Throughout writing this blog series, I’ve been told more times than I can count that film is a terrible investment, and no one besides hobbyists would consider it. Many want to leave it there, without bothering to look at what’s causing it. Last week we thoroughly examined the issues plaguing the film industry, and what keeps investors out. The issues aren’t pretty, but they may be fixable. What follows is a list of what could be done to fix this problem, and some of many organizations that are implementing these tactics.
One of the biggest things stopping film investment is the perception that it’s unprofitable. All too often that’s not simply a perception. Another thing stopping film from being profitable is the fact that many sales agents don’t accurately report the earnings of the films they represent. Others charge too much in recoupable expenses, so it’s unlikely to recoup. Some take an unreasonable portion of the revenue, or simply hide sales form filmmakers.
One necessary problem to fix is the problem of transparency within distribution. There are solutions emerging thanks to recent technologies. If a filmmaker can market or receive help with marketing, then the entire process can be disintermediated and filmmakers can sell direct to customers using a marketplace. Unfortunately, this discovery issue is still both time consuming and expensive.
What about a hybrid system? One where a skilled group works with distributors and sales agents to sell the completed films at the maximum possible profit to the investors and production company? What if those groups were directly linked to protect the investor’s interests, and give sales agents capital for growth and new projects? Then the sales agents would have much better incentives.
That would seem a solution, but we’ll get to it. There are other problems to delve into first.
Better Business Education for Filmmakers.
I touched on this in my last blog, but filmmakers don’t understand business well enough to function as media entrepreneurs. Traditionally, certain people such as executive producers, PMDs, and true producers focused on the marketing and supported projects so that the writers, directors, creative producers and line producers could focus on making the project. With film sets getting leaner, there aren’t enough of the media entrepreneurs doing their jobs.
In essence, there isn’t enough of a skilled entrepreneur class capable of making and selling their product. So long as filmmakers don’t understand business, they’ll never be able to break out and get what they’re worth. If filmmakers don’t endeavor to understand business, they will be unable to communicate with investors and understand where they come from well enough to make a sustainable living in film. Film schools don’t teach any of these skills as well as they should.
Filmmakers want to make the movie, and they will stop at nothing to get that done. As a result, promoting the film becomes an afterthought far too often. What would be ideal is if these educational organizations could tie into an angel investment group or community.
Well, as some of you know I’ve been working with Producer Foundry to offer classes, articles, podcasts, and in depth depth workshops on pitching, marketing, distribution, legal affairs and more. We’ve been working hard to bring you deep content that doesn’t just skim the surface of these topics, but dives deep to help filmmakers get a much better idea of the subject matter.
The end goal of Producer Foundry is to building local communities of filmmakers who can band together to create a sustainable film Community. We only have so much reach, so we seek to integrate with film schools to supplement their content. If it’s one organization bringing content to many schools, then we have a much better draw than most individual schools. When these are put together, they can have a strong impact on helping filmmakers better understand business.
But what about integrating with an investor class and/or investment group?
Educated Investor Class
Investors generally understand business, but the film industry is ripe with it’s own idiosyncrasies. Investors need to know how money flows from them, to the product, to the distribution, and how they get it back again. They need tools to tell when someone is offering a con instead of an investment. It’s not the easiest thing to find information on, and when they do it’s focused more on the filmmaker than the investor.
If an investor doesn’t understand the issues within the film industry, then it’s less likely they’ll be able to properly vet an investment. If that same school that teaches filmmakers business, could teach investors these idiosyncrasies, then there could be something of a connection point at a different sort of event.
Curators and tastemakers with Access to Distribution
Just because an investor knows about how money comes in and out of the film industry doesn’t mean they can find quality products. Investment is all about quality deal flow. Indiefilm success is a different scale than a success in technology, so the curation is even more important.
Sure, nobody knows everything, but a curated eye can help separate the wheat from the chaff. Most investors don’t have a trusted source to review projects for feasibility and potential returns.
Further, investment is about more than just money. Investors often act as business advisors. Unfortunately, not enough angel investors understand the industry well enough to do that effectively. However if the curation board also acted as advisors on the projects, then the potential returns get much higher.
As an example, if that board had access to distribution, then you could cut out the biggest risk of investing in film. A member of the curation board could get the films to the proper PayTV, TVOD, SVOD and other distributors to help the fund managers.
A way of Discovering new Talent
It’s always been a problem to find the next Quinten Tarantino, Jennifer Lawrence, or Jason Blum. Everyone has heard stories of how everyone in Hollywood is related. While it's more true than anyone wants to admit, the on set path to grow your career has become more difficult and less sustainable than it once was.
It's not an easy problem to solve. It’s difficult to tell the difference between that person who’s DEFINITELY going to be the next big thing but ends up washing cars two years later and the dweeby 20 year old who doesn’t stand a chance and wins an Oscar on their first feature. This problem may be the most difficult of any listed.
Making your first film is incredibly difficult. It’s also very difficult to get it financed. From an investor perspective, they put in all the money up front ant they’re the last to be paid. It’s incredibly high risk with little reward.
Marketing a film is also quite difficult, and generally involves additional expenditure when the coffers are dry. This has killed many films before they saw the light of day. If a fund were to offer finishing funds to new filmmakers, they keep their risk incredibly low while opening up new discovery options.
Sure, it doesn’t help get the film made, but it can help get it finished and out there. That fund could also give preference to successful filmmakers on their next project. This could enable them to retain the quality people they need to make a successful organization, while still opening the ranks for discovery.
Investment in film is inherently speculative an as a result incredibly high risk. But the risk could be made lower by borrowing some techniques from Silicon Valley VCs. Instead of funding 100% of a film up front in equity, an investor could stage their investment over the course of the film, at key points where the filmmakers would require more money.
It’s not something that could be done with a simple line in the sand due to the difficulty in getting recognizable name talent on board the project, but there are systems that could be used to mitigate risk while maintaining the ability to make high quality projects.
Staged financing would make it much more approachable for investors, since the risk to the individual investor is much smaller. But you could further limit the risk. What do I mean?Related: Why Film Needs Venture Capital
Same Funder providing different securities.
As mentioned in part 6 of this series, equity investors are the last to be paid on most projects. Generally, this is due to filmmakers needing to secure debt backed securities from different funders in order to complete the project. These debt backed securities must be paid before the investors are, which further disincentives the equity investment from the original investors.
But what if the different securities were made available from the same group, with a preference given to equity funded projects. That would seem to protect both the investor and the filmmaker by enabling the investor to mitigate risk and the filmmaker to maintain a greater ownership of their projects, and a higher profit share if there is one.
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