Show Me The Money

Film ShootWant to make a movie without the glare of the spotlight, suits or star divas throwing tantrums? You’ll need to penetrate the tangled web of film finance, and it’s not for the faint of heart. Drew Turney finds out more.

Robert Downey Jr appears in 2019’s Avengers: Endgame, which cost almost US$400,000,000 to make but went on to make five times that number at the global box office in its first fortnight of release. He was also in 2014’s The Judge, which cost a tenth as much as Endgame to film, probably at least another £12-25m to market, and earned only around £65m.

Comparisons like it make the movie industry a bit like wealth disparity in a recession economy, a few small players at top controlling all the money while those falling out of middle class into poverty scrabble over the crumbs that are left.

This story is about the crumbs.

With films easier to make than ever thanks to digital tools, there are more producers wrangling low/no budget movies every year, many with nothing more than a mobile and a Gmail address instead of the studio jet and a Feng Shui budget. They need people you’ve heard referred to by mysterious terms ‘backers’, ‘financiers’ and ‘investors’, but who are they?

Money everywhere

The TL;DR version is; anyone with money to invest in a business venture.

Production companies and film distributors are the most obvious candidates because of their industry experience, but money for indie movies can come from bank loans, investments from funds looking for diversity, a tech billionaire, rich uncle or anyone in between.

J Edward Reynolds, a Beverly Hills pastor, wante dto make a movie with uplifting Christian themes. A young director convinced him to invest in another project, the profits from which would then go on to fund Reynolds’ dream movie. The young man offered to get himself and everyone involved baptised at Reynolds’ church so the pastor cut the guy some slack over the lurid subject matter of his film, but he did balk at the title, which is why Ed Wood’s cult classic is called Plan 9 (rather than ‘Grave Robbers’) From Outer Space.

It’s not that different today, when David Greathouse, former creative principal at production company Demarest Films (Hacksaw Ridge, A Most Wanted Man), says; “A lot of times companies are created just to get an LLC for the producer, give the company credit and try to make a go of it and get another movie off the ground,” he says.

Even though plenty of movies are still financed in such slapdash fashion, there’s a far more mature infrastructure of independent funding today. To an outsider, however, the equity funds, loans and legal structures that underpin it can be confusing, the names and personalities a constantly movable feast.

Different strokes

Not everyone with money makes movies, and even fewer people who make movies (or want to) have money. Indie film finance is about finding and somehow connecting the two.

Doing that is hard, but making a successful movie so backers will want to invest in your next one is even harder. While Hollywod Hills shindigs with movie stars is often all you need to separate high net worth individuals from their money, movies are a mostly terrible investment – many a CFO has convinced their wealthy employer to go back to oil or pension funds after being burned.

Indie film money can (and often does) also come from more than one place. The practice was beautifully parodied by Family Guy (Google ‘family guy movie logos’), but it reflects the reality of a world in which it’s very hard to raise all the funds you need from one place – even for a movie whose entire budget wouldn’t cover the cost of the doughnut table on a superhero blockbuster.

Many of those endless logos are the metaphorical loner in a garage, trying to put deals together. Some are government agencies with production incentives, and others are the legal representations of private groups contributing money.

In return for their contributions an onscreen credit gives them some industry credibility until/if the film ever goes into the black, and if the film breaks big, they’ll become known as a player actors and directors want to work with (Martin Scorsese’s The Wolf of Wall Street was funded by a Malaysian financier who got a great return before falling into a legal quagmire over where the money had come from).

Risky business

Everyone handles combinations of methods differently (see boxout The Methods). They’re often represented by a dar distinction between the making and selling of a movie. Qualia Capital is a film fund set up by marketing and distribution expert Amir Malin, and rather than production, he concentrates on selling films after they’re made (P&A – prints and advertising).

Malin makes an interesting point about the difference between running around with a RED camera and your film school buddies on weekends and actually getting the movie out across a territory (or the world). “Film distribution is a business, film production is a hobby,” he says.

Kevin Smith – one of the names that kicked off the modern indie film movement with his 1994 debut Clerks – certainly agreed at one point, raising eyebrows at the 2011 Sundance Film Festival when he announced he was distributing his film Red State himself (after promising an auction for the distribution rights).

Support and hatred flew in all directions in equal measure, but it overshadowed the point Smith was making – although Red State had cost just £2.5m to make, distributing it traditionally in North America alone would cost up to £15m and greatly increase the financial risk for his backers. After travelling from city to city, hosting fan screenings and Q&As and adding VOD revenue, the film made the budget back within months.

Of course, you can pre-sell a movie before it’s even been made. Although the collapse of the DVD market and the post GFC economy took the wind out of its sails to a large extent, presales strategies like lining up overseas territory distribution is still a thing.

Getting someone to agree to distribute a movie you haven’t even filmed sounds disingenuous, but the Chinese government offered the production of Rian Johnson’s 2012 time travel hitman movie Looper around 40 percent of its £22m budget if it filmed and set certain crucial scenes in Shanghai rather than Paris as originally scripted, making the international box office haul of £134m all the sweeter.

Though harder these days, it’s still possible to get agreements from distributors to release your movie in other territories in order to raise the money to actually make the film. Just take a killer £10-budgeted package with a great script, a hot actor and a director with a unique vision to a film festival, sell the distribution rights to 10 distributors in different global territories for £1m each and viola – you have your finance.

Not so fast. Those distributors don’t just hand you their £1m then and there, the deal will be for a finished movie. That means you have to go to a lender like a bank or media fund with your £10m worth of contracts as collateral, borrow from them and pay it back when your movie’s being released and the various distributors pay up.

Even then, banks don’t give you 100 percent of the value of your contracts any more than they do 100 percent of the buying price for a consumer house mortgage, discounting it by as much as 30 percent to mitigate their risk. That means you’re suddenly going to need £12 or £15 million to actually start production on your £10m movie. Cue the scramble to secure funding for the gap from county or national film bodies, other banks, rich collectives with money to spread around or rich uncles.

If you don’t take the presales route, you might need to execute that scramble for the entire budget. The upside is you’ll then have a finished movie, and an investor looking to diversify into movies will have a much easier time with something that’s already made and getting serious buzz by critics and buyers at festival screenings.

Who do you know

Despite widespread evidence, Hollywood producers and lawyers are actually human, so like the rest of us they tend to work with people they know and have prior success with (see Tim Burton and Johnny Depp or Chris Nolan and Tom Hardy).

So even though it all looks very corporate, many films funds are just collections of people who have prior ties and just hand over a cheque. We even suggest the word ‘legitimate’ to Greathouse to distinguish between a carefully thought out business plan and a local pastor giving Ed Wood money from the collection plate and he says they can co-exist. He cites a pair of producers who use the same financial partners on every project (just wealthy people and groups around the US they found and pitched) because they’ve never lost money.

Behind the flashy logo he says the agreement consisted merely of an LLC (the US equivalent of an LLP) that dispersed the funds, a collection agency that receives the investors’ share of the profits and the various contracts that hold it all together.

But while it’s never been harder, it’s ironically never been so full of opportunity, with more places than ever to make and distribute movies thanks to countless niche pay TV channels and the streaming behemoths.

“The biggest opportunity is that so much great material is being made outside the traditional system,” says Nick Meyer, founder of international sales agent Sierra/Affinity and now CEO of distributor eOne, which acquired it in 2018. “Generally the independent film business isn’t designed to do Marvel or Star Wars, so the challenge is finding great material. That’s always been the problem, but I think it’s becoming the rigour with which you have to chase the expectations of the consumer.”

Above all, the capability indie film needs the most to remain healthy is to stay mobile. When mentioning the Netflixes and Amazons of the world, Meyer says his company is in business with the streaming giants as well as the traditional players. “They help the ecosystem now, so either you figure out how to make movies with them or they support distribution or acquire rights from us,” he says. “It’s just another player to navigate.”

Along with the immortal words of the late great screenwriter William Goldman (‘nobody knows anything’) such words perfectly capture the beautiful and impossible paradox of financing independent cinema.

The methods

Some of the financial alchemy used to make and sell movies

* Debt

Borrowing your budget and hoping your movie sells. Debt providers are paid back before any other parties.

* Equity

Equity partners have more of a financial stake – rather than just be repaid, they’ll own a piece of the resulting success/failure. Most of the people termed ‘financiers’ fall into this category, either people or companies looking for investment returns.

* Credits

A government body offers financial (direct payments or tax breaks) or resources (access to locations or crews) to encourage filming or vendor services budgets to be spent in its borders.

* Deferred Payment

When a big creative name with guaranteed publicity value loves a project so much they forgo the usual fortune and perks until the movie makes money.

* Crowdfunding

Going direct to your fans and asking them for the money piecemeal, none of which you have to repay.

Apocalypse Now?

Since the rise of independent film around the late 80s and early 90s with names like Steven Soderbergh and Spike Lee, change has been the only constant. The early movement was propped up to a huge extent by DVD revenue, but after that flatlined from around 2010 onwards the general consensus is that the field isn’t in good shape.

However, one respondent to this story said things in the field change almost monthly, and money for movies comes from a dizzying (and ever-expanding) number of people and funds. Opportunity abounds for the adventurous and innovative.