3 Things Every New Film Investor NEEDS to know
It’s not just filmmakers who need to understand the business. Investors do too. Here are a few words of advice on the film industry for new investors from an executive producer.
I write a lot about the film business with filmmakers as a target audience. However, in my non-educational content job, I have to interface with film investors on a fairly regular basis. This blog is adapted from one such situation where a first-time film investor had a lot of impulses that might actually hurt their film. The response got rather lengthy, so I asked my client if he minded if I adapt it into a blog. The client didn’t mind at all, so now I can share the insights with him with significantly more people.
With that in mind, here are 3 things that every new film investor should know.
1. Films are not evergreen.
Once a film is more than a year past its initial release, it loses a significant portion of its perceived market value. Buyers just won’t touch it. You released the film this year, so you have a bit of time, but that time is not infinite. This means that negotiations around a minimum amount of money over time is not always productive, as it will likely be out of the highest actual period no matter what happens. Often, even if you get the rights back, the film will have been so heavily shopped no one will take a look at it anyway.
This is a mistake that a lot of filmmakers make. Unfortunately, you do not have all the time in the world to shop for your film. Eventually, you’ll want to make sure you get it out there, even if it’s at something of a loss. If you want longer, it’s unlikely that your prospects will get better.
Of course, I want to be clear that you shouldn’t take any old deal as soon as it’s offered. It’s just important to remember that barring some incredibly specific extenuating circumstances, your film won’t be worth as much next year as it is now. Your Also, if the distributor or sales agent is in clear breach, you should still try to get your rights back.
2. Generally, films take a few markets to make a cash upfront sale, and the pay chain is absurd.
It often takes a few in-person touchpoints before the sale is finalized. While I’m going to be pushing for a quick sale, sometimes it takes a while for the money to come through.
Further, you should remember that a lot of time it will take a while for those payments to trickle through to the producer. I’ve outlined the issue in detail in the blog below, but to give you an idea, an MG-oriented sale will likely have something like 10% due on signing, 40% due within 30-90 days from notice of delivery, and the remaining 50% due prior to release or within 30 days of release. Also, most SVOD sales in the US pay out a set amount of time after the beginning of the license period.
Related:The problems with the indie film distribution payment system.
3. No one likes dealing with inexperienced people with huge egos.
If you’re an accredited investor, you’ve probably dealt with this issue on the other end. You likely have money due to your own entrepreneurial endeavors, a high-paying position that likely required you to employ other people, an expansive portfolio of investments that may have required you to interface directly with other entrepreneurs, or some combination of the above.
While the primary goal of any film production should be to get all of your money back, the industry is incredibly specialized. Nobody likes being told how to run their business by someone without much experience in the driver’s seat of this highly specialized industry.
It’s important to remember that once you get to dealing with more powerful members of the industry, trying to throw your weight around to get a better deal isn’t likely to break in your favor. Unfortunately, most good sales agents or distributors will just decline to take out your film, and the less-than-good ones who remain will find legal ways to avoid paying out as long as possible if they pay out at all.
This industry may be in a period of upheaval, but currently, sales agents and distributors still hold a lot of power. So if you want to make a profitable film, or a widely distributed one, you’re going to have to take some time to understand the common industry practices.
It’s incredibly difficult to negotiate with someone when you’re at a massive informational disadvantage, and more than likely you will be at an informational disadvantage purely by the nature of the specialization of the film sales and distribution industry.
If you want to lessen your informational disadvantage, you should sign up for my mailing list to get monthly blog digests segmented by topic, you’ll also get a free film business resource pack that includes an ebook, whitepaper on the macroeconomics of the film industry, an investment deck template, and a whole lot more! Click the button below to grab it.
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Filmmakers Glossary of Film Investment Terminology
It’s hard to raise funding for a film, and the contracts get confusing quickly. Here’s a glossary to help you understand the mountain of paperwork you’ll need to sign to get your film financed. This blog doesn’t mean you don’t still need a lawyer (I’m not one, and this isn’t legal advice), but it will help you understand the paperwork you’re sent.
Last week I laid out a glossary of general-use film business terms, but the blog ended up a bit too long and dense to be a single post. So, I broke it into two. Last week was the basics of business terms, this week is the next level, and focuses entirely on investment terms. Some of these may seem tangential and unnecessary, however if your goal is to close an investor, you’ll need to thoroughly speak their language. If there’s something you don’t see here, check out last week’s blog here. I’m not a lawyer, this isn’t legal advice, and you should have a solid attorney on your team before trying to close an investment round. With that out of the way, let’s get started.
Capital
While many types exist, The term most commonly refers to money.
Liquid Capital
Money that can be spent immediately, or near immediately. Non-liquid capital would be considered something like real estate holdings which would first need to be liquidated in order to sell.
Principle
In finance: it’s general the initial capital investment or the remaining balance on a debt.
Interest
A percentage fee is added on to the principle of a loan or line of credit.
Compound interest
Interest on the principle of the loan and interest.
Simply: interest on interest.
High-Risk Investment
An investment where an investor may lose most or all of the money they put in. Independent Films are always high-risk investments
Securities and Exchanges Commission (SEC)
The main financial regulatory agency in the United States. It oversees most forms of investment.
Accredited Investor
A person of means who is generally considered to have enough business know-how to appraise an investment, pay someone to appraise it for them, or who wouldn’t be completely destitute from taking a high risk-gamble. As of the date of this publishing, according to the SEC the investor must meet either (NOT both of) the income or net worth requirement in order to be considered an accredited investor.
Income Requirements
1.If filing individually, a person must have made 200,000 USD a year for the past 2 years, and be likely to do the same this year.
2.If filing Jointly, a household must have made 300,000 USD a year for the past 2 years, and be likely to do the same this year.
Net Worth.
The investor or household must have 1 million dollars in net worth OUTSIDE of their primary residence.
High Net Worth Individual (HNWI)
Outside the obvious, this term is generally a financial industry term for accredited investor
Edgar Database
A database of high-risk investments maintained by the SEC that is only accessible to Accredited investors and licensed brokerage or investment firms.
Financing Round
A round of financing or funding that is large enough to take an organization or project to the next major milestone. For how this works in film, check out the youtube video I’ve linked below, and the blog linked below that.
Related Video: The 4 Stages of Indiefilm Financing
Related Blog: The 4 Stages of Indiefilm Financing
Business Plan
A document written by an entrepreneur or filmmaker outlining their investment. In the film industry, this document will also often educate the investor on how the industry functions as a whole. This document is also known as a prospectus, but that term is not as commonly used as it once was.
Private Placement Memorandum (PPM)
A document that’s filed with the SEC for investors to consider investing in your project. Frequently an attorney will base this document off of the filmmaker or entrepreneur’s business plan. In most cases, a PPM will be registered with the aforementioned Edgar database for a modest filing fee.
Pro-Forma Financial Statements
Financial documents consisting of an expected income breakdown, cash-flow statement, and top sheet budget to be invaded in the business plan and function as the basis for many of the financial sections of other documents
The Three points above are heavily outlined in my business planning blog series.
Related: How to write an independent Film Business Plan (1/7)
Backed Debt
A secured loan backed by something like a tax incentive or pre-sale agreement.
Unbacked Debt
An unsecured loan, or debt without backing. Generally very high interest.
Financial Gap
The space between what you are able to raise and the amount you need to finish your project.
Financial Markets
A market where stocks, bonds, derivatives, or other securities are bought and sold. Common examples in the US would be the DOW and the NASDAQ.
Film Market
A convention where films are bought and sold primarily by sales agents and distributors. For more, check out the link below.
Related: What is a film market and how does it work?
Gross Domestic Product (GDP)
The total value of all newly finished goods in a given country during a set timespan. Most commonly calculated on an annual basis.
Recession
A macroeconomic term signifying a period of a significant decline in economic activity. It’s generally only recognized after two consecutive quarters of down financial markets.
Depression
A severe recession that lasts longer than 3 years and corresponds with a drop in GDP of at least 10%
Bull Market
A market that’s strong and growing. It’s called a bull market as the upward trending graph looks like a bull nodding its head according to some people on Wall Street.
Bear Market
Yes, I spelled that right. It’s a financial market that’s going down, or staying stagnant. The name comes from a bear swiping its claws down. Probably the same wall street guy came up with it.
Thanks so much for reading! If you liked this, please make sure to check out last week’s general financing glossary, as well as my glossary of distribution terms. Also, please share. It helps A LOT.
Filmmakers Glossary of Business Terms
Additionally, make sure you grab my free Film Business Resource Package to get a print ready PDF version of all 3 glossaries.
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Filmmakers Glossary of Film Business Terminology.
I’m not a lawyer, but I know contracts can be dense, confusing, and full of highly specific terms of art. With that in mind, here’s a glossary of Art. Here’s a glossary to help you out.
A colleague of mine asked me if I had a glossary on film financing terms in the same way I wrote one for film distribution (which you can check out here.) Since I didn’t have one, I thought I’d write one. After I wrote it, it was too long for a single post, so now it’s two. This one is on general terms, next week we’ll talk about film investment terms. As part of the website port, I’m re-titling the first part to a general film business glossary of terms, to lower confusion on sharing it. It’s got the same terms and the same URL, just a different title.
Capital
While many types exist, it most commonly refers to money.
Financing
Financing is the act of providing funds to grow or create a business or particular part of a business. Financing is more commonly used when referring to for-profit enterprises, although it can be used in both for profit and non-profit enterprises.
Funding
Funding is money provided to a business or non-profit for a particular purpose. While both for-profit and non-profit organizations can use the term, it’s more commonly used in non-profit media that the term financing is.
Revenue
Money that comes into an organization from providing shrives or selling/licensing goods. Money from Distribution is revenue, whereas money from investors is financing, and donors tend to provide funding more than financing, although both terms could apply.
Equity
A percentage ownership in a company, project, or asset. While it’s generally best to make sure all equity investors are paid back, so long as you’ve acted truthfully and fulfilled all your obligations it’s generally not something that you will forfeit your house over. Stocks are the most common form of equity, although films tend not to be able to issue stocks for complicated regulatory reasons and the fact that films are generally considered a high-risk investment.
Donation
Money that is given in support of an organization, project, or cause without the expectation of repayment or an ownership stake in the organization. Perks or gifts may be an obligation of the arrangement.
Debt
A loan that must be paid back. Generally with interest.
Deferral
A payment put off to the future. Deferrals generally have a trigger as to when the payment will be due.
“Soft Money"
In General, this refers to money you don’t have to pay back, or sometimes money paid back by design. In the world of independent film, it’s most commonly used for donations and deferrals, tax incentives, and occasionally product placement. It can have other meanings depending on the context though.
Investor
Someone who has provided funding to your company, generally in the form of liquid capital (or money.)
Stakeholder
Someone with a significant stake in the outcome of an organization or project. These can be investors, distributors, recognizable name talent, or high-level crew.
Donor
Someone who has donated to your cause, project, or organization.
Patron
Similar to donors, and can refer to high-level donors or financial backers on the website Patreon. For examples of patrons, see below. you can be a patron for me and support the creation of content just like this by clicking below.
Non-Profit Organizations (NPO)
An organization dedicated to providing a good or service to a particular cause without the intent to profit from their actions, in the same way, a small business or corporation would. This designation often comes with significant tax benefits in the United States.
501c3
The most common type of non-profit entity file is to take advantage of non-profit tax exempt status in the US.
Non-Government Organization (NGO)
Similar to a non-profit, generally larger in scope. Also, something of an antiquated term.
Foundation
An organization providing funding to causes, organizations and projects without a promise of repayment or ownership. Generally, these organizations will only provide funding to non profit organizations. Exceptions exist.
Grantor
An organization that funds other organizations and projects in the form of grants. Generally, these organizations are also foundations, but not necessarily.
Fiscal Sponsorship
A process through which a for-profit organization can fundraise with the same tax-exempt status as a 501c3. In broad strokes, an accredited 501c3 takes in money on behalf of a for-profit company and then pays that money out less a fee. Not all 501c3 organizations can act as a fiscal sponsor.
Investment
Capital that has been or will be contributed to an organization in exchange for an equity stake, although it can also be structured as debt or promissory note.
Investment Deck (Often simply “Deck”)
A document providing a snapshot of the business of your project. I recommend a 12-slide version, which can be found outlined in this blog or made from a template in the resources section of my site, linked below.
Related: Free Film Business Resource Package
Look Book
A creative snapshot of your project with a bit of business in it as well. NOT THE SAME AS A DECK. There isn’t as much structure to this. Check out the blog on that one below.
Related: How to make a look book
Audience Analysis
One of 3 generally expected ways to project revenue for a film. This one is based around understanding the spending power of your audience and creating a market share analysis based on that. I don’t yet have a blog on this one, but I will be dropping two videos about it later this month on my youtube channel. Subscribe so you don’t miss them.
Competitive Analysis
One of 3 ways to project revenue for an independent film. This method involves taking 20 films of a similar genre, attachments, and Intellectual property status and doing a lot of math to get the estimates you need.
Sales Agency Estimates
One of 3 ways to project revenue for an independent film. These are high and low estimates given to you by a sales agent. They are often inflated.
Related: How to project Revenue for your Independent Film
Calendar Year
12 months beginning January 1 and ending December 31. What we generally think of as, you know, a year.
Fiscal year
The year observed by businesses. While each organization can specify its fiscal year, the term generally means October 1 to September 30 as that’s what many government organizations and large banks use. Many educational institutions tie their fiscal year to the school year, and most small businesses have their fiscal year match the calendar year as it’s easier to keep up with on limited staff.
Film Distribution
The act of making a film available to the end user in a given territory or platform.
International Sales
The act of selling a film to distributors around the world.
Related: What's the difference between a sales agent and distributor?
Bonus! Some common general use Acronyms
YOY
Year over Year. Commonly used in metrics for tracking marketing engagement or financial performance on a year-to-year basis.
YTD
Year to Date. Commonly used in conjunction with Year over year metrics or to measure other things like revenue or profit/loss metrics.
MTD
Month to Date. Commonly used when comparing monthly revenue to measure sales performance. Due to the standard reporting cycles for distributors, you probably won’t see this much unless you self-distribute.
OOO
Out of Office. It generally means the person can’t currently be reached.
EOD
End of Day. Refers to the close of business that day, and generally means 5 PM on that particular day for whatever the time zone of the person using the term is working in.
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22 Indiefilm Distribution Definitions Filmmakers NEED to know
There are a lot of terms of art in film distribution. Here’s a primer.
If you’re going to read and understand your distribution agreement, then there’s some terminology you have to grasp first. So with that in mind, here’s a breakdown of some key terminology you ABSOLUTELY need to know if you’re going to get traditional distribution for your film.
This is one of those blogs I should probably start out by saying that I’m not a lawyer. Always talk to a lawyer when looking at a film or media distribution contract. With that out of the way, I’d recommend we get started.
1. License
At its core, a license for an independent film or media project is the right to exploit the content for financial gain. Every other piece of a license agreement is clarifying the limitations of that license.
2. Licensor
A licensor is a person or entity that is licensing a piece of media to another entity to either distribute or sub-distribute its content. In general, this is the filmmaker when the filmmaker is dealing with a sales agent or producer’s rep, or the sales agent or producer’s rep when they’re dealing with distributors.
3. Licensee
The License is the entity that is acquiring the content to distribute it and exploit it for financial gain. In the instance of filmmakers and sales agents, it would be the sales agent, in the instance of sales agents and distributors, it would be the distributor.
4. Producer’s Representative (Producer’s Rep)
An agent who acts on behalf of a filmmaker or film to get the best possible sales and distribution deals.
Related: What does a Producer’s Rep Actually do, anyway?
5. Sales Agent
A Company that licenses films from sales agents or Producer’s Reps in order to sub-license the film to territorial distributors around the world.
6. Distributor
A company that directly exploits a film in a given territory on agreed upon media right types.
Related: What’s the difference between a sales agent and distributor
7. MG (Minimum Guarantee)
This is a huge one. It’s the amount of money you get up front from a sales agent, or a sales agent receives from a distributor. The biggest difference between this and a license fee is that at least in theory an MG has the potential to receive more in residual payments beyond the additional payment. In practice, this is less common.
8. License Fee
A license fee is a set amount of money paid by a distributor to exploit media in a defined territory and set of media rights. Unlike a minimum guarantee, a License fee is the total amount of payment the licensor will receive over the course of the license, regardless of the financial success the film goes on to achieve. License fees can be paid in one lump sum, or over the course of the license.
9. Revenue Share
Revenue share is the other most common way films can receive payment. Revenue share essentially means that the licensee will split the revenue with the licensor according to an agreed-upon commission generally after they recoup their expenses.
10. Producer’s Corridor
A producer’s corridor is an alternate payment waterfall of money a filmmaker is paid prior to the licensee recouping their expenses. This generally means that the producer is paid from dollar one.
11. Term
Term is the length of time a contract is in place. For most independent film sales agency contracts, the term is generally 5-7 years.
12. Region
The instances that generally apply to traditional distribution in the modern-day region refer to a set of territories in which a film can be distributed in. While they vary slightly from sales agency to sales agency, they are generally English Speaking, Europe, Latin America, Asia/Far East, and others.
13. Territory
When it comes to film distribution and international sales. territories are areas within a region that add greater specificity to where a sales agent can parse rights. Latin America is both a region and a territory.
14. Media Rights
The sorts of media that a distributor has to exploit in a given territory or set of territories.
Related: Indiefilm Media Right types
15. Benelux
A territory consisting of Belgium, the Netherlands, and Luxembourg.
16. Four-Wall
The act of renting theaters in order to screen your film in them. It generally involves a not insignificant upfront fee, and as a result, all money returns to the licensor.
17. Community Screening
An alternative to a theatrical run for films with a strong niche or cause. See below for more information.
Related: How Community Screenings can replace a Theatrical Run
Related: 9 Essential Elements of Independent Film Community Screening Package
18. Payment Waterfall
When it comes to independent film distribution agreements, a payment waterfall is contractual representation How many flows from stakeholder to stakeholder? If there is a producer’s corridor or some other non-standard modifications of a license agreement, there may be more than one waterfall in said contract.
Related: IndieFilm Distribution Payment Waterfalls 101
19. Collection Account
A collection account is an account that a sales agent pays into which pays out all other stakeholders according to a pre-defined set of parameters.
20. Reports
In the context of independent film distribution and international sales agreements, a report is a statement made monthly, quarterly, bi-annually, or annually that states all incomes and expenses for a film. Generally, this is accompanied by a check one is due.
21. Payment Threshold
When it comes to film and media distribution, a payment threshold is a minimum payment owed by a licensee in order to issue a payment to a licensee. This payment amount is generally dependent on what payment method is being utilized. For instance, the minimum is for a wire transfer is generally higher than a check which in turn is generally higher than for a direct deposit.
22. Recoupable Expense
A recoupable expense is an investment made into marketing or distribution-related expenses by a licensee. This investment will need to be paid back before the licensee pays the licensor, with the notable exception of the producer’s corridor. Generally, these investments will fall into one of 3 categories of capped, uncapped, and uncovered expenses. For more information, please check out the blog below.
Related: What are recoupable expenses?
BONUS! - Expense Cap
An expense cap is a cap on the total amount of expenses that a licensee is able to take out before paying the licensor. There are exceptions, see the related link above for more information.
Thank you so much for reading the glossary! I hope it’s Helpful. If this is all intimidating and you need a little help, consider hiring a professional to assist you in the process. So you could consider checking out Guerrilla Rep Media’s services. These blogs Blogs are largely a public service and marketing tool for me, most of my business is from representing and consulting with filmmakers just like you. You can learn more and submit your film via the link below. Or, if you're not ready for that, but want to support more content like this, join my email list to stay up to date on new offerings and get an awesome film business resource package while you’re there.
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The 6 Steps to Negotiating an Indiefilm Distribution Deal
If you want the best distribution deal for your independent film, you have to negotiate. Here’s a guide to get you started.
Much of my job as a producer’s rep is negotiating deals on behalf of filmmakers. However, now that I’m doing more direct distribution, I’m realizing there are several things about this process that most filmmakers don’t understand. As I tend to write a blog whenever I run into a question enough that I feel my time is better spent writing my full answer instead of explaining it again, here’s a top-level guide on the process of negotiating an independent film distribution deal.
Submission
Generally, the first stage of the independent distribution process is submitting the film to the distributor. There are a few ways this can happen. Some distributors have forms on their website (mine is here) Others will reach out to films their interested in directly. Some will have emails you can send your submissions to. There are a few things to keep in mind here, but in the interest of brevity, just check out the blog I’ve linked to below. There’s a lot of useful information in that blog, but I will say that YES, THE DISTRIBUTOR NEEDS A SCREENER IF THEY’RE ASKING FOR ONE.
Related: What you NEED to know BEFORE submitting to film distributors
Initial Talk
Generally, the next step is for the distributor to watch the film. I have a 20-minute rule, and that’s pretty common. Generally, if I make it through the entire film, I’ll make an offer. If I don’t, I won’t ever make an offer. If I’m requesting a call, I’m normally doing so to size up the filmmaker and see if they’re going to be a problem to work with.
This is not an uncommon move for distributors that actually talk to filmmakers and sales agents. Generally, we want to discuss the film as well as size up the filmmaker before we send them a template contract.
Template Contract
Generally, when we send over the template contract, it will be watermarked and a PDF so that the filmmaker can understand our general terms. This also won’t have any identifying information for the film on there. We’ll also attach it. Few appendices to the contract can change more quickly than the contract itself. My deliverables contract is pretty comprehensive as of right now, but honestly, I think I’ll pare it down soon as I haven’t had to use much of what’s in there yet.
Red-Lining
The next major step in the process of the distribution deal is going through and inserting modifications and comments using the relevant function on your preferred word processor. Most of the time they’ll send it in MSWord, but you can open Word with pretty much any word processor and this is unlikely to be too affected by the formatting changes that happen as a result of putting the document into pages or open office. That said, version errors around tracking changes do happen, and if you find yourself in that situation comment on everything.
What you should go through and do is make sure track changes are turned on, and then comment on anything you have a question about and cross out anything that simply won’t work for you.
NOTE FROM THE FUTURE: Since someone commented on this at a workshop, I’m aware that Redlining has another historical context in the US, but it is the common parlance for this form of contract markup as well. I’m in favor of negotiating distribution deals, and not in favor of racist housing policies.
Counter-Offers
Generally, distributors and sales agents will review your changes, accept the ones they can, reject the ones they can’t, and offer compromises on others. While there are some exceptions to this framework, after the first round of negotiations, it’s often a take-it-or-leave-it arrangement. If it’s good enough, sign it and you’re in business. If not, walk away.
Quality control
Most sales agents and distributors will have you send the film to a lab to make sure the film passes stringent technical standards. If you have technically adept editor friends, you’ll want them to do a pass first, as each time you go through QC it will cost you between 800 & 1500 bucks. You will need to use their lab, but it’s best for everyone if it passes the first time.
If you need help negotiating with sales agents or just need distribution in general, that’s what I do for a living. Check out my services using the button below. If you want more content like this, sign up for my email list so you can get content digests by topic in your inbox once a month, plus some great film business and film marketing resources including templates, ebooks, and money-saving resources.
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How to Write an Independent Film Business Plan - 6/7 Financial Methodolgy
If you want to raise money from investors to make your independent film, you’ll need rock-solid financials. Here’s how you write that section of your business plan.
In part 6 of my 7-part series on independent film business planning, we’re going to go over the text portion of the financial section of the business plan. This is where you explain the methodology you used in your financial projections, the general plan for taking in the money, and then an overview of what you’re going to present in the final section, the pro-forma financial statements.
It’s pretty common to send this section out as a standalone document, or perhaps paired with the deck or executive summary. That said, the reason it’s at the back of the business plan is to force your potential investor to flip around through the plan and better acquaint themselves with your prospectus and project. That, and this is relatively standard practice across multiple industries.
Investment Plan
This subsection is devoted to how you intend to raise your funding. As a hint, the answer SHOULD NOT be that you intend on raising your funding entirely from equity investors. You’ll want to outline where you intend to raise each part of your money from, as well as how that money will be raised.
Some questions to ask yourself here are as follows, how much are you planning on raising in tax incentives? How much are you planning on raising in product placement? Do you have any pre-sales from a distributor or sales agency? Are you planning on any other forms of backed debt? Did you have a successful crowdfunding campaign? How much are you looking for in equity investment? And how much do you intend to raise in unbacked debt?
For more detail on this, you should check out one of my most popular articles.
Related: The 9 ways to finance an independent film.
You’ll also want to figure out if you’re staging the investment. By this, I mean are you planning on raising money for development first? Do you plan a separate raise for completion or marketing funds? There can be some pretty big advantages to raising funding for your film across multiple rounds.
For more information on this, I encourage you to check out my blog on the 4 stages of independent film investment.
Related: The 4 stages of independent film investment.
You absolutely must to make sure they understand your offer. Some questions you’ll need to answer are: What’s the amount you’re raising in equity and what percentage ownership in your project are you offering for that funding? What’s your minimum buy-in? Who are the other stakeholders?
Additionally, you’ll want to highlight the potential revenue for your film and give them their estimated Return on Investment (ROI). This will have to be done after your pro-forma financial statements. You’ll also want to outline when you expect them to break even.
Financial Assumptions
This section is primarily about outlining the assumptions you used while making your pro-forma financial statements. You’ll want to outline the criteria you used when creating a comparative analysis, as well as what assumptions you made while creating your cash flow sheet, and waterfall to your company/expected income breakdown.
For more detail on financial projections, please check out this blog below.
Related: The two main types of financial projections
Pro Forma Financial Statements
Finally, you’ll want to outline your Pro-Forma financial statements. For reference, these are the following documents.
Topsheet Budget: A snapshot of how the money will be spent on your film. You can only get this by doing a full detail budget. If you try to make a top sheet from scratch, you’ll end up creating more problems than you solve.
Revenue Topsheet: An overview of money to the company and to the investor.
Waterfall to Company/Expected Income breakdown: An outline of how much money your film will make based on your comparative analysis, and from what sources. Generally, when I make a waterfall like this, I’ll also deduct the fees from various other stakeholders including platforms, distributors, sales agents, and producer’s reps (if applicable.)
Internal company waterfall (capitalization table). This sheet is something that not everyone does, but it essentially outlines where the money will go once it gets to your company. I feel this is necessary if you’re using a more complicated financial mix that incorporates debt and tax incentives.
Cashflow Sheet/ Breakeven analysis: This document is an overview of how money will flow through the company and subsequently come back in. you’ll want to highlight when they can expect to recoup their investment.
Research/Sources: This is self-explanatory, it’s the research you used in the other sections of the plan, particularly the films you used in the comparative analysis.
Thanks so much for reading! I’ll be back next week with the final installment going into much more detail on the pro forma financial statements.
The reason I was able to write this blog series is that I’ve written a few dozen independent film business plans. If you need help with yours, you should check out my services page.
If you need more help researching for your business plan, check out the indiefilm Business Resource Pack. As mentioned above, it’s got a whitepaper to help you with your research, as well as lots of other helpful links and resources to aid in the creation of all the documentation you’ll need to talk to your investors. Plus, you’ll get a monthly blog digest full of helpful content so that you can be as knowledgeable as possible when you speak to your investor contacts.
Finally, if you want to check out the other sections of this 7 part blog series, I’ve included a table of contents below.
Executive Summary
The Company
The Projects
Marketing
Risk Statement/SWOT Analysis
Financial Section (Text/Methodology) - This Post
Pro-Foma Financial Statements.
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How to Write an Independent Film Business Plan - 5/7 SWOT/ Risk Analysis
Investing is always risky. Investing in Film is moreso. If you’re raising money, you need to make sure your investors know this.
In part 5 of my 7-part series on business planning, we talk about the risk management/SWOT Analysis of your project. It begins with a risk statement that goes into exactly why film is a highly speculative and inherently risky investment, and then goes into a SWOT Analysis that illustrates how you plan on managing those risks. For those of you who don’t know SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
Risk Statement
This is a boilerplate legal copy that you should not write yourself. You’ll need a lawyer to write it, or some editions of Filmmakers and Financing by Louise Levinson have a statement you can use. You’ll see it in the related books section below. The purpose of this statement is to ensure that any potential knows that film investment carries a fairly significant risk of losing everything you put into it.
This is something you MUST include in order to not paint too blue a sky, or make false promises. If it scares off any investors, it’s probably better you didn’t work with them anyway.
SWOT Analysis
The way I do my SWOT analysis is on the bottom third of the page that contains the risk statement, I do a 2*2 grid of strengths weaknesses, opportunities, and threats that outlines everything that will come for the following pages. If it fits, this is succinct and a great way to manage space while informing your people.
The other four sections of this plan are things I generally dress in a format similar to an outline, starting with a restatement of the Strength, Weakness, opportunity, or threat itself, and then stating how I intend to mitigate the negative and capitalize on the positive. Here’s an outline of what each of these parts of the acronym stands for.
Strengths
Strengths are good things that are inherent to your project. This could be something like holiday movies tend to have longer lifespans because they have regular movies to trigger people feeling the need to watch them, or there’s already an existing fan base for the intellectual property you’ve optioned. Another good thing to focus on would be the track record of your team, and the general stength of any marketable attachments you’ve gotten. If you don’t have any of those, there’s an article on it in the free ebook in the resouce pack.
Weaknesses
Conversely, weaknesses are things inherent to your project that may represent a problem. These could be things like the Fourth of July is a uniquely American Holiday, so the film may be difficult to sell internationally. It could also be something like, the film is completely original and has no existing fanbase. As previously stated, you’ll want to add exactly how you plan on addressing any weaknesses below each one.
Opportunity
While Strengths are inherent to your project, opportunities are more related to the current state of the overall market. This could be a marketable attachment you’ve got that just had a big win, such as one of your cast being cast in a major show or movie that was just announced.
Another example of this might be that there aren’t enough Fourth of July movies currently being made to sate demand and you’ve budgeted your film such that you can make your money back domestically.
Another example would be that a book from the same author as the book we’ve based our script on just got picked up for a television series by *insert name of the studio or PayTV Channel.*. Similarly, if your story is inspired by current conditions going on in the world or targeting a growing audience this is a good place to hammer that point home.
Threats
Just like opportunities, threats are reflective of current market conditions. An example of a threat would be that due to the current geopolitical state of the world, many foreign countries are less likely to buy American than they used to be. A potential trade war would also be considered a threat, although as of right now that’s not incredibly likely to effect to film and media. Without being too political, many threats you’ll need to understand are a result of macroeconomic conditions that you can only really track by being politically aware.
Thank you SO much for reading! I do a lot of this sort of work with my clients, so if you have a direct question that you need help answering for your business, then check out the Guerrilla Rep Services page.
If you like the content, you should grab my free film business resource package You’ll get great research aides and a whitepaper on the state of the industry, you’ll also get a free e-book, money and time-saving resources, templates, monthly digests of content like this segmented by topic, plus a whole lot more. Link in the button below.
Finally, this is part 5 of a 7 part series. Next week we’ll be tackling the financial text section, and then we’ll round it out with proforma financial statements the following week. In the meantime, check out the other parts of the series with the links below.
Executive Summary
The Company
The Projects
Marketing
Risk Statement/SWOT Analysis (This Section)
Financials Section (Text)
Pro-Foma Financial Statements.
The 4 Stages of Indiefilm Finance (And Where to Find the Money)
Financing a film is hard. It might be easier if you break it up into more manageable raises. Here’s an outline on that process.
Most of the time filmmakers seek to raise their investment round in one go. A lot of people think that’s just how it’s done. As such, they ask would they try anything else. If you have a route into old film industry money you can go right ahead and raise money the old way. If you don’t, you might want to consider other options.
Just as filmmakers shouldn’t only look for equity when raising money, Filmmakers should consider the possibility of raising money in stages. Here are the 4 best stages I’ve seen, and some ideas on where you can get the money for each stage.
1. Development
If you want to raise any significant amount of money, you’re going to need a good package. But even the act of getting that package together requires some money. So one solution to getting your film made is to raise a small development round prior to raising a much larger Production round.
If you want to do this with any degree of success, you’re going to have to incentivize development round investors in some way. There are many ways you can do it, but they fall well beyond my word count restrictions for these sorts of blogs. If you’d like, you can use the link at the end of the blog to set up a strategy session so we can talk about your production, and what may or may not be appropriate.
Related: 7 Essential Elements of an IndieFilm Package
Most often, your development round will be largely friends and family, skin in the game, equity, or crowdfunding. Grants also work, but they’re HIGHLY competitive at this stage.
Books on Indiefilm Business Plans
2. Pre-Production/Production
It generally doesn’t make sense to raise solely for pre-production, so you should raise money for both pre-production and principal photography. This raise is generally far larger than the others, as it will be paying for about 70-80% of the total fundraising. It can sometimes be combined with your post-production raise, but in the event there’s a small shortfall you can do a later completion funding raise.
It’s very important to think about where you get the money for the film. You shouldn’t be looking solely at Equity for your Raise. For this round, you should be looking at Tax incentives, equity, Minor Grant funding if applicable, Soft Money, and PreSale Debt if you can get it.
Related: The 9 Ways to Finance an Independent Film
Post Production/Completion
Some say that post-production is where the film goes to die. If you don’t plan on an ancillary raise, then too often those people are right. Generally you’ll need to make sure you have around 20-25% of your total budget for post. It’s better if you can raise this round concurrently with your round for Pre-Production and Principle Photography
The best places to find completion money are grants, equity, backed debt, and gap debt
4. Distribution Funding/P&A
It’s very surprising to me how difficult it is to raise for this round, as it’s very much the least risky round for an investor, since the film is already done.
Theres a strong chance your distributor will cover most of this, but in the event that they don’t, you’ll need to allocate money for it. Generally, I say that if you’re raising the funds for distribution yourself, you should plan on at least 10% of the total budget of the film being used for distribution.
Generally you’ll find money for this in the following places. Grants, equity, backed debt, and gap debt.
If you like this article but still have questions, you should consider joining my email list. You’ll get a free e-book, monthly digests of articles just like this, segmented by topic, as well as some great discounts, special offers, and a whole section of my site with FREE Filmmaking resources ONLY open to people on my email list. Check it out!
What paperwork do I need to deliver to my Indiefilm Distributor? (Deliverables 3/4)
Film Distribution is a business of buying and selling intangible rights to films and media. This requires a lot of legal paperwork. Here’s a guide.
Distribution deliverables are far more than simply technical requirements. As we saw last week, there are also substantial marketing materials that you’ll have to provide to the distributor and more that they may have to generate themselves. This week we’re covering the basics of legal distribution deliverables.
This list is thorough, but not exhaustive. There may be things required outside of this list for legal, and there may be things on this list that are not required, depending on who you’re dealing with. Also, I’m not a lawyer, this isn’t legal advice. Check with your attorney to get some advice if anything is unclear.
1. Key Production Agreements
These are essentially legal documents from key cast and crew saying that you have the right to use their work in your film. Essentially, you’ll have to prove that either you’ve paid out all of the filmmakers, or that they have no claim on the intellectual property of the film. Essentially, you’ll have to prove that whatever work they did was “For Hire” or that you will take on the liability of ensuring that all deserving stakeholders are paid appropriately
Generally, you’ll have to provide agreements proving this for key cast and crew. Most of the time, those appearing in the main title sequence are a good measure. The preferred form of delivery for this is fully executed contracts or deal memos. A lot of times you won’t need to deliver these unless it’s asked for.
You’ll also have to provide separate agreements for composers, or any other songs or assets that you’ve licenced. For the composers, you’ll need to make sure you have the right to use their work in any way you see fit. This can include trailers, promo spots, DVD extras, and anything else in conjunction with promoting or marketing the film. This is particularly important and must be treated separately from a standard crew agreement.
If you used source music, you’ll also have to provide that you have the right to use any and all of that source music under similar terms to the composer’s original music listed above. there’s slightly more wiggle room on this here, but not a whole lot.
2. Certificate of Origin
This is a certificate stating where the film was shot, and essentially stating that the film had the right to be shot there. This is important in all cases, but particularly important in the event that you took tax incentives to finance your film.
3. Chain of Title Summary
This deserves its own blog, which it will get. However, in summary, the chain of title outlines the passage of intellectual property between source material, Script, and Production company. It’s generally a document summarizing all of the associated rights agreements.
4. Rights Agreements
These are essentially documents proving that you have the rights to all the intellectual property used in the film. These documents can include options, proof of option payments, assignments, licenses, certificates of authorship, written permissions, powers of attorney, and other similar documents.
Often, if the name of the copyright owner is different from the owner of the picture, you will need to write up a transfer letter as well. Most of the time you’ll need to generate a chain of title summary for your sales agent to track the rights across multiple documents.
5. Copyright Registration Certificate
This should be fairly self-explanatory, but you’ll need to include the copyright registration of both the picture and the screenplay. Yes, you do need to copyright your work, a WGA registration will not suffice. And yes, you need to have copyright certificates for both the screenplay and the film.
There are other deliverables that can suffice if the copyright is pending, however, those vary by sales agency so I’m not going to go into them here. Additionally, if you shot your film internationally it’s generally wise to file for a US Copyright as it tends to have the most standing in international courts as not every country has a well-staffed copyright and patent office.
6. Additional Agreements/Statements/Letters
There are a few other documents you may have to provide under certain circumstances.
6A, If the Film is Not Originally in English
A deliverable you might need would be an English translation if the film is not in English originally. Most of the time, buyers prefer a film to be in either their native language or in English. It doesn’t matter if they have to translate the film anyway, they prefer to be translating the film from English.
6B, If you worked with Children
Another ancillary document would be some degree of documentation that all children were treated legally on set. Most of the time you can find relevant documentation from the Screen Actor’s Guild, even if your shoot was not a signatory. if the film has any children in it. You’ll also need to provide some documentation that you abided by local child labor laws as they pertain to the film industry.
6C, If the film contains nudity or sexual content
In the event that the film contains sexually explicit material, then you’ll need to provide proof of 28 C.F.R. Compliance and record-keeping responsibilities and documentation of those record-keeping responsibilities.
Similarly, you’ll need to provide additional documentation from any actor appearing nude or partially nude on screen consenting that their nudity was meant to be widely disseminated among the public.
6D, If it was a union picture
If the film is union, you’ll need to provide all your agreements and proof that you’re in good standing.
6E, Other Contractual Obligations.
There may be a whole host of other releases from governmental, technical, and legal entities that prove this film can be distributed, but there’s such variance, it goes far beyond the scope of this blog.
Thanks for reading! This one ended up being a bit scary. Check the other posts for more. Also, Grab my free Indiefilm Business Resource Package to get a free e-book, templates, and a monthly blog digest to increase your ability to find meaningful distribution, and check the tags below for more information on filmmaking.
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How to Structure Your Production Company’s Entity
If you want to make a film, you should really start a company (entity) to do it through. Here’s one Executive Producer’s take on how structuring them.
I’m not a lawyer, nor an accountant. I get a fair amount of questions about the legal structure of a Production company and a film. So I thought I would write a blog about how I’ve learned to structure each individual entity, as well as the benefits and drawbacks of each choice. These are
Generally, you’ll want to have one legal entity that exists as your production company, and one legal entity for each project you produce. Generally, your production company will be a general partner in each project, and when each project has run its course, the entity will be dissolved. If you’re producing episodic content, you can probably get by with one entity per season.
Before we get started, I’d like to reiterate that I’m not a lawyer or an accountant. You should definitely talk to one before you proceed in forming a business.
LLC>LP
The way I was originally taught was that your production company should be a Limited Liability Company (LLC) and your projects should each be Limited Partnerships (LPs.) In this instance, your production company would be the General Partner, and all of your investors would be limited partners. This structure offers you better creative control, shields the assets of your investor in case something goes wrong.
The way that your creative control is protected is that only the general partner can make important decisions regarding running the business. As such, any important creative decision remains with the general partner. In exchange for the limited liability protection, your investors are treated as silent partners, and unable to heavily advise on the day to day operations and decision-making of the company.
Given that the General Partner is your production company, your personal assets are still protected.
However, I will admit that I’m just about the only person I know (aside from the teacher who taught it to me) that favors this structure. Most producers I know favor the following structure.
LLC>LLC
The Production Company LLC being the general partner of the film’s LLC and all of the investors being considered full partners in the film LLC is the most common structure I’ve seen in my time in California. The big benefit here is simplicity. Investors are treated the same way that the general partner is, and everyone benefits from the pass-through nature of the entity.
The assets of your production company are also better protected here if things go awry, but the investors are not forced to be silent. This can lead to less creative control for the filmmaker, however, if you were going to run into this with the film being a Limited Partnership, it likely would have ended just as poorly as it would end in this scenario.
S-Corp/C-Corp
Finally, the other primary way you could structure your film is as a corporation. Either an S-Corp or a C-Corp. The primary reason you would do this is to issue lots of shares to potential investors. Practically speaking this would mean more than 10-20 individual investors. This is relatively unlikely for most filmmakers.
Corporations also encounter additional accounting challenges and in many states additional taxation beyond that of an LLC. Corporations are subject to corporate accounting, and then payroll is generally issued as an individual check. For an LLC, you can pass your income through to yourself, which makes tax time much easier. LLCs provide most of the same benefits that you would actually use as a media production company/media project. You can also do that with an S-Corp, but there are additional filing fees that may or may not be of benefit to you. You could also have an S Corp or C corp own or be the general partner in LLCs or LPs that are responsible for individual projects, similar to the LLC outline above. I have known filmmakers to do this in the past. In certain scenarios, it can be quite advantageous.
Again, talk to your accountant or lawyer, as I am neither. I’m just an executive producer who writes a bit too much.
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The 7 Main Indiefilm Distribution Deal Points
I’m not a lawyer, but even I know contracts are complicated. Here’s a breakdown of the major elements of an indie film sales or distribution agreement.
A lot of people are afraid of the complexity of deals with sales agencies. They have a reputation as being very dense, and difficult to understand. While there is truth to this, there’s also a general layout every filmmaker should understand. Many of the pitfalls for distribution can be avoided by knowing these 7 major deal points. That said, you should always have a lawyer or a producer’s rep look over your contract.
This list is not meant to be complete, but it does cover the most important aspects of the deal.
1. Term
This is not really different all that different from the standard legal definition of the term, it’s simply how long the contract will remain in place.
For film, a good term is anywhere between 3 and 7 years. The sales agent will generally be able to sell the film to third parties [i.e Buyers] for terms that extend beyond the contract with the filmmaker.
2. Territory
The territories are where the sales agents have the right to sell your film. These rights can be both exclusive and non-exclusive, but if you’re selling to a sales agent without the help of a representative or a lawyer, you’ll likely be selling them all rights.
Generally, territories are broken out by both region and country. For example, Germany would be considered a territory in the Western Europe Region. This can get confusing, in that Latin America is both a territory and a region. The Region also contains Mexico, Brazil, and a few others.
3. Languages
One must keep in mind that the business of international sales a global one (as the name would imply.) As such, it means dealing with both cultural and language barriers. Often, a territorial sale is heavily influenced by language. For instance, France is often sold with French Canada.
4. Media Rights
Media refers to the different Delivery methods that a sales agent can sell your film by. Different rights would include the following.
1. Theatrical
2. DVD/home video
3. PayTV
4. Cable/NetworkTV
5. VOD [Et Al]
Read more: The 5 Main Indiefilm Media right types
Generally, a sales agent will sell by any combination of these three types of rights. Most of the time, these rights will be exclusive, but sometimes they will be non-exclusive. This is more common for VOD deals, with some notable exception for SVOD deals. These deals are also subject to a term.
Exclusivity is necessary, and does help the filmmaker as well. Without exclusivity is the only thing that creates value when the thing you’re selling can be replicated infinitely. If the supply is infinite, there’s no way to have enough demand to increase the value of the content. Exclusivity helps maintain the value of the content.
5. Revenue Split/MG
A Minimum Guarantee (MG) would be the payment a filmmaker receives upfront. These are something that filmmakers can receive, but it’s somewhat rare. Generally, you’ll need recognizable talent and a hot genre in order to get one.
The revenue split the Sales Agent takes, as opposed to what the Filmmaker takes.
These splits generally vary between 20% and 35%. Generally, sales agents don’t like to negotiate this deal too much. There are other ways to negotiate these deal points.
6. Recoupable Expense
These are the expenses a distributor can charge before paying a filmmaker. Travelling to film markets gets quite expensive, often costing in the mid-5 figures to the low-mid 6 figures. As such, film they should always have a cap. If there was an MG, this would be part of the Recoupable Expenses.
Generally, these should be somewhere between 20 and 50 thousand, that’s not including any MG. That number could also be substantially higher if there’s a theatrical release involved.
7. Exit Conditions
This is how you exit the contract should things not go well. This is much more complex than simply including an arbitration clause. If The arbitrator only arbitrates based on the initial contract, so if you don't have exit clauses you're not in a great place. There are lots of different provisions for this, far too many for a blog post, but here are a few things you could include.
Optional Reversion if X% of the budget not meant by 18–24 months after deal signing.
This would mean that if you haven’t made a certain percentage back by a certain date, then the rights would revert to you. Generally, you’d put this number at 30–50%.
In an all-rights deal. It’s your film, you deserve to get paid.
While you deserve to be paid, this clause is harder to negotiate in than it once was.
Optional Reversion if the company is wholly acquired by a third party, or goes bankrupt.
International sales is a risky game, and often the newer players in it don’t last long. Because of this, it’s important to make sure that you include this clause.
As I said at the top, I’m not a lawyer and this isn’t leagal advice. These are simply the best practices I’ve learned from a decade in distribution. If you found this useful want to better prep for success in film distribution, you should make sure you grab my FREE indiefilm business reseource pack. It’s got distributor contact tracking templates, research guides, deck templates, and a whole lot more. Get it for free below.