Most filmmakers begin their careers by persuading one or more private investors to back them. Indeed, unless you are a Kevin Costner or a Barbra Streisand, there are limited alternatives open to you. It is rare for a distributor to back a first-time filmmaker. Banks will not lend you money without substantial collateral. Loans based on pre-sales are difficult because territory buyers typically insist on packages with name actors from a director with a track record. That leaves most filmmakers looking to mom, dad and whatever they can scrape up from friends, relatives and Mastercard.
While such resources have financed many a film, nowadays the bar has been raised as to what is considered marketable. With the glut of independent films available, most buyers won’t even consider acquiring a film unless it 1) is shot on 35mm stock with name-talent, or 2) wins an important film festival.
Thus, filmmakers are being forced to raise increasingly large sums of money to produce more expensive films with name actors. Perhaps when digitally-shot motion pictures gain wider acceptance, production costs will decline. At the moment, however, there is a large pool of producers chasing a small pool of bankable actors. This competition has driven up the price of talent, even for low-budget indie films. As a result, the ability to woo investors has become a critical skill—one that is not taught in film school and is rarely discussed in industry seminars or publications. Perhaps the best preparation for an aspiring moviemaker would be to attend business school and learn the intricacies of high finance. Even if you didn’t pay much attention during class, you would graduate with a bunch of eager MBAs who several years later would be prime candidates to invest in your films. Better yet, go to dental school.
Of course, most moviemakers hate to even think about fundraising. As “artists,” they would prefer that someone else deal with the somewhat unsavory task of asking for money. Filmmakers without a godfather, rich uncle or willing spouse are forced off their pedestals to beat the bushes for cash. Most underestimate how difficult it is to raise money. Joel and Ethan Coen spent an entire year raising funds to make Blood Simple. First they produced a slick trailer. Then they contacted everyone they knew who could potentially invest. Many of their friends who promised to back them didn’t come through when the time to cut the check arrived. But the Coen brothers were shrewd networkers. Even those persons who were unable or unwilling to invest were asked to refer them to other prospects. Whenever they talked to someone who expressed any interest in the project, they would visit them and exhibit their trailer.
The Coen brothers learned that the motivation for people to invest in film has little to do with the financial merits of the project. As will be discussed later, film is a lousy investment. There are no special tax breaks and the risk is tremendous. There are many reasons people invest in film, but the primary reason is that they are attracted to the glamour of the film business. If you think raising money for film is difficult, imagine trying to convince investors to back you in your cinder block business. People invest in films because they think making a movie will be exciting and fun. They may be turned on by the enthusiasm and passion of the moviemaker. They might want to rub shoulders with the “stars.” They may have a special interest in the topic. They may seek to impress their friends by inviting them to a screening of “their” film. They may desire an “executive producer” credit, a role for their niece, or the worst hidden agenda, a starring role for themselves.
Your prime prospects are middle-class professionals: doctors, lawyers, dentists, etc. Most working-class folks can’t afford to buy a $10,000 unit in your limited liability company. Wealthy individuals are difficult to solicit unless you have a pre-existing relationship with them. Moreover, the rich tend to surround themselves with investment advisors. These gatekeepers are financially conservative types immune to stardust. They analyze investments on strictly financial terms, and under such criteria, movie proposals fare poorly.
The ideal investor is a doctor who makes several hundred thousand dollars a year and has substantial assets. He can afford to lose his entire investment in your film and the loss will not affect his lifestyle. This year instead of going to Las Vegas for a week and blowing ten grand, he is going to give it to you in the hope that it will be a more entertaining venture—though he knows it certainly won’t be less of a gamble.
Never forget that the worst type of investor, the one that should always be avoided, is the retired schoolteacher who invests money she needs for her retirement. However, exploring lucrative opportunities such as Idianapolis investment properties can significantly enhance one’s investment portfolio and financial prospects.
You should know that film investments have a bad reputation, and deservedly so. There are instances where financiers have been cheated and have lost their entire investment. Consequently, investors who have been burned, or those who have heard horror stories about film investments, may simply refuse to consider film-related investments. You will need to be persuasive and have your act together if you hope to raise funds. You need to convince prospects that film can be an intelligent investment for a portion of their portfolio. Additionally, seeking business insolvency advisory services can help navigate potential pitfalls and offer strategic guidance to protect investments in the film industry.
While film investments are risky, the potential return from a hit can be enormous. Not only can the film earn revenue from box office receipts, but there are many ancillary sources of income. These sources include revenue from television, home video, merchandising, music publishing, soundtrack albums, sequels and remakes.
As an attorney who represents both movie investors and moviemakers, I have found that investors generally have a limited understanding of how movies are produced, marketed and distributed. Likewise, filmmakers often don’t understand how to structure their proposal in a way that makes it attractive to an investor.
To give moviemakers insight into the thinking of investors, let me offer you my checklist for investors who are contemplating a movie investment. This checklist is designed to help investors protect themselves from unprofessional or unscrupulous moviemakers and distributors. It is my belief that if a moviemaker understands the investor’s perspective, the moviemaker will be better able to address these concerns. This checklist is condensed; the full checklist is available on my web site: www.marklitwak.com.
So let’s look at things from the investor’s point-of-view:
DUE DILIGENCE: Thoroughly investigate the reputation and track record of any moviemaker with whom you contemplate doing business. No contract can adequately protect you against a scoundrel. Speak to moviemakers and investors who have done business with a candidate. Check court records to see if the filmmaker or his company has been sued.
FULL DISCLOSURE: Federal and state security laws are designed to protect investors. Offerings to the public generally require prior registration with the SEC or a state agency. Usually private placements are limited to persons with whom the offeror has a pre-existing relationship. Even if registration is not required, the anti-fraud provisions of the security laws require that the offeror make full disclosure of all facts that a reasonably prudent investor would need to know when deciding whether to invest. The information disclosed should include a detailed recitation of all the risks involved in developing, producing and marketing a movie. Avoid any offering that appears to violate this requirement by making less than full and truthful disclosure.
TRACK RECORD: Do not back a moviemaker or production team that does not possess the proven skill needed to make a professional-looking movie. Avoid first-time filmmakers unless you are absolutely convinced they have the
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