The Business Of Film - Essential Concepts of Film Financing
By Paula Landry • April 27, 2021
While screenwriters may not actively participate in the funding of a movie, writers can benefit from understanding movie financing terminology and strategies.
Film is an expensive art form compared to most others. Movies have high technology costs, employ large amounts of highly skilled workers, pay high prices for equipment and technology, logistics, and star costs among others. Added to that bottom line for many filmmakers includes marketing and festival costs, and now Covid-related safety costs as well.
While screenwriters may not actively participate in the funding of a movie, writers can benefit from understanding movie financing terminology and strategies. Here are some essential concepts to understand about film finance.
- Film financing is inherently risky
- Financing a single film is riskier than financing a slate or group of films, so
- It’s easier for studios or large independent production companies to finance films than independents
- There are different types of film funding
- There are different sources of film finance
Financing a film is risky because a movie may not get fully funded, or completed, or may not perform well. Everyone has heard the concept of not putting all your eggs in one basket, financing a single film is riskier than financing a slate or group of films. This is just basic math, if you step up to the plate to bat more times, you’ll have an increased chance of success. It’s easier for studios or large independent production companies to finance films than independents for the reasons that those companies have access to more larger, and many, financing sources.
With that in mind, it’s time to dive into the types of finance and sources of film finance.
What Are Different Types Of Film Funding
There are three basic types of film funding, equity and debt. They are often used in combination with the third type of funding – the type that doesn’t need to be paid back, like crowdfunding, grants and soft money.
Debt financing is a loan, essentially borrowing money to pay for making the film. The ‘cost’ of that financing is interest. So the borrower pays back the loan and the interest.
Equity financing is a type of investment where money is exchanged for partial ownership in the movie. When the movie makes profits, so does the investor, up to and above their investment. If the movie doesn’t generate money, the investor loses their financing.
Crowdfunding, Grants, Soft Money, Other
Equity and Debt finance expects to be repaid. Other sources do not have to be repaid, so they are in essence ‘free’. Crowdfunding and grants are available to some filmmakers who are willing to put the effort into them, and the effort is considerable.
Crowdfunding is financing through presenting a project to as many people as possible, requesting funds in exchange for perks – like stickers, social media shout outs, t-shirts and more. There are many crowdfunding platforms now, from Indiegogo, Seed&Spark, Kickstarter and others. There is a huge time and creative investment to build up to these, and they can sometimes pay off with good strategy and planning.
Grants are most often used by documentary filmmakers, but not always. There are programs that fiction filmmakers can apply to, and if the organization decides to award the money, often the filmmaker needs to work through a non-profit. Grants take time to research and write.
Typically soft money refers to production incentives, subsidies, rebates, or tax-advantaged investments that are made directly by, or enabled through tax laws of, countries or governmental subdivisions, such as states in the United States, provinces in Canada, or European countries. States in the US are competing to get movies to come and spend production money, employ their actors and crews, rent their sound stages and other facilities. Each state’s (or country’s) incentive is a bit different. The location of where a movie is shot is heavily decided based on the size of the incentive. If you know you could get 30% off any major purchase – wouldn’t you go for it? That’s the idea.
Filmmakers may utilize a single type of financing, or combine them.
Where’s The Money – Different Sources Of Movie Finance
The way movie deals are put together now has changed over time, and will continue to change. Changes in the distribution structure of the business, driven and shaped by new technologies, has affected, and will have an impact on, the financial architecture that has prevailed in the industry. Rising dominance in streaming right now is affecting theaters, for example.
Independent producers generally finance films one at a time, through funding from a distributor, bank loans, equity investors, subsidy funding, or, most often, some combination of these sources. On the credits list, the Executive Producer is the credit given to the person who has fundamentally assisted with the financing of the movie.
Film distributors need product to distribute so they are a first stop for film financing. Movie distributors may fund a film at different stages (script stage, once director or stars are attached, during production, during post-production, or after completion). Every distributor is different, in the types of movies they are seeking, as well as the scope.
There are a few entertainment banks that specialize in lending for films, and they will require collateral to guarantee the loan is paid back. Often, that collateral is a contract with a reputable distributor.
Producers can fund movies with private investors who are excited by the possibility of the project, the team, or the possible profits, and may donate some, or all of the budget. Finding the right investors for a project and pitching them can be time-consuming.
Production Incentives (Tax Incentives) Financing
Production incentives are driving where movies are being made, now. For the majority of production incentives, the application for the financing would work with the local film commissioner’s office, with location-specific paperwork and requirements to hire local workers and use local resources. Typically, the incentive funding is not released by the state until after production is completed, however, there are companies that offer loans against them, so the funding can be used during production.
To sum up, the essential concepts of film financing are explained to further understand movie funding. Whether a filmmaker combines one, or all of these types of movie finance in their project, will depend on the complexity and nature of both the project and the filmmakers. As we continue to learn about movie funding, it will become apparent that the deal-making aspect of putting together financing for your motion picture can be as creative as the movie itself.