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The New Model for Indie Film Fundraising

By Edited May 19, 2015 0 0

There's a new way of financing your film that's safer, smarter, and catching on.

It's called The Hybrid Model.

No it’s not a new, super-efficient model of car, but it is a super-effective and safe model of fundraising for films that has become the new way of doing things in the indie film industry.

It works like this:  In the traditional model of fundraising, a producer finds an “angel investor” who puts in all the money for the film, the filmmaker makes the movie, then splits the profits with the investor once the original investment is paid off.  If no distribution deal is struck, everybody loses.  It all hinges on what happens after the movie is done and the money is spent.  It’s risky.  And while some people have made ridiculous amounts of money from it, the overwhelming majority of films have lost money.  Most of the time, the filmmaker never works again, and the investor certainly never invests in a movie ever again.

Not saying this is the “wrong” way to do it… But it sure is risky.

Enter the Hybrid Model.

The whole idea of the Hybrid Model is to spread the risk, cobble together the funds from a variety of sources, some of which rely on pre-selling the film, so all parties know that the film will have an audience when the movie is done.  It’s the difference between investing in a well-leveraged small business or gambling in a casino.  The profits aren’t as extreme – but neither is the risk.

Here’s how it breaks down for a semi-low budget $1 million film:

Equity Investment

This model does require the traditional money from an investor, but it only accounts for a quarter of the overall budget.  This money is used as Class A Development money, with which the producer packages the film with top-tier actors and key crew positions.

For a $1 million film = $250,000

Pre-Sales

The producer takes the project to distribution partners in the packaging process who pre-sell the film to foreign territories.  Usually, this is someone the producer has a pre-existing relationship with.  This amount is negotiable and based on what the distributor thinks he can get in the overseas markets – usually requiring some inherent attribute in the film that makes it desirable over there.  This usually means it’s a “genre” picture like horror, thriller, or action that translates universally.  Comedies and musicals have sold strongly overseas in the last few years as well.

For a $1 million film = $400,000 – $600,000

Tax Incentives

Many states in the US offer tax incentives for production companies to shoot there, but production companies can pre-sell the tax incentives to companies who take a cut for themselves.  The production company gets a certificate from the state showing how much they would make for their film, then sell that certificate to the third-party company.  When the state pays off the certificate after the film is completed, that money goes to the third-party company.  This allows the production companies to use the tax incentives to fund the film.

The Screen Actors Guild has a list of tax incentives by state, which go as high as 35%.

After paying a percentage to the third-party company, this could add up to $300,000 for production.

Product Placement

Many companies will pay money to put their products in films.  This varies greatly from film to film, but can be much higher in films that promote a specific industry.

If you play your cards right, product placement could bring in $100,000 to $200,000 for your film.

Debt Financing

There are not many left anymore, but a few banks and financial institutions will actually loan money to films.  This is actually a good thing to everybody else involved because the banks will bond the film to guarantee that it will get finished.  This can make up the remainder of what is needed to finish funding the film.

And if you've been diligent with all the other avenues above, you would likely only need to debt finance around $100,000.

So there’s the math.

After the film is finished, the film is sold to distribution companies for all-rights domestic deals or sold piecemeal through a growing variety of distribution outlets.  But that’s a whole other article.

It should be noted that in some of the steps above, it's necessary for the producer to have an established relationship to one or more of the parties involved.  If you're brand new to filmmaking, it is a good idea (for many reasons beyond those in this article) to get an experienced producer attached.  Many producers make packaging films the mainstay of their business.  Focus on a good project and raising the initial equity funds and you should have no problem getting a producer involved.

Distribution of funds between investor and production company is the same as the traditional model. Once the investor is paid off, all the profits are split 50/50.  Again, the money made is smaller than would be in a big blockbuster totally equity financed film, but more assured.  In the end, the film gets made, everybody makes a small profit, and moves on to the next movie, ready to do it all again.

And that's the whole point, isn't it?

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