How do we Get More Investors into Independent Film?
Throughout writing this blog series, I’ve been told more times than I can count that film is a terrible investment, and no one besides hobbyists would consider it. Many want to leave it there, without bothering to look at what’s causing it. Last week we thoroughly examined the issues plaguing the film industry, and what keeps investors out. The issues aren’t pretty, but they may be fixable. What follows is a list of what could be done to fix this problem and some of the ways organizations that are implementing these tactics.
Greater Transparency
One of the biggest things stopping film investment is the perception that it’s unprofitable. All too often that’s not simply a perception. Another thing stopping independent film as an industry from being profitable is the fact that many sales agents don’t accurately report the earnings of the films they represent. Others charge too much in recoupable expenses, so it’s unlikely to recoup. Some take an unreasonable portion of the revenue or simply hide sales from filmmakers.
One necessary problem to fix is the lack of transparency within distribution. There are rights marketplace solutions like Vuulr and RightsTrade emerging thanks to recent technologies for international distribution. Aggregators like BitMax and FilmHub have been around for a while already. The issue that these platforms have yet to solve is that of both audience and industry awareness of their project. If a filmmaker can market or receive help with that audience discover and marketing, then in theory the entire process can be disintermediated and filmmakers can sell directly to customers using a marketplace. Unfortunately, this discovery issue is still both time-consuming and expensive.
What about a hybrid system? One where a skilled group works with distributors and sales agents to sell the completed films at the maximum possible profit to the investors and production company. What if those groups were directly linked to protecting the investor’s interests, and gives sales agents capital for growth and new projects? Then the sales agents would have much better incentives to ensure the companies that license their content to them get a strong return.
That would seem like a solution, but we’ll get to it. There are other problems to delve into first.
Better Business Education for Filmmakers.
I touched on this in my last blog, but filmmakers don’t understand the business well enough to function as media entrepreneurs. Traditionally, specialists such as executive producers, PMDs, and true producers focused on the marketing and supported projects so that the writers, directors, creative producers, and line producers could focus on making the project. With film sets getting leaner, there aren’t enough of media entrepreneurs doing their jobs. (although I take on this role from time to time.)
In essence, there isn’t enough of a skilled entrepreneur class capable of making and selling films as a product either directly to consumers or to distributors, sales agents, and other industry outlets. So long as filmmakers don’t understand business, they’ll never be able to break out and get what they and their films are worth. If filmmakers don’t endeavor to understand business, they will be unable to communicate with investors and understand where they come from well enough to make a sustainable living in film. This issue is exacerbated by the fact that film schools don’t teach any of these skills as well as they should.
Filmmakers want to make the movie, and they will stop at nothing to get that done. As a result, promoting the film becomes an afterthought far too often. What would be ideal is if these educational organizations could tie into an angel investment group or community.
But what about integrating with an investor class and/or investment group?
Educated Investor Class
Investors generally understand business, but the film industry is ripe with its own nuances and idiosyncrasies. Investors need to know how money flows from them to create the product, then to take the product to market through various forms of distribution, and how that money eventually gets back to that same investor. Investors need tools to tell when someone is offering a con instead of an investment. It’s not the easiest thing to find information on, and when they do it’s focused more on the filmmaker than the investor.
If an investor doesn’t understand the issues within the film industry, then it’s less likely they’ll be able to properly vet an investment. If that same school that teaches filmmakers business, could teach investors about the nuances involved in the film industry, then there could be something of a connection point at a different sort of event.
Curators and tastemakers with Access to MEANINGFUL Distribution.
Just because an investor knows about how money comes in and out of the film industry doesn’t mean they can find quality films in which to invest. Being a professional Investor is all about quality deal flow. Indiefilm success tends to make less money than a successful technology startup, so curation and guidance is even more important.
Sure, nobody knows everything, but a curated eye can help separate the wheat from the chaff. Most investors don’t have a trusted source to review projects for feasibility and potential returns. Investment is about more than just money. Investors often act as business advisors. Unfortunately, not enough angel investors understand the industry well enough to do that effectively. However, if the curation board also acted as advisors on the projects, then the potential returns get much higher.
As an example, if that board had access to distribution, then you could cut out the biggest risk of investing in film. A member of the curation board could get the films to the proper PayTV, TVOD, SVOD and other distributors to help the fund managers.
A way of Discovering new talent
It’s always been a problem to find the next Quinten Tarantino, Jennifer Lawrence, or Jason Blum. Everyone has heard stories of how everyone in Hollywood is related. While it's more true than anyone wants to admit, the on set path to grow your career has become more difficult and less sustainable than it once was.
It's not an easy problem to solve. It’s difficult to tell the difference between that person who’s DEFINITELY going to be the next big thing but ends up washing cars two years later and the dweeby 20 year old who no one thinks will ever make anything of themselves makes millions at the box office on their directorial debut. This problem may be the most difficult of any listed.
Making your first film is incredibly difficult. It’s also very difficult to get it financed. From an investor perspective, they put in all the money up front ant they’re the last to be paid. It’s incredibly high risk with little reward.
Marketing a film is also quite difficult, and generally involves additional expenditure when the coffers are dry. This has killed many films before they saw the light of day. If a fund were to offer finishing funds to new filmmakers, they keep their risk incredibly low while opening up new discovery options.
Sure, it doesn’t help get the film made in the first place, but it can help get it finished and out there. The barrier to entry of having a nearly completed film also cuts down on the pool of potential applicants in a way that necessitates them showing they have the mettle to actually make something. That fund could also give preference to successful filmmakers for their second, third, and fourth projects. Such a system could enable a fund to retain the quality people they need to make a successful organization, while still opening the ranks for discovery.
Staged Financing
Investment in film is inherently speculative an as a result incredibly high risk. But the risk could be made lower by borrowing some techniques from Silicon Valley VCs. Instead of funding 100% of a film upfront in equity, an investor could stage their investment over the course of the film, at key points where the filmmakers would require more money.
It’s not something that could be done with a simple line in the sand due to the difficulty in getting recognizable name talent on board the project, but there are systems that could be used to mitigate risk while maintaining the ability to make high-quality name-driven projects that have a higher chance of financial success than directorial debuts with no names attached. It’s not a magic bullet, but it could mitigate the problem enough for other solutions to be more possible.
Staged financing would make it much more approachable for investors, since the risk to the individual investor is significantly smaller. But there are ways an organization could further limit the risk. How you ask?
Same Funder Providing different securities.
As mentioned in part 6 of this series, equity investors are the last to be paid on most projects due to where they fall in the waterfall in relation to Platforms, Distributors, Sales Agents, and the like. This is due in part to filmmakers needing to secure debt-backed securities from different funders in order to complete the project. These debt-backed securities must be paid before the investors are, which further disincentives the equity investment from the original investors.
But what if the different securities were made available from the same group? That way a fund could offer the same pool of investors the last in first out debt in order to protect the interest in their equity position. From my vantage, that would seem to protect both the investor and the filmmaker by enabling the investor to mitigate risk and the filmmaker to maintain greater ownership of their projects, and a higher profit share once the debt is paid off.
Thanks for reading. This one required A LOT of rewriting as part of the archive transfer/website port. If you made it this far, you should sign up for my email list to get my free film business resource pack. You’ll get blogs just like this one segmented by topic, as well as a free e-book, investment deck template, contact tracking templates, form letters, and more!
