6 Things Stopping a Sustainable Investor Class in Film

Why should  those "Rich Tech People" invest in Film? 6/7

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Much of this series has been focused on the numbers behind film investment.  While metrics like ROI and APR are very important when considering an investment, they’re not the only reason that high net worth individuals (HNWIs) tend to shy away film. Here are 7 things that are stopping them.  

In order for independent film to develop a sustainable investor class, the asset class itself needs to be taken more seriously.   The reason that no one has yet been able to create a sustainable asset class out of film and media is much more complicated than the numbers not being in our favor.  In this post, we’re going to examine some of the other things stopping independent film from becoming a sustainable asset class.  This list is in no particular order, except how it flows best.

1. LACK OF INVESTOR EDUCATION

Investors tend not to invest in things they don’t know or understand, at least as anything more than an ego play.  The Economics behind film investment are difficult to understand even before you factor in how difficult it is to find reliable information on film finance from an investor’s perspective.  

Even the basics of the industry can be difficult to learn.  Generally, film investors are forced to read older, often out of date books on film financing targeted more for filmmakers than for investors.  This industry is in the midst of a reformation, so much of the information is out of date before it’s published.  Most investors don’t really to spend a long time learning information from a different perspective which may or may not be correct.  

Whit that in mind, many Investors learn how money flow in the Film industry from the filmmakers they invest in.  Apart from the conflicts of interest, there’s another rather large problem with that strategy.

2. FILM SCHOOLS DON’T TEACH BUSINESS AS WELL AS THEY NEED TO

Film Schools can be great at teaching you how to make a film, but they’re generally not good at teaching necessary business skills.  Even things as basic as general marketing principles, how best to finance a film, or how to make money with film under current market conditions.  

While film and media are an artistic industry, focusing solely on the quality of the film is not going to recoup the investors money.  Film Schools aren’t great at teaching branding filmmakers how to define their core demographic, or how to access them once they have.   ​

If Filmmakers have a generally poor track record of understanding business and they’re required to teach their investors how the industry works, then we then the outcome of the asset class looks bleak.   The old solution has been to have specialists focus on business and marketing.  But there’s an issue with that.

3. DISTRIBUTION ISN'T WHAT IT USED TO BE.

The big risk in film distribution used to be the gate keepers.  You had to make a good enough film to attract a distributor so you could get your film out there.  However, that problem has been traded for an entirely different one, that it’s easy to argue is harder to overcome. 

The old model was that the home video sales would be able to make a genre film profitable, even if it wasn’t that good.  Essentially, if you had access to a wide scale VHS or DVD replicator, you could make a mint selling the licenses.   There wasn’t much competition, so a cottage industry sprung up around film markets.

That model worked when it it was much more expensive to make a film.  Given the high barrier to entry from needing to raise enough money to shoot on film, as well as develop the skills to expose it correctly, there was relatively little competition compared to the demand.  However, now that anyone can make a film with an iPhone and 500 bucks the marketplace has been flooded.   

Additionally, that the DVD Market has all but dried up, it’s difficult to make a return for newer filmmakers.  VOD (Video On Demand) Numbers haven’t risen to the occasion, since most people can get their fix from watching Netflix.  It used to be easy to sell DVDs as an impulse buy at the checkout line.  Now that everyone has hundred of free movies at their fingertips, Why should they pay 3 bucks to watch something when there’s an adequate alternative I can get for free.  

So the problem is now less how to get distribution, and more how to market the film once you’ve gotten it.  It’s both hard and expensive to market a film.  Generally, it’s best to create something of a hybrid between these two types of Distribution.  However, there are issues with that as well, and these are less associated with expertise.

4.SEVERE LACK OF TRANSPARENCY IN INDEPENDENT FILM

I’ve written before about the lack of transparency in Distribution, so I won’t go into too much detail here.  In Essence, the black box that is the world of film distribution is very intimidating to many investors.  Investors want to be able to know when their money is coming back, and many filmmakers are unable to make any real promises about that.   However there’s another issue with transparency from an investor’s perspective.

READ MORE: BLACK BOX - A CRY FOR TRANSPARENCY IN HOLLYWOOD

Unfortunately, many filmmakers don’t communicate well with their investors, or other stakeholders.  I’ve spoken with may film commissioners, investors, and others about their frustrations with filmmakers not keeping them in the loop. 

Filmmakers understandably focus on the admittedly difficult task of making the film happen.  Between all of the tasks like scheduling and budgeting the film, finding the locations, confirming the crew, making the shotlist and storyboards, sending out callsheets, and a whole lot more, it’s easy to let communication fall by the wayside.  Good thing there’s software for that.   ​

5.INVESTORS LAST TO BE PAID

Now I know that Filmmakers are reading this thinking “BUT I GET PAID AFTER THEY GET 115% BACK!?!?” To a level, you’re right.  However, unless you waived your producer’s fees, you got paid before they did.   Sure, you did a lot of work for often too little money to make your film happen, but you did get a fee to produce this film.  Essentially, you produced a movie for hire that you got to take most of the credit for.

Here’s what a waterfall for a film normally looks like.   Investors generally did a lot of work to get their money, and now they’ve paid you to make a film and it’s unlikely they’ll ever get all of their money back.  ​

1.Buyer Fees
2.Sales Agent Commission
3.Sales Agent Expenses
4.SAG/Union Residuals
5.Producers Rep (If Applicable.)
6.Production Company
      7.Gap Debt (+Interest)
      8.Backed Debt (+Interest)
      9.Equity Investor

I may be persuaded to do a financial analysis of what that would actually look look in terms of money, but someone will have to comment on this post and request it.   ​

Oh look, I did a blog explaining exactly what this means.  Click here to read it. 

6.LACK OF ACCESS TO TASTEMAKERS AND CURATION

We explored the numbers of why indexed film slates just don’t work in part two.  However it takes a fair amount of training, experience, and a bit of luck to recognize what films will hit and what films won’t.   While William Goldman is famous for saying “nobody knows anything,” there has to be a balance between a dart board with script titles and industry experts guiding the ship.

Developing an eye for what makes a successful film is something that most prospective film investors don’t want to take the time to learn, especially since many get burned on their first investment.  it take a lot of time to understand what projects have what fit in the market, and that’s generally not something that an investor has time for. 

Having the experienced eyes looking over what investments would be good to fund is something that could make film a more sustainable asset class, and not enough investors have access to it to avoid getting burned.   

So, what is there to be done about it?  Check back soon for the final installment, How do you make a sustainable asset class out of film?

Since two of the things stopping indiefilm from being a sustainable asset class are related to better business education, I've created a program to help you learn what you need to be a competent executive producer.  These are skills film school doesn't teach.  Things like Financing, Distribution, Packaging, and Marketing.  As well as generalized business and career management outside of standard production management.  This program will transform you into an executive producer, able to compete in the cutthroat businesses of IndieFilm Finance and Distribution.  It all starts with a completely FREE Strategy session to help assess where you are, so we can chart a path to get you where you're going.  Click below to schedule yours today.   

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