VOD distribution of films has reversed film financing, specifically by betting all-or-nothing: you either sell your film to a VOD company for a certain profit (before or after production), or You go hungry. Long gone are the times when a film gets an actual theatrical release, the potential consequences of which can range from goose eggs to a home run. So here are the current means of film financing in a VOD world:
1. Growth Equity. The starting point for all film financing is the need for development funds to acquire the underlying rights or to hire a writer. This means digging into either your own pocket or someone else’s, almost always in the form of equity financing from someone with deeper pockets than yourself.
A. With cash-flow. Funding from VOD Company. In an ideal world, you sell your film to a VOD company prior to production, and the VOD company funds the production costs directly, with profits ranging from 10% to 50%, with an inherent benefit to you as the producer. . Budgeting, often called a “premium” or “buyout.”
b. With delivery guarantee from VOD company. In a less perfect world, you pre-sale your film to a VOD company, and the VOD company only commits to paying both the production cost and the “premium” or “buyout” upon delivery of the film. Since the payment is a fixed amount with no back-end, equity financiers will have no interest, and production costs will need to be financed with a loan – usually one of the banks or commercial lenders involved in film financing. are experts.
3. Equity financing if there is no pre-sale. If there are no pre-sales, life becomes difficult, and funding the production is basically a gamble that the film will be sold to a VOD company after its completion, usually whipping it up on the film festival circuit. By killing In this case, the bulk of the production cost will need to be financed with equity, and there are several key issues to keep in mind:
A. One of the most attractive elements to investors is getting some sort of credit with the word “manufacturer,” so get creative and give credit like candy.
b. Many state laws and tax issues require investing in an LLC as membership interests rather than the “investment contracts” that are often used.
C. Watch out for securities laws! Whenever you’re raising funding for a film, you’re making a securities offering, and you must comply with securities laws, which generally means obtaining a valid exemption from registration.
4. Local production subsidies. State and foreign subsidies for local production are another major source of funding, although they will only provide up to about 25% of the budget. It takes a lot of paperwork and jumping through hoops, but it’s definitely worth it if you can shoot within their jurisdiction.
5. Equity from advertisers. Advertisers can be another source of equity financing for films, although the more they invest, the more they insist on turning the film into a lengthy advertisement, even if it hurts the film. But Lego and Transformers definitely pulled it off!
6. Utility tokens and NFTs. A new approach to increasing film financing is to sell “utility tokens”, which give the buyer the right to trade them for NFTs (fungible tokens) with clips after the film is completed. A recent animated feature featuring its main character sold NFTs for more than the entire budget of the film!
7. Federal Tax Section 181. Forget about it. It doesn’t work.
But one of the best lessons I’ve learned from my clients who are successful in raising film financing is clearly following Churchill’s rebuttal of “Never give in. Never give in. Never, never, never.” We do.