26 Dec Answer 100 problems by …

Ted Hope is a visionary film producer but anyone who talks about 75 or 100 bad things in the Indie Film Biz (today’s blog) or any other industry makes me feel hopeless. For one thing, I only love good films. I don’t make them. If I don’t know how to make them, I certainly don’t know how to unmake what doesn’t work. Unless those things happen to intersect with my world, finance. Then, it’s much easier.

In finance there is only one problem: valuation. And only one reason why valuation becomes skewed: asymmetries of power or information, which, in the long run, are the same thing. When I scrutinize the condensed list of 24 items in the blog, I notice they all involve financing, one way or another. Which makes me…somewhat hopeful.

Let me select a couple of points to explain why:

1. Filmmakers can’t live on what they produce, even when their films are successful. This is sad but no different than what happens to creatives generally. If you believe the hype coming out of Silicon Valley, Harold Evans’ book on what happens to American innovators on the way to the bank may come as a shocking revelation. It has always been this way.
2. Tax credits are wrong-headed. Yes. No different than in our national finances. Tax credits come at the end of the cycle. Film tax credits can be monetized at steep advanced rates, but you don’t get the same multiplier effect concessionary financing gives you. And, subtly but crucially, tax credits go towards goods and services. Whereas what is REALLY needed is financing that goes directly towards the production of film assets. De-linking financing from value is what causes point (1) in the first place.
3. The business model is broken. Yes. The reason is not at all because the technology has changed but because finance has changed. When profit maximization by hook or by crook becomes the goal of all financing activity, no business is sustainable. Sooner or later every business model in every industry will break. Many are already broken.
4. Leaders have vanished and no one wants to give back. Yes. The film industry is a reflection of a larger cultural and social problem that has taken 30 years to develop. What is the point of delayed gratification or sacrifice for a greater good if the world views you not as a leader, a giver or a lover, but a fool?

Finance is easier in one sense because valuation is the only problem. In another sense, it is harder because it requires imagination. Finance is no more about cash than film is about celluloid. Hope’s point (7) brings the challenge into clear focus. We need to truly quantify the spend nationally in indie film. Yes indeed. If anyone wants to help fund this effort, I would love to undertake it at the San Francisco Film Society (hint, hint). No, it doesn’t work that way.

Because the thing you want to quantify isn’t cash. It’s capital. Transforming the 75-100 questions into the one capital question frees us to invert and answer it:

• Given what we know about what people like and will pay for, what quality of capital are we producing when we bring certain people together to tell a particular kind of story?
• How much of that value is so certain that it can be financed with affordable debt capital, i.e., pension and insurance money, in a repeatable format versus one-time gifts, i.e., angel money, or expensive equity capital, i.e., hedge fund money?

The way to truly quantify the spend nationally in indie film has already been bought and paid for. It is a question of transforming data that already exists on consumption patterns into reliable information that can be extrapolated for future financing decisions, then fine-tuned and made more predictive. That is the only way to put indie film-making on the road to sustainability.

For once, the missing ingredient is not the cash but the know-how.