This is a second continuation of WinGateFilms’ coverage of Karin Chien’s Filmmaking Outside the Box: Smart Strategies for Independent Producing workshop.
Deal-making for independent films revolves around financing and distribution/sales/marketing. The basic practical question is “what is going to incentivize an investor/vendor/talent/crew to give you what you want/need as a producer?”
For a “1-off” (solo) film, the most common financing vehicle is to establish a limited liability company (LLC) and sell non-equity membership shares to accredited investors. Typically, investors will be offered first position lien recoupment from gross revenues with an additional percentage return (10-20%) before net profits are calculated. Investors generally receive recoupment pro rata according to their proportionate share, at the same time as other investors in the same class.
After recoupment, the typical deal apportions net profits 50/50 to the pool of investors and to the producers. The 50% of net profits apportioned to the producers constitute 100 producers’ net profit points. Karin recommends to leave at least 10 producers’ net profit points unallocated in the beginning so they can be given away later during the development phase.
First lien position is extremely important because these will be the only people that may be recouped if the film does not generate profit. Sometimes, a producer may be forced to give up first lien position to investors providing finishing funds according to the “last money in, first money out” principle.
Unfortunately, even if principal photography (and maybe even post-production) has been completed, meeting delivery requirements for distributors can easily run $150,000 for an independent feature.
The bad news is that a finishing funds investor often knows that they have the producer in an untenable position because without being able to meet deliverables, the money spent on the film may never be recovered, much less any profit. The good news is that for many distributors, the specific requirements of the delivery schedule may be negotiable.
For example, it may be possible to get the distributor to add the production company as an additional insured to the distributor’s errors and omission (E&O) policy, thus saving about $12k.
Because the statistical chances of financial success for an independent film are extremely low (1 out of 1000), a producer often needs to brainstorm additional deal-sweeteners to entice investors. Being credited as a producer or executive producer is quite common, and a producer can sometimes offer invitations to set during principal photography (with advance notice to the production team, etc.).
Retaining creative control essentially rules out financing from studios or studio distributors, as they will want significant control over the film.
Michael
WinGateFilms
www.wingatefilms
Tags: delivery requirements, film financing, film producing, independent film, Karin Chien, WinGateFilms
