Category Archives: Financing

What is a presale?

If you want to thrive in the independent film world, this is a term you need to become familiar with. It’s an agreement made between a distributor (usually foreign and specific to only one country) and the production company before the film is completed and often times even before production of a film has even commenced. This is a strategy that producers  use to get their film financed. You may here that a producer financed a film via foreign presales alone. This means that a distributor will pay for the distribution rights in their country before they even see the finish product. In return, they will get to pay a significantly reduced cost for these rights as opposed to if they waited to buy the rights to the film in the open market upon completion. They are banking on the film doing well in the box office based on the script, director, producer and actors that are attached to the film. Some presale agreements involve the distributor and producer agreeing – prior to production – on a fixed amount to be paid upon delivery of the film. This is called an advance or a minimum guarantee.

Microbudget Films, Contained Thrillers, Found-Footage Horrors

I recently met with Steven Schneider; the producer of “Paranormal Activity”. After 10 minutes of engaged conversation, about a dozen light bulbs went on in my head. I’m hoping after reading this post, a few light bulbs of your own will turn on.

First, a little bit of background. Steven is a huge fan of horror movies. He’s watched them all, studied them, and has even written books on them. With Paranormal, Steven did not act as a producer in a traditional manner. He had a development deal with Paramount and Oren Peli, the writer and director, had given him the film to act as a director’s reel. In other words, the film had already been made, and Steven was not involved in the development or the production of it. Steven said that it was so scary that he had difficulties sleeping at night. That was enough for him to want to attach himself to the project.  Not once did he felt critical of the production quality. To make a long story short, Steven and his colleagues sold it to Paramount and it became the most profitable movie in world grossing over $300 million worldwide. I will save the details of this story for another posting.

The point of the article is this: The ability to make high quality content has never been easier. You have access to amazing affordable cameras. You can edit digitally in your own home off your lap top. You can distribute your film online with a click of a couple buttons. This all presents the industry, especially young filmmakers, with an opportunity to make  microbudget films (films under $1 million) and present a finished product to buyers, which is much more appealing than undeveloped projects.

Currently, it has never been harder to get a movie made and distributed. The biggest, and sometimes the only hurdle in the past has always been the cost. Nowadays, this is no longer an excuse. If you have the right story, you can essentially film a movie for less than 5 figures. So the challenge now becomes finding the right story. Oren told a story that had two main characters, and two supporting characters with two scenes each – four actors total. He shot the film in his own house – one location. He shot it using essentially no camera movement. Oren also edited Paranormal Activity on his laptop in his home office. With this in mind, I challenge you to set aside your traditional feature passion project for now, and develop a contained story that has no more than 5 actors, and takes place in no more than 2 locations. You can choose whatever genre you like, however, I strongly recommend horror because the audience is easy to reach, loyal, and don’t care about A-list actors. Also, with most successful horror films, the emphasis is place first on concept (it’s ability to scare), then on story. In all the rest of the genres, story is typically paramount. But, if you can crack this formula and be successful with other genres…PLEASE be my guest. If not, stick to the contained thrillers. Try and think of a high concept. Typically, the lower the budget, the higher the concept needs to be in order to gain attention from buyers. Having restrictions on locations and talent actually forces you to be more creative. I strongly encourage it, if anything, for the sake of the exercise.

To get you in the right mind-set, let’s look at some notable contained, high concept movies. First you have your “found-footage” horrors like The Blair Witch Project, and Paranormal Activity. Both movies shot for under 6 figures, both extremely successful in the box office. Another notable film that I personally love is “The Disappearance of Alice Creed”. This critically acclaimed film told a kidnapping story with three actors in essentially one location. In, “Phone Booth”, the lead actor spends the entire time in a phone booth. I think you get the idea.

If you have a great story, or an amazing concept, people will look at it. I am a firm believer of that. Having that story already produced only decreases the barriers to these people which is exactly what happened to Oren Peli. He created a unique, outstanding film, and found the right passionate person to champion his project. So go and develop your contained story, and then MAKE IT!!!

So you wanna be an independent film maker? Let Sundance put things into perspective for you.

If you want to avoid the studio system, explore the world of independent film making, here are some statistics/facts from this year’s Sundance Film Festival – one of the largest and most prestigious film festivals in the world. I’m by no means discouraging independent films. I absolutely love independent films and feel like the studios are putting out more and more garbage every year. However, independent film making is a difficult and risky industry, and I hope these numbers allow you to have a bit of perspective when it comes to this grueling industry.

– Over 5000 films were submitted into Sundance.  Under 300 we chosen

– 38 out of 300 films were sold to distributors.  28 Features, 10 documentaries.

– 4 films were sold for more than 3 million dollars. 2 of these were sold as remake rights

– 2 out of those 4 films sold for more than their budget.

– All the films that sold for $750K or more had cast that previously played leading roles in studio films.

To summarize, of all the films submitted into Sundance, 0.0076% earned revenue, and 0.0004% made a profit. That isn’t to say that the 0.0076% won’t go on to make money, but the point is that if you want to pursue independent film making, the odds are definitely against you if you rely on festivals to recoup costs and make profit.

Click here to see which films got sold to distributors.

Casting Before Financing???

The biggest obstacle that any independent film producer faces when producing a movie always comes down to financing. How do you get money? Even if your project is amazing, you still need to reach out to the people  with money. How do you accomplish this…especially if you are not an established film producer? I asked a former film producer-turned agent, and he offered me some interesting advice. If you are not established and have not built relationships with financiers, agents or managers,  one of the best things you can do is HIRE A CASTING DIRECTOR. ……..Huh? Yes, the first person to spend your money on is a casting director. A casting director has first degree relationships with all the agencies. If she likes the script, she’s going to work her hardest to get the best talent attached to the project. To do this, the first line of attack are the agents. In addition to a plethora of actors, they also have access to financiers, and if they believe the project is good, it’s in their best interest to help you get it financed. In other words, casting directors is a way to “pay” to get access to agents and, in essence, get access to financing. The agents will also help get great talent attached to your project, which again, will attract financing.

What is an “Ultimates Model”?

An ultimates model is a financial model used to determine the value of a film. This is usually established by the distributor of the film and is based on all revenue streams generated by the film including domestic theatrical box, DVD, network TV, pay TV, cable TV, and other ancillary markets within a 10 year period. The domestic theatrical box office is the main driver behind the ultimates valuation. Ultimates serve three main purposes. One is to determine the anticipated value of a film in order to attain financing from a lender. This ultimates value will allow the lender to derive an appropriate amount to lend to the filmmaker. Another purpose is determining the price for post-release sales. This could be to foreign TV, pay TV or any other ancillary markets. When determining the price to sell a film to another distributor after the film has been released, the price will be based off the ultimates value of the film. This is usually derived from domestic theatrical box office revenue. The third purpose is collateral for lending. In other words, if you were borrowing money from a lender, the lender could lend against your library and the value of your library the ultimates model is applied to each of the films in that particular library.

What is a “Completion Bond”?

This is basically referred to as completion “insurance”. There are companies in the film industry who specialize in insuring that a film gets made. It’s a safe guard to guarantee the financier that the film will be complete. A partially made film has zero value. The bond company will collect a flat fee – usually between 2-5 percent of the budget depending on market conditions – and they will keep a close eye on the progress of production. They will receive daily production reports. As soon as they feel that a film is over-budget, or that it will not be completed on time, the bond company will step in and take over production. All major financiers will require a completion bond before they will contribute any money to a film. This sounds very intimidating, but rest assured, bond companies really don’t want to step in and take over a film. They’re there to help you and support you to get the film made on time and on budget. Having them take over a film is an absolute last resort. The major bond companies in Hollywood include “Film Finances Inc.”The Motion Picture Bond Company”, and “International Film Guarantors Inc.”