Active vs Passive Money: The Path of Least Resistance to Financing Film
There are essentially two types of money a producer can attract to finance their Film or TV production. Active money and passive money.
Active Money
Active money is what most people think of when it comes to financing a production. This includes equity investors, studios, grants & philanthropic money, and deferrals from talent involved in the production.
I call it active money because it’s money that a producer has to go out and find and convince to get involved. Usually these investors and stakeholders are involved in production because they believe in you, your talent, your expertise, or (if they are an actor deferring income) the role. They are active in the sense that they have to be motivated by something or someone (you) to pro-actively get involved in a production.
For equity investors, this can often be because they have an emotional attachment to the production itself. Perhaps they love the story or creative ideas behind the project, or they may just be looking for screen credits, or they might just see it as a good investment. Regardless of what’s motivating them, there’s something (or someone) that actively draws them in.
So what is passive money?
Passive Money
Passive money is overlooked by some producers. Passive money includes debt financing, tax credit monetization, and other tax incentive programs that investors leverage as part of wealth management strategies.
I call this type of money passive because it does not care where it goes and is available to essentially anyone who seeks to leverage it.
Passive money follows path of least resistance — it’s agnostic to where it goes — it only cares about how it gets there. Producers who understand this realize that passive money is evergreen, always available in some form.
The easiest example of this I can use to explain the concept is Film/TV tax credits and rebates. If you produce a film or television production in certain states in the US or countries around the world, you can file with the local tax authorities to get 20–50% of whatever you spend back on the production.
The catch is, that money comes back later, after the production has been completed and the associated taxes have been filed. However, immediately after approval, the producer(s) can take documentation from the tax authorities to financiers like FilmHedge to get money immediately so it can be used to fund the production.
Tax credits are available in locations all over the world and can be used for any production, for the most part, regardless of what someone in a tax office thinks of the script, cast, or production team.
The difference versus passive money and active money is motive.
In this example, the producer is simply pulling together different elements from various government tax programs in order to unlock money for the production. No one needs to be convinced that this is the best story they’ve ever heard. No one needs to be convinced they are going to make a ton of money by investing in the production. No one needs to be convinced that a role in the movie will be good for awards.
Tax credit money is passive . Passive money — doesn’t care where it goes. Therefore, any filmmaker can wield it.
Many inexperienced producers are simply unaware of the nearly endless supplies of money they can leverage if they become great at accessing these types of passive money programs.
Believe it or not, another source of passive money is private equity. That’s right, there’s an $11.7 trillion dollar supply of money filmmakers can tap into. Of course, not all of this money is allocated to Film/TV but a small subset of it is.
Much like tax credits, private equity is passive. Meaning, at least where it comes to debt and media production lending, its agnostic to what it funds as long as certain boxes are checked. It’s important to note that these boxes aren’t always easy to check and it can take quite a bit of time, diligence, and attention.
You might ask, ‘well, if it takes all that, wouldn’t that be more active than passive’? I call it passive money because the motivations are passive, the financiers don’t care what’s being funded as long as someone checks the right boxes for them. Those boxes are usually related to mitigating their risk.
Some of the many types of financiers who fall under the private equity umbrella:
- Debt Financiers/Senior Lenders
- Mezzanine Financiers
- Institutional Banks
- Investment Banks
- Hedge Funds
- Private Credit
These kinds of groups need to allocate their money on behalf of investors. If Film and TV is included in their mandate, check the right boxes and some of those allocations be directed your way.
Becoming the Bank
Recently, in response to this post, there were a number of creatives who responded with thoughts along the lines of:
What Hollywood needs is more investors who take more risk on good ideas…
Film finance needs more risk takers…
Studios just want to make sequels, they won’t fund original ideas…
This all may or may not be true, but I couldn’t help but feel the response weren’t even acknowledging the full set of resources available to modern producers.
The thing is, these complaints were about the active money players (like studios). These were independent producers who had gripes with them and what they would or wouldn’t finance. Or they were frustrated with the lack of equity investors putting money into their projects.
What they may or may not realize is there is a whole class of independent filmmakers who can essentially greenlight whatever they want by leveraging passive money. These independent producers are less worried about Hollywood gatekeepers because they know that if those gatekeepers aren’t financing the project themselves, all they really care about is that someone else is.
Active money needs to be actively pursued and motivated to get involved in a production. Passive money just waits for whoever follows instructions and checks the right boxes.
This allows producers who know how to pull the right resources together to bank themselves. I use the term ‘bank’ very loosely, by the way. What I mean is because they know the order of operations necessary to tap these various passive sources of capital, they can use them over and over to cover a portion, if not all, of their production budgets.
It’s not an either/or, both active money and passive money can be leveraged to fully fund a Film or TV production, together or separately.
Both take a lot of legwork but passive money gives producers far more control over the financial outcomes required to fully greenlight a production. For people frustrated with gatekeepers and pursuing active investors, nothing is stopping them from pursuing passive money.
If you are a film producer seeking passive capital and are interested in the financial solutions FilmHedge has to offer, we encourage you to read this post: “No Golden Tickets: What and What Not to Submit for Financing Your Film” or visit the criteria page on our website.
Disclaimer: FilmHedge sometimes uses fair-use editorial images in its blog posts to help educate and inform its readers. Unless otherwise stated, FilmHedge does not have any affiliation with the film or television productions referenced in blog posts and does not profit from the use of these images.
