An Illustrated Guide to Film Financing
My filmmaking journey has mostly been cobbling together short films with whatever resources I can scrounge up. But I dream of making a feature someday… and I may have held a somewhat delusional belief that great stories inherently attract the necessary funds. However, the reality is a bit more gritty: funds don’t just come to you, they have to be actively pursued and fought for in a realm known as film finance.
For my fellow filmmakers who’d rather look at storyboards over spreadsheets, buckle up! I’m here to introduce you to this world, complete with stick figure drawings.
When it comes to financing films, funds can come from both public (government) and private sources. Fun fact: many countries offer hefty financial support to filmmakers. But not here in the U.S.; we rely solely on private funding. Let’s paint the various scenarios when using private funds.
You’ve got a fantastic idea or a proof of concept in the form of a short film. You’ve wisely attached to your project a producer — a crucial stakeholder who will do everything necessary to ensure the project’s completion, including securing the money.
Your producer will look at all the possible sources of funds: equity, debt, and the elusive “free-money.” Equity and debt both come with future financial obligations. Equity requires a slice of the profits if the film succeeds, and debt has to be directly paid back with interest. But “free-money” includes crowdfunding and grants, and requires no repayment of profit-sharing. It would be ideal, if that were the bulk of how we could finance projects, but Equity sources of capital is most typical and this includes: independent investors, production companies, venture caps, private equity, and more. And your producer will make a case that your project has the potential for immense success, promising juicy returns on investment. You can be sure the potential financiers will be doing their due diligence, examining the budget, expected revenues, and potential risks.
- DISAGGREGATED SOURCES
Your producer then funds the development, production and distribution with one or more of these sources. This is the most typical route for an independent film, and if you’re an independent filmmaker, this likely what you’ll be doing and seeing for a while.
2. STUDIO
Congrats! Your producer has attracted a studio name. So in this scenario, financing is done with a vertically integrated companies (Disney/Fox, Paramount, Sony, Universal, and Warner Bros, or “mini-majors” like MGM, Lions Gate and DreamWorks.) They control and manage all aspects of production and distribution. These studios may seek pre-sale arrangements (see “4. Distributor”), gap financing, or even co-producing partnerships.
3. STREAMER
In this scenario, a streaming company, like Netflix, Prime, Hulu, etc, is wanting to finance your concept. They will work with your producer who will negotiate the financing on your behalf.
Most typically, you’d see an “acquisition deal.” This is more or less a cashflow arrangement where the streamer pays for production costs upfront. In this acquisition, the producer makes a set amount of money from the streamer, and relinquishes control of the Intellectual Property. The streamer’s return then depends entirely on the success of the project. They bear the greatest risk, but stand to make a huge return if it does well. For example, when “Squid Game” became a huge hit for Netflix, the streamer was said to have made almost a billion dollars while the creator made a small fraction of that.
4. DISTRIBUTOR
Your producer can negotiate pre-sales of distribution rights to secure upfront funds. This is basically like selling tickets to the movie before it’s even made. The producer can sell the rights to distribute the film in specific places or through certain platforms before or during production. In return, they get money upfront from the distributor, the entity that makes the film available to audiences.
I Have an Idea…
Now that we know a little bit about the models that do exist, I’m curious how we can disrupt this. Here’s a new model I’m officially proposing.
Let’s call this the Film Endowment Model.
I’m looking at you, film schools charging $80,000 a year in tuition. Why not channel funds to a specific endowment for alumni film projects? Endowments are typically used for supporting current students, the school, and the faculty, and new buildings. But I’m talking about something for film projects, five or ten years after graduation, that alumni can tap into. This may seem like a radical idea, but I think this could actually be a viable model. It would be a huge draw for the talent looking to attend film school, and create a positive feedback loop where alumni would bring recognition to their school.
Anyone else want to see this happen?
