Posted on Monday, July 16, 2018
Defining Indie Film
In today's world of film financing and production, the term “indie film” is so often used and misused that it’s important to first simply define the multi-faceted phrase before diving into financing specifics.
‘Indie film’ literally means any project that is not financed by a studio (Fox, Disney, Sony, etc) or a mini-major (Lionsgate, Netflix, Amazon). Therefore any project not receiving funding from the studios or mini-major falls into this category — which is the vast majority of the market today.
These projects receive the majority of their financing through a combination of tax incentives, pre-sales, licensing and private individuals looking to invest in motion picture deals.
By way of reference, there will be over 5,000 feature films produced in 2018 with the vast majority (70%) financed independently.
The State of the Marketplace
At BondIt Media Capital we’re in a unique and interesting position insomuch as we see upwards of 700 new opportunities every year submitted from producers, sales companies, distributors, agencies, law firms and other financiers.
Over the past 5 years, BondIt has either led or participated in 250+ motion picture, television and short-form content financing transactions totaling close to $100M USD of capital deployment across a variety of film financing elements (tax credits, pre-sales, bridge lending, corporate media financing).
In doing so we’ve picked up on patterns, best practices and also noticed the continual shifting marketplace that seems to be changing more rapidly now than ever before. There's a phrase we use at BondIt, which is that "media financing and producing today is like playing chess on a Rubik’s cube."
While this marketplace analysis and temperature reading may be accurate for the next several months — it's likely to shift again in the near term with the likes of Netflix and Amazon continuing their disruptive march.
All that being said the marketplace today is heavily reliant on three scenarios:
- Equity driven financing structure — whereby the majority of the finance plan is raised from private equity sources (private investors, high net worth individuals, family, friends, etc.)
- Pre-sales driven structure — whereby some/many of the films domestic and international licensing rights are pre-sold to enable a senior financier to cash flow the production.
- International co-production/soft-money structure — whereby the majority of the finance plan is raised from various international grant or arts programs and tax incentive regions.
Overall, our team at BondIt sees a diverse mix of each of these scenarios in roughly even proportions depending on the experience level of the producer, the budget size and often times the creative attachments (writer, director and on-screen talent).
The simple rule of thumb today is that equity is the most challenging money to raise (as it’s often the first money needed to make talent offers, requires finding a high net worth individual or group that wants to take on the filmmaking risk and repayment risk in a tremendously speculative nature). Further, the rule of thumb with equity today is that more is needed for most (as in 90%+) film finance plans than ever before as the international pre-sales market continues to change (i.e. dry up).
Over the last 5 years (and to some degree the last 3 have been exponentially accelerated), the SVOD platforms have gone truly global with Netflix and Amazon reaching 120+ countries worldwide have shaken up the traditional models of local and regional distribution around the globe.
Ten to 20 years ago, the robust European cities were willing and able to pay top dollar to pre-buy content for TV, cable and theatrical rights. But with the Netflix model of gobbling up premium content and content creators under lucrative deals, these buyers are left trying to reach consumers who are no longer viewing content on TV, cable or theatrically as they were said 10-20 years ago.
The reliance on equity has become an ever increasing reality as the 35% - 50%+ of a total budget that traditionally was able to be filled with pre-sales is no longer the case.
The most successful projects we see in today's marketplace are a combination of the following (although admittedly the ‘science’ of this equation is fungible based on the project specifics):
- 25% of the total budget in equity (first money in from private investors)
- 25% of the total budget from tax credits/rebates (domestic and international tax credit programs)
- 25% of the total budget from executed pre-sales (typically foreign pre-sales as most productions hold on to the domestic sale for potential upside after the film has been completed)
- 25% of the total budget in gap (defined as the risk taken in first position against the unsold territories not executed from the above pre-sales)
The Main Takeaways
The bottom line is that in today’s marketplace the sourcing of quality content, relationship building with top talent, agents and sales teams is required for a project to have a successful chance.
It's no secret that the landscape is ever evolving and that it has become tremendously challenging for equity investors to recoup given the significant risk they are taking on by having the base level position in a projects waterfall.
The best advice we offer to both early stage as well as seasoned producers, creatives and executives alike is that one should be spending an equal amount of time understanding, perfecting and transparently communicating the financing structure and relationships of a film finance and recoupment plan as they are on the creative elements.
The financing landscape continues to shift but with continual dedication to the structuring of the deals, a producer, creative, executive or sales team can overcome the challenges.
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