The number of questions I get around film financing are many so I figured it's better to start writing about it here in the blog instead of answering via mail each time. Film financing, actually any type of financing is an important and often scary aspect of a project, a film for example. 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.
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.
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!