Economic SPACE workshop: How to Fund Filmmaking?

How to fund a film

One of the problems of film funding is the necessity of big chunks of money needed upfront. These sums are difficult to obtain from peer networks through a pre-sale of the end product at crowdfunding platforms. This is due simply to the limited amount of funders on the platforms. Turning to institutions or corporations for funding is not easy either, if the artist wants to maintain control over the film’s goals and/or does not have proof of financial success. Equity crowdfunding can somewhat bridge the gap by offering stakes in the financial profit of the end product for peer networks, but it suffers from the difficulty of managing the distribution of profits — distribution is either tied to the crowdfunding platform or managed manually by the filmmaker (which can be a full time job in itself). Also offering shared stakes only in terms of financial value (for peer networks or funding organisations) is problematic in itself: the desirable ROI for the funders is not a film they want to see, but a film that generates financial ROI. This financial return relationship is subject to monetary abstraction and not related to intrinsic value(s) that project bring in to life.

The field of crowdfunding is changing with Ethereum and many other token platforms giving room for units of value proposed by issuers. These tokens are not only shares in the financial upside of the production, but also use-rights, governance-rights, etc., carrying the value that the production creates. Under this light, we can think of creative productions such as films as productions that have intrinsic value (value of content) and financial value (market value) that can meet in token offer. Existing consumer networks could thus turn into financing networks “funding” more than their personal usage (viewing of the film, etc.).

What if filmmakers could launch distributed programmable organisations (DPOs) and make equity-like value offer to potential partners? The token holders would posses stakes in a common pool that holds any future value generated by the project. This mode of organization would solve the management issues related to value distribution, since the value generated by the project is directly reflected in token value. The project tokens launched by the DPO can be very similar to Bitcoin or Ether (equity-like-currency), with the difference that their value can be based on view/access rights to the film (if production is commercial) and/or governance right in the production.

Example: If 100 tokens are issued and sold at the financing phase of the production and one person has acquired 1 token, then she holds a 1% share of the common pool. This makes distribution of value easy, because the tokens themselves fluctuate in line with the common pool.

Liquid tokens

As Bitcoin has shown, cryptotokens are liquid. People buy (acquire) and sell (liquidate) them based on their needs and desires. Although Bitcoin tokens do not have any particular backing — like access right to a film — they represent a social contract where different parties accept the bitcoin tokens as units of value. A token offer from a film project differs here, since it is the intrinsic value of the film that people give value to when acquiring the tokens. This means that the intrinsic value of the film is what becomes liquid in these tokens. Token liquidity derives from from 3rd party’s evalution, just as for any other forms of currency. Evaluation processes can differ from project to project, but there are two main ways of gaining liquidity.

  1. Liquidity at a p2p market (market demand)
  2. Liquidity afforded by another organisation (token/value offer)

Market liquidity is quite simple. Peers might acquire tokens because of the intrinsic value attributed to the production itself, or because of the financial value that it may generate in the future (speculation). The evaluation by another organisation is little bit more complicated because it depends on the value produced by another organisation (we’ll come back to this below).

In comparison to micropayment systems, liquid tokens give more options to holders: they can hold or liquidate and re-allocate the tokens instead of being tied into relationship for a certain period of time. For example, if the holder of certain token wants to invest into another production, she does not need to go to her FIAT wallet and spend more money, but can rather reallocate her assets at the given valuation.

Orchestrating valuation

One interesting ownership model proposed by Gnosis presents a dual token system. This model can be inspiring when thinking about the viewing rights of a film: funding members receive ownership tokens that can generate stable value viewing rights. These tokens are then acquired by viewers. If an organisation like a distribution platform or a theater wants to have a permanent license to screen the film, it can simply acquire a necessary amount of ownership tokens instead of paying per view. This can be one way to orchestrate the stable valuation of an intrinsic value offer that reduces or eliminates hoarding.

Evolving organisation

Buying or selling tokens at a secondary market means that token holders are leaving or join in an organisation. This facilitates the evolution and metamorphosis of an organisation . This is a particularly interesting option for productions that extend over longer duration. People can start to interact with them at any given time by acquiring screening, viewing and remix rights which can take the token value up and therefore give incentive for peers to promote and cherish the project.

If the 80´s action classic X would have been produced via a PDO, the immediate financial benefits would have been shared by initial funders/members also over time: when the production becomes a classic or a remix centerpiece the long-term and latecomer fans and stakeholders share the value.

REMIX!

Offering remix rights in exchange of tokens opens up a flexible interaction model between old and new productions. For example, if the remix/reuse/recycle is arranged so that the remixer production commits a certain percentage of their production tokens to the remixed production, there is no need to estimate likely profits made with the remixed, because the success of the remixer is tied into the remixed via token holding. This creates a mutual stakeholding between productions that fosters the culture of remix/reuse/recycle.

If the above-mentioned 80's classic does not find a public anymore, but is valued by artists who have the skills to re-utilize scripts, music, film footage, etc., then existing productions turns into a garden of creativity for new productions.

Ecosystem

Documentarist D is likely not the only creative who is producing a film and seeking funding for it, but rather one individual among many. When multiple productions operate as token powered DPOs, they can form an ecosystem that produces a network effect by fostering asset momentum within itself. For instance, when one peer has financed a project and received tokens, they can later on be incentivised to re-allocate some of those tokens to new productions instead of liquidating them into FIAT. There can be even a cooperative logic proposed by union of film production that restricts immediate profit-making (e.g., no more than 5% of initial investment per month, year, project, can be liquidated) in order to avoid rapid extraction of co-created value. The cross-breeding of productions would generate a creative ecosystem, fostering platforms of a new kind — rhizomes of inter-holding organisations, mutually enhancing one another.

Thinking in terms of DPOs

The starting point: creating a value-aligned DPO

Designing a logic for recognizing value in peer contributions is a central concern for DPOs. Peer contributions are directed to what needs to happen for a film to be produced and distributed. This process ties together the production team and the emerging organization in the token allocation plan that supports the value production. In exchange for their work, the production team receives tokens that financing peers, in turn, commit to buy at a certain price. This way, FIAT and/or crypto-financing provides initial liquidity through the tokens received by the production team. The members of the production team can now liquidate the tokens to FIAT and/or crypto currency obtained from the DPO´s funding pool. Alternatively, they may hold on to their tokens and wait for the value to appreciate — just like the funders are doing. The funding pool is also used to pay for equipment rentals and other production costs, including salaries for team members who don’t accept tokens (who are therefore employees, not stakeholders).

The DPO can also recognize the value in “non-production team” peer interaction by offering tokens for sharing ideas and contributing to the creation process, for making contact introductions to key stakeholders (promotion, production skills), etc. This way of proceeding facilitates crowdsourcing and can substantially widen the amount of people involved in the production. Some productions could even be made mostly with open-ended peer participation without a pre-existing core/production team and with very little or zero initial funding. think of content production for wiki or CC productions, which may not be reliant on key persons but rather depend on a long-term process of collective production and mutual adaptation.

In sum, the steps are:

  1. Token allocation & offer (“ICO”)
  2. Funders buy tokens by FIAT and/or cryptocurrencies
  3. FIAT and/or cryptocurrencies goes to DPO’s common pool
  4. Project team members get tokens for contributions
  5. Team members may exchange tokens against FIAT/cryptos in common pool (as defined in the token allocation & offer)
  6. Team members & funders may keep tokens for the future
  7. FIAT/crypto in common pool may be used to pay for costs & salary of employees
  8. Tokens can be offered for non-team-members in exchange for contributions (team becomes more or less open)

Process for value creation

There are roughly 3 ways in which a DPO model differs from traditional modes of organisation:

A. Governance (curation/design of what is being produced). Traditionally, governance and curation takes place as product placements or interventions in the film agenda to insure financial return for the financing company. Yet if the governance is made an open question for the production and funding networks, it means that instead of commercial product placements there can be socially or environmentally valuable notions/openings in the film (that are proposed and/or selected by crowds). This is something Steemit tries to introduce in communication platforms.

B. Production work (scouting filming locations, proofreading, scoring, etc.) is traditionally framed as wage work that has no relation to the success of the production, only an exchange of work hours into money. This tends to “precarise” labour, to push the volatility of production away from the stakeholders. This is one of the core problematics of current “creative” labour markets. The DPO changes this state of affairs via mutual stakeholding where governance, production and financial upsides are tied together and aligned with the project goals (including possible non-monetary goals).

C. Engagement with the production (using, distributing, “advertising”, etc.) is traditionally seen only as financial ROI, since the use or affective value of the end-products can be valorised only through monetary returns. However, the most bizarre projects are being funded in services like Patreon and Kickstarter, where there is not even the possibility for the funders and fans to become stakeholders in the production (no possibility to share the financial upside). This may be the most interesting area to work with DPOs and decentralised business models functionning via the logic of self-issued tokens. These value forms have the potential — if build on a suitably advanced smart contract platform — to expand towards a network of interoperable values, rather than operating under one value (FIAT).

These three aspects can be mixed together in different ways to create and distribute value diversly. Decentralisation leads to more transparent ways of distributing values among value-creators. Bitcoin did something similar by incentivising mining to create security for the bitcoin network as well as rewarding enthusiasts and fore-runners for taking the risk (time and effort) together as organisation. For artists, this does not mean letting go of the project’s creative control or mission and following the decisions of a soulless crowd. Rather, it means offering the emerging value for people who create the value, instead of offering it to a single or a few big financing organisations. While some productions may need to remain tightly under the control of an artist or a core group, and others may be completely governed and produced by the network, it is important to imagine new economic cooperation models instead of figuring out how to fit into given ones.

From “exchange” to stakeholding

By engaging in the production, participants share the risks and the upsides of the value offering together instead of being separated into A. consumers of a predetermined end-product and B. speculators of financial return. A and B are both about return of investment but from very different standpoints. A is about bootstrapping something to existence for the sake of what is being produced, while B can be just about monetary return. Depending on the value production logic and the offer, the investment can be 1. Financial input or 2. Production effort (time, effort, skills, resources, etc). If the input is financial and the expected return is financial, B resembles a traditional “investor” relation. If the input is financial and the expected return is the value of the production, B is likely a “exchange/consumption” relation. If the input is production effort and expectation is financial return, then therelation is akin to “wage work”. If the input is production effort and expected return is the value of what has been produced, then the relation is “common”.

Table: Relation as a function of type of input and type of expected expected return

In both cases, the return is articulated in the same form, a DPO token that is a unit of value wrapped in the token. The wrapped value can be basically anything depending on the project: e.g., kudos, viewing rights, screening rights, intellectual property rights or anything else that production decides to offer. If the offer is kudos, it is likely that it will not attract people who are after a pure financial return, but rather individuals who share the values in the area where the production sits in (e.g., commons). If, again, the value is viewing rights and the production is commercial, it means that a person holding viewing rights can view the project, share revenue when viewing rights are being sold to festivals, theaters, and internet platforms, etc. In this case, one can acquire a large amount of viewing rights at the pre-sale and hope that film takes off in sales. Yet one can acquire just enough tokens to have personal access to the film. Therefore combining these different incentives in one instrument (the equity-like token) the success of a production becomes subjective criteria. i.e., the success is measured in terms of the financial profit made out of the “product” sales but also out of the intrinsic value of production itself.

Being able to surpass the value measurement in monetary-terms-only means that the intrinsic value of production is able to escape financial abstraction, yet maintain a form (token) that can have similar liquidity than “money economy”. This also means that in the long run, it is about a network of organisations together producing liquidity for each other. This is discussed further in Programmed decentralized commons production.