Which Film Financing Model is Right for You?

May 2, 2016|Entertainment finance
Rodriques Law

As you already know from reading my blogs, there are four main ways to secure funding for an independent film: self, equity, debt, and crowdfunding. Every project is different, and therefore every project requires a different financing mix -- but which tools do indie filmmakers use the most?

Crowdfunding, for starters, is on the rise. But just how common is it?

The numbers can be impressive, with hundreds of millions of dollars going to film through sites like Kickstarter and Indiegogo, but as a percentage of films it is far less so. Looking at data from film festivals, we see that most filmmakers in attendance choose not to pursue crowdfunding.

In 2013 South by Southwest (SXSW), for example, presents the following statistics: of the 47 films presented, only 21 crowdfunded, the majority of these (15) using Kickstarter. The vast majority raised less than 50% of the budget by crowdfunding, and only one film, Good Ol Freeda, raised all or most of its money in this way. A full 26 films (or about 55%), did not engage in crowdfunding at all.

The statistics from the 2013 Tribeca Film Festival are even less flattering. Again, only one film, Flex is Kings, raised all or most of its money through crowdfunding, and 36 of the 50 movies presented (72%) did not crowdfund in any way.

So even though crowdfunding is on the rise, most completed films do not rely on it as a source of funding.

On the other hand, borrowing money from banks or other lenders, the go-to financing tool of yesteryear, has seen a decline. The problem?

Well, with the failure of most ‘specialty’ distributors in the U.S., indie filmmakers found themselves with nowhere to go domestically. This forced them to look to foreign markets in order to secure collateral, in the form of presales, against which to borrow money.

The hesitance of banks to lend coupled with the costs of doing business abroad have made it all but impossible to fund a movie on borrowed cash alone. So in order to fill the gap, filmmakers turn to equity investors.

Equity investment, then, is the single most common financing tool. Almost every film project is financed in this manner. In another article, I will explore the impact of equity crowdfunding on this model.

Within this category, the most popular tool is the limited partnership. In this setup, one or more general partners (including the filmmaker) assume responsibility for and control over the project, while the investors are considered limited partners (in that their liability is limited to what they’ve put in). In the most common arrangement, investors receive their investment back out of the film’s profits, and split 50% of the film’s net profits after that.

This is a win-win. Filmmakers appreciate this type of deal because it gives them full creative control and limits their risk, while investors want to be able to shield themselves from risk beyond what they’ve paid in.

All this information should be taken with a grain of salt, of course. Regardless of what is commonplace in the industry, every film is different. If you are looking to obtain financing for a project, it pays to examine all your options, and it always pays to have an experienced entertainment attorney on your side when you do so.