Yes, you have this amazing idea for a film. You know it is America’s next “number one movie”. You do everything in your power to make this idea tangible. But you cannot make this vision come to life if you don’t have the proper funds. Film financing is one of the most crucial steps in creating a film and getting it to the big screen.
There are many important players involved in the financing of a film. They include producers, investors, banks, public and private sources, and companies that specialize in financing during certain stages of film production. Film producers are the people who are ultimately in charge of finding financing for the movie. They will do all that is needed to acquire the film’s budget, from taking pay cuts to coming out of pocket to reach the monetary goal of the film. Think of film financing as an investment. Investors put their money into your film project and expect it to do well enough that it makes some of that investment back. This is called return on investment, or ROI. Some investors will invest in your project for the sake of watching a filmmaker thrive. In some cases, investors expect a ROI.
A budget for the film is extremely necessary and will get far because investors know exactly what you need and have in mind. The budget includes money allocated for cast, crew, materials, effects, and anything else you may need to make the film. These are a part of the negative costs of a film. Additional costs come from print, marketing, and promotions. According to the Motion Picture Association of America, as of 2001, the average negative cost of a feature film is almost $48 million. This amplifies the risk of investing and reduces the amount of revenue returned to producers and investors.
Types of Financing
There are various ways to finance a film, whether it be an independent film or a feature film. Banks will often times provide gap loans. This is a very risk capital investment. Banks will monitor and closely look at the film’s collateral. Another source of financing is crowdfunding. GoFundMe, Kickstarter, and other crowd-sourcing sites help independent filmmakers make their dreams come true all the time. The filmmaker turns to the audience to generate revenue. Fiscal Sponsorship is a sure-fire way for an investor to get their investment back. There are non-profit companies that are 501(c)(3), meaning under the law, they qualify as being tax-exempt. How does this work in favor of the investor? The investment can be written off on their taxes.
It would be extremely wise of a filmmaker to hire an entertainment lawyer. Legal representation is vital and will be needed when dealing with finances. In order to properly handle large amounts of money, a filmmaker will need to form a limited liability company (LLC). The LLC is what will accept the money from investors. LLCs also act as a protector against personal liability. The best part about forming an LLC is that it isn’t putting a dent in your pockets. In some states, you pay a low-cost, one-time fee and complete an application.
The SEC or Securities and Exchange Commission is a federal agency that ensures federal securities laws are being adhered to. A filmmaker will need to take heed of the SEC because investors are pouring money into their company.