Film Fund-amentals: Faint Rays of Hope

The more things change, the more they stay… well, sort of the same but increasingly different at the same time. The old rules still apply unless they don’t, and this has become the main rule for just about everything. Which is close to saying there are no rules unless you get caught. And even then, a lot is in flux at the moment and no one really knows where any of this is going.

Take for example a recent post by producer Ted Hope at his Truly Free Film web site (which is highly recommended reading for anyone in indie films). In his post IndieFilmFinanceModelV2011.1: The Ten Factors, Hope lists the top financial points involved in successfully producing an indie movie. They are all major, important, even earth-shaking points. It is a checklist of virtually everything you need to know when putting together a solid, straightforward, low-budget production. As Ed McMahon used to say, EVERYTHING YOU NEED TO KNOW IS ON THAT LIST!

Too bad some of these important factors are already changing. For example, take Item 4 on Hope’s list (and by the way, Hope is extremely aware of how this stuff is changing, and he does a great job of dealing with these changing issues at his site). Item 4 gets into the whole question of tax incentives, which can often be a make-or-break-it point for many low-budget movies. Under the various old-style tax incentive programs used in many states, a film budgeted for around $7 million could easily count on a tax rebate of $1 to 1.5 million.

But that was last week (I mean, in most cases, it was literally last week). In Michigan, the tax incentive program has been drastically revamped in a manner that mixes enough bad news with semi-bad news as to make the new program tough to follow while sober. In New Mexico, the governor and the state house have locked horns over the issue, with the strong possibility that the political fight may continue for a while. Similar fights are raging in almost every state.

So the tax incentive issue is extremely important, and you’d better hope you can find a state that has one (and plans on keeping the program). But these programs are changing rapidly and the political future is very chaotic. Item 4 is extremely valid, but it also comes with an increasingly tight expiration date.

Likewise Item 2 (foreign value at 80 percent of negative cost) is a critical part of the financing for many low-budget movies. As Edward Jay Epstein explains over at The Hollywood Economist site (which is another must read), the foreign pre-sale is both the boom and bust for American indie movies. In recent years, the 80 percent from foreign sales has made many productions possible. But the foreign market’s willingness to cut such deals is dropping sharply, even though the foreign market seems to be expanding. The foreign investment market is not at the level it was just a few years ago, a problem partly explainable by the fact that the global recession hit first in Europe and continues to send shock waves through the foreign financial markets.

It is also due, in part, to the misguided (but always predictable) fixation that foreign investors have on Hollywood rather than on the indie American market. At the moment, various film companies in India, China, France and other countries are looking to move into the American film system. But they are not looking to do small indie films. They all want to go uptown to the majors.

International film diversification has sort of been taking place in the last few years. Prominent figures from the Bollywood cinema are popping up in Hollywood films. The most recent version of The Karate Kid was basically a co-production with the China Film Group. The recently abolished UK Film Council not only had an eye focused on the American market, but maintained strong relationships with such directors as Clint Eastwood and Steven Spielberg. Pathe Films in France is not only looking to expand into the American market — they also want to start producing movies in the States.

This all sounds good until you realize that they’re not looking to make little indie movies. They all want to make Big Films. At this point, many foreign investors are more interested in Mission: Impossible Meets Wolverine than they are in a Jim Jarmusch movie (and Jarmusch has long been heavily dependent on foreign investors for his highly idiosyncratic American films). So the 80 percent theory is a really great idea (hard work to arrange but vital to get), but it is getting harder than ever to reach this mark.

Which brings me, in a roundabout way, to Item 1: Price point/ negative cost below $5 million. I totally agree with Ted Hope on this point. I have been jabbering for over two years that the current cost of movies is just too damn high (gee, maybe I should start my own eccentric political party). Further, a $5 million price point/negative cost is both manageable and insanely reasonable as an economic mark for an indie production.

Unfortunately, most financial investors will laugh in your face when you ask for such a small amount. I know this from first-hand experience. They always tell you they’re not laughing for themselves but for their investors.

Ted Hope knows this, too. He has probably gotten these fits of the jollies from some of the same investors. But unlike some of us, he’s actually producing movies. So I can’t wait for the next installment at his web site.