parts of film financing, please see my other posts about that below:

• Quick ideas on how to finance your project

• Different types of film funding

• Film Funding - The Basics

Before we begin, make sure to subscribe to my YouTube channel. I will be posting videos there.

When a producer or a production company are in the later stages of a film financing round there are many times a lack of financing options and a way to acquire the last parts of the production budget can be a so called pre-sale deal or pre sales agreement. This is usually made far in advance but can be made in a later stage as well.

There are essentially two different deals that can be made with a pre-sale agreement. One is to take a bank loan using the pre-sales as collateral or the second and maybe the best option of these two, to receive a direct payment from one or several distributors. The important part to remember is that not everyone should use pre-sales and not everyone has that as an option. For pre-sales to work, there need to be value attached to your project. Value can be many things but for a pre-sale deal, it is entities that will help sell the film, for example attached talent, actors and actresses that has a high marketable value and a great track record.

Since these deals are pre-arranged contracts made before the film is produced. They are based on the strength of the project based on what each part counts as strength. A german distributor might not see the same value as an Indian distributor and so on. There are some universal factors that can be used in discussions with distributors and that can be the quality of the script, movie stars and a great marketing strategy.

Pre-sales can be a wonderful way to finance your film but with everything, if the film is a success, then you have nothing to worry about, however, if the film is below average on the "success-scale" then you could be in a bad spot. With other words; The downside to this type of financing strategy is that it requires the producers to repay the loan before profiting on the film. As with everything regarding financing, it is wise to consult with someone who has done it before or who has knowledge in your particular situation and experience before signing any agreements.

The sci-fi movie, Valerian is a great example of a movie almost completely financed with pre-sales agreements. The movie was made and everyone seems happy but the movie itself seems to be a financial flop according to Box Office Mojo - Valerian.

Take a look at what was being said about the movie before it's release:

• ‘Valerian’: How Luc Besson Made a $180 Million Indie That Can’t Fail

• Why Valerian Isn't Actually A Financial Gamble At All

And after it's release:

• Luc Besson's bargain-bin space oddity

• Why Valerian flopped at the box office

• ‘Valerian’ Is France’s Most Expensive Film Ever. Luc Besson Says ‘Who Cares?’

It is important to note this had nothing to do with pre-sales, however, depending on the agreements, it could be a disaster for future projects.

As always, thanks for stopping by.

Update: I revisited Valerian to write about the budget and a potential second movie.

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Quick trip to Sundance

This year I was invited to the Sundance Film Festival to hold a couple of meetings and talk about the new types of financing that are increasingly common in the industry. It was a great trip and I had the opportunity to meet great people and squeeze in some friends and colleagues from Sweden.

This year I didn't have time to watch any screenings but next year will be a ski and film festival, Park City is a perfect spot to both ski and work. Highly recommended film festival as well, just make sure to book in everything advance! The demand is extremely high before, during and after the festival.

Take a look at the films that were shown this year. 2018 will probably be much more around VR and AR, this year had a lot of new tech companies present, I haven't seen that before so it was a welcomed addition and I believe it will stay like that in the future. However, it is and should still be a film festival so as long as it won't be another tech festival or gathering I will be fine.

Thanks for visiting.

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The assembly bill 1839 - Status report

The economy and the Film & TV industry in California had a big win in January 2015 when bill 1839 was enacted. In this report I'm going to explain the bill and present an overview to see how and if the economy have changed since the start of 2015. The California Film commission released an extensive report a month ago; I've been reading it to see what can be presented here as a way of explaining the positive sides of how the industry was affected after it was approved. In the longer perspective we (I) hope Sweden will approve a tax rebate for foreign productions filmed in Sweden, my opinion is that we, Sweden, lose qualified productions and with that income which is extremely valuable to the community and industry.

Click here for my first post about Bill 1839 and click here for the post when Bill 1839 was approved.

 

The Bill

So what is bill 1839 all about? AB 1839 is designed to increase funding and eligibility for California’s Film & Television Tax Credit Program to make the state more competitive in attracting and retaining projects. During the years productions moved to other states because of their of tax incentives. Bill 1839 is an expanded tax credit program that means more jobs and an increase in tax revenue for state and local governments. For example, a tax rebate or credit is many times the reason to why countries attract foreign productions and sometimes companies. If handled correctly, this can be a successful strategy.

The first-generation tax credit program 1.0 retained the targeted projects, those who where most susceptible to runaway production. Program 1.0 generated roughly $4.5 billion of additional spending on film production in the State of California, this became the first film tax credit program. The Program 1.0 could only help a small fraction of the productions that wanted to film in California. The state continued to experience losses of big-budget feature films and TV dramas due to the high demand and to compete even more effectively on a global scale, state lawmakers and Governor Brown created the expanded Program 2.0. This program tripled Program 1.0 funding and added parts to attract additional types of projects.

Changes

Have the bill changed anything? Well, during year 2015-16, approximately $230 million in tax credits were allocated to 55 film and television projects. Based on the budgets submitted by applicants, these projects are estimated to expend $1.5 billion in direct in-state spending, including $600 million in qualified wages, a note here; Qualified wages do not include wages paid to actors, writers, producers, directors, or other “above the-line” workers, as these salaries do not qualify for credits.

After its first year, the results are encouraging as six TV series have relocated to California. All of these series had received tax credits in the state where they originated, that is definitely a win for the economy and industry in California. These six series are on track to spend more than $328 million collectively in state. Most series film multiple seasons, if this is the case, then their spending impact will be even more significant.

The changes reported by unions and employee organisations:

• After one year, key entertainment industry labor organizations reported increased levels of employment. An analysis of hours worked by members of California’s below-the-line unions shows a 12.45% increase for the first quarter of 2016 compared to the same period in year 2015.
• Employment data from SAG-AFTRA showed background actors working in scripted film and television in California increased to around 19.7% from the first quarter of 2015 compared to the same quarter in 2016.
• Teamsters reported that members are working at “full employment” for the first time since 2007 and non-member workers are being hired “off permit.”
• IATSE Local 44 has seen a 4.9% growth in membership for the first quarter of 2016 compared to the same period in 2015. The organization hasn’t experienced membership growth this substantial since the 1990s.
• The non-profit film office, Film L.A., reported a 9.7% increase in on-location feature film production in the Greater Los Angeles region compared to the same period in 2015 and the film office credited the state’s tax credit program for the growth. Film L.A. also reported in their recent Pilot production study that in 2015, approximately half of L.A.’s TV Drama production was incentive-driven.

It might be early to say but it is encouraging to see the positive numbers and hopefully they will increase even more during the years. I will come back to this later, let's cross our fingers that Sweden gets the memo.

Continue reading here If you would like to see an update I wrote in 2018.

As always, thank you for visiting and join the newsletter if you want more of these updates.

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Women in Film 2016: Update

Since 2016 is almost over I will take some time going through the ups and downs the industry has seen during the year 2015 and 2016. I think it is important to go through the industry and evaluate so things can change in a more informed and structured way.

If you haven't read the post I wrote in 2014 about the situation for women in Hollywood at that time, take two minutes to do that and come back to this post later. As you will see, I was overly positive. I also wrote an update in the second quarter of 2017 of the situation, please have a look if you are interested.

It´s important to remember that the numbers I present below does not reflect the reality or quality of the work women do. Some of the best films today comes from female directors, when given the chance a female director usually finds new ways of telling a story, stories that always has been told by men now has new light with women in at the rudder.

The update

So how did we do in Hollywood and in other corners of the world and how is the situation for women in film two years after my first post? What we can say is that the industry was not very inclusive or progressive during 2015 and the year 2016 does not look very good either, it was rather a step back than a leap forward. According to leading film and news outlets, 2015 was not a good year and since I didn't have the best insight during that year I got a bit surprised by the lack of female directors and filmmakers.

The fact of the matter is that there is no reason for it to be like this and we've seen so many great examples of projects coming from women so you would think it would be in studio's interest to bring in women directors. It is clear that this is a low priority for studios and probably nothing that will be taken into account when signing the directors for 2017.

Alice Guy Blache – First Woman Film Director, Studio Owner

The future

From what I've seen, 2015, was ridiculous and to be honest, rather depressing. What I can say though is that out of the top 250 films in 2015 it was approximately 9% female directors and that went down during 2016 to 7% some even say it went as low as 5%. This is not an improvement and I fear that the industry might fall down a few steps during 2017 as well. If so, we should see a bigger push for 2018 and 2019. Hopefully people will understand and see the financial gains and importance of actively working towards a more progressive industry.

For those of you who would like to read more about women working in film and the state of the industry, take a look at the Alliance of Women Directors website.

Thank you for visiting.

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Film funding - the basics

The number of questions I get around film financing are many so I figured it's better to start writing about it on my blog and start talking about it on my YouTube channel (during 2020). Youtube and writing articles like this one is much easier than answering e-mails each time and it helps everyone at the same time plus I get to go deeper in each question or subject. So let’s begin and please consider subscribing to my YouTube channel in the link above.

Film financing, actually any type of financing is an important and often scary aspect of a project, a film in this case. Without proper financing, a project will never float and a movie will never be made, that is why it is so strange to see this subject being pushed a side so often. This post will be the first of many about film investments so stay updated if you're interested in that sort of stuff. In today's film industry it is extremely important to know what you are doing and to find smart ways around obstacles that appear, I will give you some tips and ideas on how to mitigate risks and maybe change your view on film financing.

Before I forget, if you are looking for a place to learn more about film finance, visit Sundance.

Problems

There are many problems around film finance that can and probably will occur during your career. However, my guess is you have better things to do than reading about problems so I'll keep it as short as I can. Film financing and the game of raising capital has two main problems. Firstly, the market outside of film is full of opportunities that are earning strong returns. There are many examples of these opportunities; Stock markets and the traditional sectors like real-estate & lending all present outlooks that are financially attractive and have a good history, these keeps people from film financing. The other aspect is the speculation side of film productions; Who would want to invest in an opportunity when the return is highly uncertain? For most indie productions, this is the reality. Unless you have a great team, big names or real talent attached, you have a really uncertain production and that will keep a lot of financiers far away, rightfully so. Those proposals I turn down or skip completely are the ones without talent, equity or a great team attached. If you have a project without those building blocks, do not approach me or anyone else before you have at least two figured out (attached and signed).

I sometimes say that there is no easier way to lose money than investing in film. I say this because of the sheer number of indie films made each year seemingly without a plan and knowledge to support the production but also because of the people in the industry. It is of course equally easy to loose money in start-ups but the promise of red carpets and the glamour seem to lure a lot of people into the film maze. Hardly anyone talks about the days, weeks and years of hard work with the constant threat of failure that surrounds a film project and start-ups for that matter. What is more common, is to be shown "comparables" or "comps" on prospects, like that would change the fact that it is a volatile market. Comparables comes from the real estate appraisal term referring to a similar subject property of the same or close to the same value. It works in real estate but to use the same metric in film prospects is something I've never understood.

What we are talking about here is essentially evidence-based investing which comes from the work of Eugene Fama, who won the Nobel Prize in 2013. His hypothesis suggests that financial markets (and the same hypothesis is used in film) are efficient. That means that the only way to have an information advantage is to accurately predict the future, that's why people use comparables, a way of predicting how the movie will go based "evidence". Anyways, let's continue.

THE BASICS

As with most things in life, 99% of failures are because of the team or person behind the wheel. As in many projects and ventures, financing is the foundation of what you are doing and it should be treated as such, a foundation. When you build something you make sure to have a strong foundation that will support a building. All to often the financing is weak with cracks and in the end of the day that usually tells you how the production will go or what problems will occur in the building.

It comes down to one single thing and that is, learn the business. Learning how the business works is everything and will protect you in the end. You wouldn't climb Mount Everest without proper protection and without information about the area, right? Learn how the industry works rather than learning how to act or how to write a script. There are plenty of people who can help you with the actual production, just a handful knows how the business works, think about that for a minute.

When you are done thinking about that, think about this; Who owns the creative process? I mean, who has control in a film production? In Sweden you might say the director or maybe the writer. In most parts of the world however, Hollywood included, you would say the producers or more exact, the financiers. What's important is to know that creativity comes from what you can bring to the table, financially. Unless you are involved in a really low budget production you will be forced to live with the fact most people seem to forget, the more you control of the funds the more you will be able to control on the creative side.

Around 80% of the films made, lose money, that number is probably higher and this is simply because people does not understand the business or more often than not, they don't want to invest the time to learn. The market can be over saturated but the fact is, quality and business knowledge is always key for a successful project. The business is actually quite simple, especially when you take a step back and see everything from a different perspective.

Check out this post; A list of different types of investments you can implement in your funding structure, each with it's own pros and cons.

Good Luck and Have Fun!

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