New Approaches in Film Financing

Ted Hope may or may not have left his heart in San Francisco.  But he has left his job.  After slightly more than a year as director of the San Francisco Film Society, Hope has quit.

Officially, he wants to get back to work as an indie film producer.  Unofficially, there are stray rumors about certain “issues” between Hope and the board at the San Francisco Film Society.  I’m not really interested in the gossip, but it sounds a bit like a clash between old ways and new ideas.

During his brief time as director of the San Francisco Film Society, Hope aggressively explored the new and rapidly emerging terrain of contemporary indie film production, distribution and financing.  Especially financing.  Production and distribution issues are all tied into that question.

Which may be why Hope is ready to get back into the indie business.  In his recent blog post, called Towards A Sustainable Investor Class: Consistent Deal Flow, Hope presents a very detailed and provocative proposal toward a new approach in indie funding.  It is one of several ideas currently being implemented by indie film producers seeking new ways of dealing with the film financing crisis.

In Hope’s blog piece, he outlines his method: to create a package of multiple projects with budgets that are structured through an analyzed range of projected box office highs and lows, so that the total portfolio creates a sustainable range of  ROIs with an acceptable average.  Some of the movies in the portfolio will do OK.  Some not so OK.  But what counts is the overall portfolio.  As long as a reasonable job is done with the calculations on the portfolio, which is where database analysis comes into play, the final outcome of the portfolio should be efficient – in other words, profitable.

This approach does not remove all the risks from the process.  Heck, all of those traffic laws do not remove the risks from driving.  But it does create a manageable and rational process for indie financial management.  At R&R, we have developed a system for securitizing a static pool of small ticket films using statistical forecasting tools that is remarkably similar to what Hope describes in his article.  We have also developed and validated the algorithms to tie out the sustainability quotient.

Of course, the problem with financing a whole portfolio at once is the significant upfront financial investment it requires even before production can begin.  We are talking big bucks here, from corporate or institutional backers here, not so much from private investors.  That is the most difficult part of the portfolio model.  Especially since most major investors, both corporate and individual, have problems getting past the one-shot-at-a-time model.  You know, the method where the investor throws their money into a single movie with the naive belief that it will become the next Blair Witch Project.

In reality, the vast majority of indie films will never see that kind of success (99.99% is a safe failure estimate).  But a lot of investors go seeking that type of quirky, rare phenomena.  To be honest, they could cut to the chase and try a casino instead.  I suspect the odds would be slightly more in their favor (but not by much).  However, a lot of the current indie fiance model is based upon this method.

There are investors out there. Some know what they are doing, some do not.  The problem is finding them.  Especially finding investors who might be seeking the type of project that the filmmaker is working on.  This is where enters.  The people at Slated combine some of the crowdfunding approach with social media networking, rounded off by an approach to matching filmmakers and investors that kind of resembles a dating site.

Unlike crowdfunding, at Slated the investors will be engaged as honest-to-god investors.  They will have a certain degree of production involvement.  Even Duncan Cork at Slated admits that the system opens up a lot of new questions in the filmmaker/investor relationship.  The process used by Slated is extremely selective.  In their first year of operation, they took 2,500 submissions which were then narrowed down to 35 titles.  The short list gets narrowed further based upon the ability of the films to find investors through the system within a prescribed time frame.

The concept with Slated is very provocative.  Of course, it is also extremely limited in its usefulness since it operates a bit like an installment of Survivors.  It takes the old model of indie financing and stream-lines the process with its digital adaptation.

But obviously most indie filmmakers will not get accepted into the system.  For a vast majority of indie filmmakers, the crowdfunding  model will be infinitely more useful. It becomes that magic moment when we must paraphrase what Tom Cruise said in Risky Business:

“What the (bleep).  Looks like Kickstarter for me.”