LAFF
Notes from LAFF Film Financing Conference
Living in LA has a positive aspect - I can now easily try out some new festivals. This was the first year that I've attended LAFF - it's a different fest than I'm used to, it's very geared to the exhibition of the various films more than being a conference. There's a few panels spread out over the course of the fest, but they're generally smaller and more specifically geared towards a subject (i.e. Mad Men or GLBT filmmaking)
The exception to this is the big Film Financing Conference, which is a whole event to itself. Starting at 8 those who purchased the separate pass for the conference take on a crash course in guidance and analysis. I was lucky enough to be one of the few who was able to attend the conference, so I felt the least I could do for others is to share my notes from the event.
Keynote Address
I don't really need to share my notes on the keynote as it's available in text form and in podcast form.
I will give a little bit of background for the keynote though - last year Mark Gill's keynote address entitled, "Yes, The Sky Really Is Falling" made waves as it was spread like wildfire through the internet and around independent production company offices across the world. While everybody was hoping that his predictions of doom and gloom would be wrong, he was proven very right.
The legacy of last year's keynote was floating over every speaker's head - would their prediction be the one that would find its way across the globe? Could they be the "guru" who puts out a negative prediction that becomes the mantra of those across the industry?
If you look back at Gill's speech, he delivers the negative message and then tries to spin it and show the upside towards the end (sadly after many had stopped listening or reading) - the panels and presentations were structured in a very similar way - we know the independent film world is in an awful place and it's not going to get better for a long, long time BUT we can try to look at the positive aspects of it. It's a very rational way of assessing the situation.
I doubt any of the panels I attended will be flooding inboxes or twitterstreams in either fashion, positive or negative. I came through the day with an odd positive feeling that was merely surrounded by the doom and gloom elements. Am I still worried about where independent film is going? Absolutely, but I have that kind of hope that says that a team-of-misfits came come through and make it to the playoffs.
Independent Financing Models: The Old and the New
(the alternate panel was written up here: "The World as we know it: Is it over?"
This was a fast paced presentation so I basically wrote down everything they said and hoped to make complete sense of it later. Some of the stuff is pretty basic, but I didn't have time to pick and choose)
Irwin Rappaport (P.C.)
2 Methods of Financing: Equity Financing and Debt Financing
Equity - Investors become part owners; profit participation, Usually through an LLC. Usually investors entitled to 110 - 125% of money invested as first money, then 50% of profits. All investors split this 50%.
Deferments - First pay back investors, then contingent deferments. "Post-recoupment basis" - great way to earn money for self, Above-the-line comes before profit part. Earn money before film goes into profit.
Vendors (i.e. Post production) can be deferred as well, but it's greatly difficult.
Preferred return: the 110-125% has various levels of participation (i.e. distributor choice, the deal, down to casting, etc. as all effects likelihood of ROI)
Get all equity investors before start; Raise all money before shoot; GET CONTRACTS, GET MONEY IN THE BANK - Then no excuses.
Include costs of Answer-print, video master and deliverables in budget as well as fest costs, publicists, producer's rep in the initial budget
In case of excess money (!) giving back to investors is always an option.
Debt Financing = Loan. Lenders get first money, even before equity investors
In indie-film loan world the film negative, content, screenplay, distribution rights & revenue stream are all collateral against your loan. Pre-sales are great collateral to obtain loan, however, distro must be "credit worthy".
This takes a LOT of time, lots of checks and balances, lots of lawyers. Gotta have shit together in a major way. 6 months MINIMUM before shooting.
Most and major sales are at the 3 markets - major part of getting the pre-sales.
Foreign sales agent will take 5-25% of the sale. Pre-sales tend to have name actor/name director or director with track record & producer with track record.
GAP financing - filling the gap between pre-sold & not-pre-sold. Loan secured on distro on deals that you haven't made. Has it's own fee and can have very high interest.
Loan fees and interest are loaned to you, as is legal fees.
Reason for debt is that you don't pay profit participation in this model. You keep all of it in success.
Tax incentives - last part of financing. Credit against income made in that state. Monetize it by selling it to local buisnesses. Can typically get 80-90% of credit.
Negative pickup - taking the package and selling it to the studio as a pre-sale. Fixed amount, used as collateral on a loan. Use studio check to pay bank back.
Production company - either equity investors, or introduce you to investors or filmmakers that will lend credibility.
Finders - Find money, want credit. Structure deal so that if a finder uses a friend of a friend of a friend that you pay ONE fee, not multiple fees.
Peter Broderick (Paradigm Consulting) - distribution strategist.
Vision of distro needed before you complete your movie; the reactive model is dead.
All-rights deals leave less than 2% of filmmakers happy.
He then referenced this article: “Welcome to the New World of Distribution”
Quadrants as Audience analysis are ridiculous and outdated in today's market.
Robert Greenwold (Outfoxed) is a great example of alternate distribution in his house party model and crowdsourcing BUT he had a track record.
The Age of Stupid - structured crowdsourcing as a loan that did not need to be repaid; 2 separate campaigns for production, distribution, and an Ad campaign. Donations above a certain amount were repaind (Donations WERE NOT structured as investments for those repaid, even though the term "invest" was used.)
Goal for the film was to get 250M people to see it and become climate change activists.
Traditional distro is at a worse state than thought; Hybrid distro has potential for new successes, however, works for specific projects.
Build individual relationships with potential audiences.
Gap lenders are taking larger than average risks.
Word meanings change between contracts.
Diversify revenue streams, but don't give out rights that will hamstring bigger deals (i.e. selling DVD too early)
Finders offer a less-structured way to get money; however it's important to know what the finder is telling potential investors - misleading them will bring a world of problems.
If a finder is unlicensed an investor can rescind their investment at any time; check SEC certificates.
Finder can be another word for co-producer.
Film websites need to evolve past being an online press kit - needs content/ reasons to come back.
For docs you can make twice the money on an acquisition over a pre-sale... it's not easy though.
Blue sky laws(laws limiting numbers of investors) do not apply as the crowd is contributing/donating NOT investing.
Always use an attorney when getting the right to a property and dealing with financiers.
A LOT of attorneys (and reps) are not up-to-date with the newest nuances of modern distro sources. Get multiple attorneys to look over the deal; you have to live with the contracts for a long time.
Lender gets money before the distributor.
Packaging Tips
(this was a panel devoted to hearing pitches from the LAFF pitch competition and giving them advice for structuring it when they had to pitch to investors and such. It really wasn't that helpful and no lie somebody pitched the basic plot of Raising Arizona unironically as a serious plot. I don't think they even realized it, it was kinda hilarious, but only to me. This wasn't a great panel, but it beat going to see state incentive people explaining that Montana is a good place to shoot because "You can go fishing between takes on some of the world's finest trout streams" - which is actually in Montana's handout they gave us)
Films are still being made, they just take more time and you have to be sure that it NEEDS to be made
Next 12 months - 3 or 4 years pricing will be the big issue of filmmaking.
The excuse after "No" is more for the person rejecting than it is for the rejectee.
Can't just send a script out anymore; a package is necessary
If you've done even the most cursory amount of research in a pitch session you're better than 90% (I think this was more from my frustration listening to the pitches instead of anything that was actually said...)
Harder to sell a film with female leads/female driven
Crossing Borders: Global Film Markets
Buyer's rep - Agent for international distribution
In some territories, like Germany, more money can be made by splitting rights - selling theatrical/TV separately
International TV market is currently "dismal"
VOD is still not consistanly monetized in any territory
DVD is down, VOD hasn't come in to make up for it.
Tyler Perry movies only make money domestically (perhaps the greatest reason why Obama should declare war on the rest of the world tonight; the cultural divide is just too great)
Strong theatrical markets are suffering from currency devaluation
Banks have VERY strong opinions on sales agents, call them before choosing one.
In current climate banks are more often getting involved on collections - both with and without permission
First time director films do not sell as much; all assets are needed.
DVD tanking is the real killer of the industry; no safety net.
The novelty of special features has expired - no longer a great selling force.
Big studios dropping their DVD prices caused indies to have to cut theirs and killed the margin.
Also - studios have outrun their libraries, have to release new films.
A film's cost has little-to-no relation as to what it's worth.
A slow limited roll out release is great in the US; disasterous globally due to piracy.
International release windows can be built, but international distributors can distribute a film pretty much whenever they want to.
Summit sells and collects, as do Mandate, Lakeshore, and Essential. There's probably less than 10 companies that do anymore.
We'll be hurting until independent distributors can make money on streaming/VOD and fill in the gap that DVD left.
With the leaving of Wall St. money new income is coming from Europe, India and high net worth individuals.
Production in LA will be slow for 12 months - 3 years
LA's incentive of 20% is not enough for most productions to even consider shooting there. (Note: Texas is currently at 15% with a 17.5% maximum.)
South Africa is the only place in Africa that has film infrastructure. SA is also very favorable for shooting.
Digital Distribution: The Future is here, but Where is the Money?
In 1997 Fox payed an unprecedented $80M for Jurassic Park 2's TV broadcast rights - Production of the film cost $73M
Fathom Events - IOUSA - 360 screens - $600K opening night
YouTube is not generating views or revenue for film
Watch Now is generating revenue
NetFlix instant streaming pays anywhere from $1K-$35K/year depending on DVD performance
If on Netflix, put your film in your queue - that counts as demand. Ever add counts.
Helvetica has generated $60K on iTunes and is considered a "Grand Slam"
In early years SnagFilms supplies films to Hulu. Snag gets a 50/50 split on advertising, 8.5% on DVD sales referred by the site (standard Amazon referral rate) and 50/50 sales on Hulu.
iTunes - Apple 30%, Filmmaker/Supplier - 70%
Targeted marketing - newamericanvision.com
The average demographic of a SangFilm user - over 30
Digital distribution (For films) is currently 90% iTunes, 10% everyone else
Be careful about your rights, there's always a new platform around the corner that may be better (But tomorrow may never come...)
CreateSpace on Amazon - 70/30 towards the filmmaker (self distro)
FAST - SnagFilms program to take film from fest circuit easier
If you can crack a "Top X downloaded films" list, you tend to stay there, it's incredibly effective advertising.
iTunes has stopped/slowed buying shorts.
Filmmakers, from now on, MUST get involved on the marketing of their films
Waterbourne's digital release was a disaster - Google claimed the hits reported were inaccurate and were really only 1/10th of what was reported, paid on the lesser number.
SnagFilms provides audit rights. The tracking is difficult to count plays/ads played. Contract with advertiser determines how many seconds counts as an Ad play. Currently it's 5 seconds; Ad rates are radically different between films.
IODA - iTunes aggregator, Cinetic
Don't go to an aggregator unless you think they can do better than you can.
Theauteurs.com - distro outlet.
Snag shifts the brand trust to the sites that embed the movie and gets a target audience that way.
Movie titles are more important than ever - there's a HUGE value in being top result in Google.
Free availability kills piracy.
powertools.wikispaces.com
(That's the last of my notes. Some of it makes more sense in context, to say the least. That said, I think it was a valuable conference. More than anything else, it makes me just want to get in there and do it!)
The exception to this is the big Film Financing Conference, which is a whole event to itself. Starting at 8 those who purchased the separate pass for the conference take on a crash course in guidance and analysis. I was lucky enough to be one of the few who was able to attend the conference, so I felt the least I could do for others is to share my notes from the event.
Keynote Address
I don't really need to share my notes on the keynote as it's available in text form and in podcast form.
I will give a little bit of background for the keynote though - last year Mark Gill's keynote address entitled, "Yes, The Sky Really Is Falling" made waves as it was spread like wildfire through the internet and around independent production company offices across the world. While everybody was hoping that his predictions of doom and gloom would be wrong, he was proven very right.
The legacy of last year's keynote was floating over every speaker's head - would their prediction be the one that would find its way across the globe? Could they be the "guru" who puts out a negative prediction that becomes the mantra of those across the industry?
If you look back at Gill's speech, he delivers the negative message and then tries to spin it and show the upside towards the end (sadly after many had stopped listening or reading) - the panels and presentations were structured in a very similar way - we know the independent film world is in an awful place and it's not going to get better for a long, long time BUT we can try to look at the positive aspects of it. It's a very rational way of assessing the situation.
I doubt any of the panels I attended will be flooding inboxes or twitterstreams in either fashion, positive or negative. I came through the day with an odd positive feeling that was merely surrounded by the doom and gloom elements. Am I still worried about where independent film is going? Absolutely, but I have that kind of hope that says that a team-of-misfits came come through and make it to the playoffs.
Independent Financing Models: The Old and the New
(the alternate panel was written up here: "The World as we know it: Is it over?"
This was a fast paced presentation so I basically wrote down everything they said and hoped to make complete sense of it later. Some of the stuff is pretty basic, but I didn't have time to pick and choose)
Irwin Rappaport (P.C.)
2 Methods of Financing: Equity Financing and Debt Financing
Equity - Investors become part owners; profit participation, Usually through an LLC. Usually investors entitled to 110 - 125% of money invested as first money, then 50% of profits. All investors split this 50%.
Deferments - First pay back investors, then contingent deferments. "Post-recoupment basis" - great way to earn money for self, Above-the-line comes before profit part. Earn money before film goes into profit.
Vendors (i.e. Post production) can be deferred as well, but it's greatly difficult.
Preferred return: the 110-125% has various levels of participation (i.e. distributor choice, the deal, down to casting, etc. as all effects likelihood of ROI)
Get all equity investors before start; Raise all money before shoot; GET CONTRACTS, GET MONEY IN THE BANK - Then no excuses.
Include costs of Answer-print, video master and deliverables in budget as well as fest costs, publicists, producer's rep in the initial budget
In case of excess money (!) giving back to investors is always an option.
Debt Financing = Loan. Lenders get first money, even before equity investors
In indie-film loan world the film negative, content, screenplay, distribution rights & revenue stream are all collateral against your loan. Pre-sales are great collateral to obtain loan, however, distro must be "credit worthy".
This takes a LOT of time, lots of checks and balances, lots of lawyers. Gotta have shit together in a major way. 6 months MINIMUM before shooting.
Most and major sales are at the 3 markets - major part of getting the pre-sales.
Foreign sales agent will take 5-25% of the sale. Pre-sales tend to have name actor/name director or director with track record & producer with track record.
GAP financing - filling the gap between pre-sold & not-pre-sold. Loan secured on distro on deals that you haven't made. Has it's own fee and can have very high interest.
Loan fees and interest are loaned to you, as is legal fees.
Reason for debt is that you don't pay profit participation in this model. You keep all of it in success.
Tax incentives - last part of financing. Credit against income made in that state. Monetize it by selling it to local buisnesses. Can typically get 80-90% of credit.
Negative pickup - taking the package and selling it to the studio as a pre-sale. Fixed amount, used as collateral on a loan. Use studio check to pay bank back.
Production company - either equity investors, or introduce you to investors or filmmakers that will lend credibility.
Finders - Find money, want credit. Structure deal so that if a finder uses a friend of a friend of a friend that you pay ONE fee, not multiple fees.
Peter Broderick (Paradigm Consulting) - distribution strategist.
Vision of distro needed before you complete your movie; the reactive model is dead.
All-rights deals leave less than 2% of filmmakers happy.
He then referenced this article: “Welcome to the New World of Distribution”
Quadrants as Audience analysis are ridiculous and outdated in today's market.
Robert Greenwold (Outfoxed) is a great example of alternate distribution in his house party model and crowdsourcing BUT he had a track record.
The Age of Stupid - structured crowdsourcing as a loan that did not need to be repaid; 2 separate campaigns for production, distribution, and an Ad campaign. Donations above a certain amount were repaind (Donations WERE NOT structured as investments for those repaid, even though the term "invest" was used.)
Goal for the film was to get 250M people to see it and become climate change activists.
Traditional distro is at a worse state than thought; Hybrid distro has potential for new successes, however, works for specific projects.
Build individual relationships with potential audiences.
Gap lenders are taking larger than average risks.
Word meanings change between contracts.
Diversify revenue streams, but don't give out rights that will hamstring bigger deals (i.e. selling DVD too early)
Finders offer a less-structured way to get money; however it's important to know what the finder is telling potential investors - misleading them will bring a world of problems.
If a finder is unlicensed an investor can rescind their investment at any time; check SEC certificates.
Finder can be another word for co-producer.
Film websites need to evolve past being an online press kit - needs content/ reasons to come back.
For docs you can make twice the money on an acquisition over a pre-sale... it's not easy though.
Blue sky laws(laws limiting numbers of investors) do not apply as the crowd is contributing/donating NOT investing.
Always use an attorney when getting the right to a property and dealing with financiers.
A LOT of attorneys (and reps) are not up-to-date with the newest nuances of modern distro sources. Get multiple attorneys to look over the deal; you have to live with the contracts for a long time.
Lender gets money before the distributor.
Packaging Tips
(this was a panel devoted to hearing pitches from the LAFF pitch competition and giving them advice for structuring it when they had to pitch to investors and such. It really wasn't that helpful and no lie somebody pitched the basic plot of Raising Arizona unironically as a serious plot. I don't think they even realized it, it was kinda hilarious, but only to me. This wasn't a great panel, but it beat going to see state incentive people explaining that Montana is a good place to shoot because "You can go fishing between takes on some of the world's finest trout streams" - which is actually in Montana's handout they gave us)
Films are still being made, they just take more time and you have to be sure that it NEEDS to be made
Next 12 months - 3 or 4 years pricing will be the big issue of filmmaking.
The excuse after "No" is more for the person rejecting than it is for the rejectee.
Can't just send a script out anymore; a package is necessary
If you've done even the most cursory amount of research in a pitch session you're better than 90% (I think this was more from my frustration listening to the pitches instead of anything that was actually said...)
Harder to sell a film with female leads/female driven
Crossing Borders: Global Film Markets
Buyer's rep - Agent for international distribution
In some territories, like Germany, more money can be made by splitting rights - selling theatrical/TV separately
International TV market is currently "dismal"
VOD is still not consistanly monetized in any territory
DVD is down, VOD hasn't come in to make up for it.
Tyler Perry movies only make money domestically (perhaps the greatest reason why Obama should declare war on the rest of the world tonight; the cultural divide is just too great)
Strong theatrical markets are suffering from currency devaluation
Banks have VERY strong opinions on sales agents, call them before choosing one.
In current climate banks are more often getting involved on collections - both with and without permission
First time director films do not sell as much; all assets are needed.
DVD tanking is the real killer of the industry; no safety net.
The novelty of special features has expired - no longer a great selling force.
Big studios dropping their DVD prices caused indies to have to cut theirs and killed the margin.
Also - studios have outrun their libraries, have to release new films.
A film's cost has little-to-no relation as to what it's worth.
A slow limited roll out release is great in the US; disasterous globally due to piracy.
International release windows can be built, but international distributors can distribute a film pretty much whenever they want to.
Summit sells and collects, as do Mandate, Lakeshore, and Essential. There's probably less than 10 companies that do anymore.
We'll be hurting until independent distributors can make money on streaming/VOD and fill in the gap that DVD left.
With the leaving of Wall St. money new income is coming from Europe, India and high net worth individuals.
Production in LA will be slow for 12 months - 3 years
LA's incentive of 20% is not enough for most productions to even consider shooting there. (Note: Texas is currently at 15% with a 17.5% maximum.)
South Africa is the only place in Africa that has film infrastructure. SA is also very favorable for shooting.
Digital Distribution: The Future is here, but Where is the Money?
In 1997 Fox payed an unprecedented $80M for Jurassic Park 2's TV broadcast rights - Production of the film cost $73M
Fathom Events - IOUSA - 360 screens - $600K opening night
YouTube is not generating views or revenue for film
Watch Now is generating revenue
NetFlix instant streaming pays anywhere from $1K-$35K/year depending on DVD performance
If on Netflix, put your film in your queue - that counts as demand. Ever add counts.
Helvetica has generated $60K on iTunes and is considered a "Grand Slam"
In early years SnagFilms supplies films to Hulu. Snag gets a 50/50 split on advertising, 8.5% on DVD sales referred by the site (standard Amazon referral rate) and 50/50 sales on Hulu.
iTunes - Apple 30%, Filmmaker/Supplier - 70%
Targeted marketing - newamericanvision.com
The average demographic of a SangFilm user - over 30
Digital distribution (For films) is currently 90% iTunes, 10% everyone else
Be careful about your rights, there's always a new platform around the corner that may be better (But tomorrow may never come...)
CreateSpace on Amazon - 70/30 towards the filmmaker (self distro)
FAST - SnagFilms program to take film from fest circuit easier
If you can crack a "Top X downloaded films" list, you tend to stay there, it's incredibly effective advertising.
iTunes has stopped/slowed buying shorts.
Filmmakers, from now on, MUST get involved on the marketing of their films
Waterbourne's digital release was a disaster - Google claimed the hits reported were inaccurate and were really only 1/10th of what was reported, paid on the lesser number.
SnagFilms provides audit rights. The tracking is difficult to count plays/ads played. Contract with advertiser determines how many seconds counts as an Ad play. Currently it's 5 seconds; Ad rates are radically different between films.
IODA - iTunes aggregator, Cinetic
Don't go to an aggregator unless you think they can do better than you can.
Theauteurs.com - distro outlet.
Snag shifts the brand trust to the sites that embed the movie and gets a target audience that way.
Movie titles are more important than ever - there's a HUGE value in being top result in Google.
Free availability kills piracy.
powertools.wikispaces.com
(That's the last of my notes. Some of it makes more sense in context, to say the least. That said, I think it was a valuable conference. More than anything else, it makes me just want to get in there and do it!)