Pre-sale financing is how a filmmaker will raise the majority of the money for their project. With a script and an actor attached, you can attend a film market and “Pre-sell” the film. This is often done with the assistance of a sales agent. You may then sell distribution rights to a foreign distributor so that they may acquire the rights to your film once it is done. These distributors may agree to pay you a large amount money, but they will require delivery of the film prior to forking over the dough.
Take the contracts acquired over to the bank. Here you will change out those contracts for a “Notice of Assignment.” Here the distributors agree to pay the bank once the bank delivers the film to them. This new contract will typically override whatever was in the initial distribution agreement. You are now eligible for a sizable loan to budget your film.
But what if the film never reaches completion? For the bank to ensure that it will receive its money, you will need to involve a “Completion Guarantee” company. This company guarantees that the film will either A) get made, all contracts work as planned B) not get made, and the company guarantees the bank that it will receive its money from the loan provided to you.
For a typical film budget – $10 million – you may be able to do pre-sales of 7 million. After taking the contracts to the bank and following the steps above, the bank may provide a 6 million loan. Congratulations, 60% percent of your $10 million dollar budget is now covered.
Today I want to get a bit boring. I’ve discussed vapid dreams and ambitions here for quite a while now. But as I set out to begin a new project, I must prepare to deal with an element that I haven’t encountered before – raising money.
In the world of art the dollar symbol is nearly a curse word. There is so much joy throughout the creative process that the financial burden is completely ignored in favor of fantasized recognition. The irony is that a person who loses a quarter of their income on a poor financial investment will be more angry than an artist who pisses away half their lifetime on a masterpiece that’s never fully realized.
I’m making a commitment to myself to learn more about film financing. I cannot make legitimate films without an external source of income. Today I’m going to summarize a few of the key points from the video series I’ve been viewing, with links to each. I want to add that I have no connection to Sky Moore and am citing his videos specifically due to the wealth of information he provides in each. If you enjoy his videos, I encourage you to “like” them and subscribe to his channel. My summaries simply recite the main points that he provides.
Basics of Film Financing –
Sky Moore urges us prioritize learning inner workings of the film industry over all other aspects of filmmaking. He states that 80% of films that are made lose money. Moore informs us that studios make money primarily through distribution. They often acquire films that were financed by a third party, get the film to a distributor, and take a cut from that. The principal distinction between film studios & independent studios is that Independent Studios will often collapse after one film failure. They do not have deep enough pockets to cover a major loss. Studios control distribution – Independent Studios do not. Never invest in your own film.
2. Equity & Security –
Moore tells us that if we violate the securities laws, we go to jail. We are also at risk for being held liable for any losses incurred. Security laws apply anytime a person is paying money with an expectation of receiving money back. You can comply with the security laws by filing with the SEC (a headache) or by filing for an exemption. Rely on Rule 506 – All investors must be credited investors: (investors with net worth over a million (excluding their homes), annual income above 300k, or an entity with over 5 million dollars of gross assets. They must meet one of those requirements and also sign a document stating such. Congrats, you got yourself a credited investor! Now file form D with the SEC and don’t do advertising (not sure why).
You have an obligation to disclose all material facts to your investors through a Private Placement Memorandum. (A summary of script, projected budget, distribution plan, your background, etc. Can be short but must meet the burden of meeting all material facts.)
3. Tax Financing –
There are 3 different ways to use tax subsidies for film financing:
1. Foreign (tax shelters) – Sale/lease back model. Sell your rights to a foreign entity. They license the rights back to you. You recover 10% of your budget.
2. US – Section 181. Deduct the first 15 million dollars of the cost of a film produced in the United States. Realize it’s not a credit. It accelerates the deduction by a year. It doesn’t work and ya goofed.
3. State tax credits – This one does work. There are two different models.
Assignable – Receive tax credit based on producing in a local jurisdiction. Sell the credit to a buyer (taxpayer) within that jurisdiction. Some states will give a credit of 20-30%. Spend a million on your film, receive a credit as high as 300k.
Refundable – The state will refund the amount of your credit. You may not be able to sell it but you can borrow against it. You can pledge it to a bank and monetize it (use it to raise money for your film).
I hope these videos and summaries were helpful to you. I know very little about film financing but am motivated to educate myself. I stumbled upon these videos online and found them immensely helpful. I share them with the hope that someone else can find them as invaluable as I have. Once again, I have no connection to Sky Moore.
Have a good one.
Moore, Sky. “1_ Basics of Film Financing – YouTube.” Www.youtube.com, Sky Moore Attorney, 3 Aug. 2017, youtu.be/Qyf97tFxUEE.
Moore, Sky. “3_ Equity & Security – YouTube.” Www.youtube.com, Sky Moore Attorney, 3 Aug. 2017, youtu.be/zkt2EvkSvDg. Accessed 15 May 2022.
Moore, Sky. “4_ Tax Financing – YouTube.” Www.youtube.com, 3 Aug. 2017, youtu.be/2vFJLztFQwc. Accessed 15 May 2022.
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