The “trendy” Chinese Approach
I believe many of you have heard or read about the amounts of funds China has been pouring toward Hollywood. Despite the common belief, it is mostly directed for acquisitions rather than actual film financing. The reason for that is that there are some strict rules set by the Chinese government if a film is to make it past their borders. What is that? You need to have an actual partner from China. A company based there.
The question that may arise in your mind is “why would a financier request a partnership with a Chinese company?” The answer to that comes with one word: Distribution. Their market can provide an average gross income within the range of $50 to $60 million USD, for which the local company usually requests a rather large percentage. Along with other fees, the main production company could be seeing a return of as low as 15% (which is -at times- considered generous). Or at least that is the information I have from producers who actually made this step before.
So, how does the Chinese film financing work? If your country of origin has an international film trade agreement with China, the financiers (usually affiliated with production companies) will always seek to go with the absolute minimum, which – for example, Canada – is the 15%. This does not always come in actual cash, but in forms of services, usually obliging filmmakers to perform parts of their principal photography within China. Considering the actual fees toward production personnel, their cost is actually a lot less than what it would take to film with a North American or European crew, but the services are “invoiced” at the percentage cap, for legal reasons. “So, what’s the problem? If we get funding, one way or another, it works for me,” you might think. Let us put some numbers down first, considering you are an independent filmmaker.
Say your film has a production budget of $10,000,000 USD. If your country has an international agreement (or you build a private one) for a ~15% of that number, that’s exactly what they will go for, thus receiving the according amount of shares from your film – provided you create (as required) the necessary Limited Liability Company for it (it comes with different names, depending on the country). This means that your Chinese partner will seek to “offer” $1.5 million USD, which is usually in the form of services. No cash. That’s in addition to casting people known to their country so that they can secure a high payback through distribution. Now, should your film do well (which is something they handle, without you having any idea of their actions whatsoever), it could pretty much generate an amount within the $30 to $50 million range. From this, they usually go for the 85% of the revenues, something they tend to go for in this type of business. That’s $25.5 to $42.5 million USD in revenues. You can see the lucrative return they can get from merely investing $1.5 million USD – in services. This is why they are so eager to invest.
Aside from the fact that their numbers are rarely released and reliable (I’ve heard several producers complain about it), there is also the other thing you should consider:
– “We require an A-List package, with an A-List director. We bring in the money last & we want a full payback in less than a year.”
– “You want fries with that?” (almost a response)
That quote is from an actual negotiation one of our executives had. Naturally, we rejected it without a second thought.
Now, as you may be aware, there are several requirements when it comes to a film’s lifespan so that it pays off its budget, the P&A (Publicity & Advertising) and everything else. That number has to be 2.8 times the film’s production budget. To be more exact on the timeline, provided you have a really good film:
- The theatrical lifespan is between 90-100 days (3 months)
- Pre-Production is on average 2-3 months (put 3 if you are in a western country and are actually forced to film in China)
- Approximately 2 months of principal photography (some can do it in one month, but that’s pushing it, especially if you have to travel)
- An average of 4 months in post-production, provided you do not have visual effects – because if you do and want to do a good job at it, put in 8-10 months at least.
Now, add up all the time numbers above & see how long it takes to see a good ROI (Return Of Investment), not including BluRay/DVD or VoD (Video on Demand) revenue. Will that be enough to hit the 2.8 mark to cover all expenses, pay the financiers pari-passu (on an equal basis) and start to produce a profit? My thoughts exactly!
That is roughly a full 12 months. Exactly the maximum amount of time this types of financiers offer you to get their money back, preferably with a lot of profit. Now, if you want to do something more elaborate, more complex or – let’s say – a global blockbuster, you are pretty much done for. That’s because we all know a strong film with decent visual effects has a production range between 12 and 18 months.
The Budget Numbers
Most of the financiers have different requirements when it comes to laying down their cash, in order to support you. The range they usually look for is between the $10 to $40 million USD range, for this is what they consider to be the “sweet spot”. So, if you have trouble financing your $500,000 USD or $2,000,000 USD film, now you know why.
On my side, I am on the opposite side of the spectrum. The first film of the franchise we are seeking to finance is in the range of $90,000,000 USD, which we were able to reduce with various shortcuts, down from an initial $140,000,000 USD, without losing any of the prerequisites and still keeping it a very competitive product. Even with the incentives & the actual production budget dropping to $70,000,000 USD (50% down from the initial estimate), the numbers are still considerable. Two different target areas, usually facing the same challenges.
The Alternatives for Low Budget
The very first you should think about when seeking to finance your film is the talent you have available for it. Everyone is seeking that A-List talent, which is the real Catch-22 phrase. The reason is that agents will ask you for an Escrow Account (to have the payment ready – also known as Pay-or-Play), while the financiers will require a commitment from the said talent. So, if you can get through to a talent manager, then all the better. However, I do admit I had some good experiences with nearly all agencies, except CAA (Creative Artists Agency). For some reason, everyone outside the major studios dreads it.
An additional aspect is the position of the director.
If you are a first-time filmmaker, do not, I repeat do not even consider attaching your name as director on a medium (or above) budget film.
That is a recipe for disaster, especially if you are seeking to finance a respectable budget. Look for an acclaimed director or at least – if your budget is low – someone who has some experience and/or has gained several awards.
If your script is strong enough, and you’ve attained one or both of the above, then things start to – somehow – simplify. The remaining material you will require are:
- One Page (required to get initial interest)
- A small presentation (include visuals, logline & synopsis)
- Full business plan (it is requested, but barely anyone goes beyond the Executive Summary) – which must include a Marketing Plan
- Financing Plan (when you will need what, when you’re getting it and who is providing it – for the case of several financing options – see further down)
- Revenue Projections (some require per market, and others require the document to be signed by a reputable distributor, which is a whole new can of worms)
- Script (of course)
- Shooting/production schedule
- Possible LOIs (Letters Of Intent) – or attachments through IMDb
Marketing and Financing Plan
Many people consider that having a good film is going to be enough. This is the same as saying a distributor will handle the promotion. As much of a blessing that would be, the answer is a resounding no in both situations. A film is going nowhere without a good promotion tactic. A Facebook page alone is not enough. I worked in advertising for a good amount of time, both in ABL and BTL (Above & Below The Line, respectively), where I learned that indirect exposure builds better awareness.
Marketing & Distribution
One very valuable thing to keep always in mind is that an effective advertising package (also known as P&A), costs approximately an additional 40% of your production budget. If you leave this to be handled by your distributor entirely, two things will happen:
- Distribution fees are going to be significantly higher (oh, and do keep an eye on their balance sheets once you get a deal and your film is out)
- Without any pressure, your distributor has every incentive to shelf your film
So, come with an early marketing plan and include it in your production budget with at least a 5% for a low budget film and go down to 2% for a high budget one. It is imperative that you be the first one to start shaking the boat. What with?
- A music video (create an emotional environment – music speaks volumes)
- Cell phone/tablet games (if you have mystery or action)
- Quizzes with a prize (everyone loves rewards)
- Cosplay at a ComicCon (if you have sci-fi or fantasy)
- Events or charity & support causes (if your film is oriented that way)
All the above are just small examples of the BTL scope and well within your budget range. Actions like these can help build a level of early awareness that can fuel your full-blown campaign later on. You don’t have to do them outright, just plan for them. Force the distributor to have something to follow up on.
Remember, a simple social media presence with just snippets and behind the scenes does not work. Not anymore, unless you have some big talent attached, in which case it’s their followers they are bringing on your Facebook page or Twitter account. Otherwise, you are going to be limited to a few hundred people, which doesn’t say much about your film.
The second part is to go after a P&A Fund.
This is also something that can set distribution on fire, especially when you can bring in the 50% of the advertising finances. Once you do, the distributor cannot fail you there, especially since there is going to be some skin in the game; especially if you hit an agreement with a down deposit on their side. It’s not always the case, but once you come with P&A, it’s hard for them to refuse and look like amateurs.
Once you are able to go through this, you will most likely have a good ally who can provide you with the verification of the sales estimates. A magnificent document that some financiers seek. Still, keep an eye on the balance sheet once your film is out!
Unlike the rest, this plan can prove to be quite the nightmare. Why? Because everything can change in the blink of an eye.
Financiers can shift their minds or are not what you thought they were. Pledges can transform or disappear overnight and this will look bad to the rest of your money people; especially when you are relying heavily on the private sector.
That comes as real hands-on experience, since I bumped on a few crooks during my time, and suffered major setbacks because of them.
However, the only stable parameters in this financing part are the following:
- Production Incentives (given that you know your intended crew & filming locations) – these take time, so think of them as pay-offs (or cash them in)
- Pre-Sales, also known as Minimum Guarantees (if you wish to use them early, for your budget – even though they can limit extended profits)
- Possible Grants – depending on your country’s programs (a great way to get you started, especially to secure good talent that will propel the remaining financiers)
If you were able to secure a good name talent and director, chances are you will be able to secure a good amount from the Minimum Guarantees. This comes from regional distributors, in the case you wish to go global (which you should, provided your content supports it). If nothing else, this can provide you with some standard numbers that do not change like the swings of the private sector.
Essentially, the Financing Plan is the document that says what type of financing you are getting, from whom and when. It is imperative to know when you are going to need money and how much, as when you finally reach a financing agreement, you will be drafting the so-called Term-Sheet. This co-signed document is what will secure the dates that the funds will flow in the escrow account (besides the main financing contract or other executive agreements that come earlier).
Now you understand why this document is the most fluid of them all. So don’t be surprised if you find making a lot more drafts of this file than you ever attempted with your script.
Additional Things to Keep in Mind (ATKM)
Completion Bond! Yes, I know, this is either something you might dread or something you may not have considered yet. This magnificent piece of paper is a reassurance toward the financiers that the film is going to get done one time and on budget. Should you fail to do so, the insurance company that issues this will take over, so be prepared to lose much along the way, depending on the agreement you sign. So, be disciplined and very conscious of your budget and production schedule.
Also, money permitting, do a teaser or intro. Keep it short, between 1-3 minutes and use absolutely the highest possible quality output you can afford. However, do pay extreme attention to the sound, as it is always the first to throw people off. Is it a scene of your film? A short prep video for what is about to come? A small clip of what the film is about? Make it count, because money people are adept at recognizing and evaluating numbers. You are the filmmaker, so it is up to you to communicate your vision effectively.
All right. Everything sounds good and solid, but how are you going to find the financiers? This is a chapter I covered in the previous article, which you can check here. The other way you can go at it is:
- LinkedIn (seek those executives)
- Film Market Festivals (a lot of buyers/dear-makers go there)
- Film Funds
- Hedge Funds
- Media Programs (private or public)
Remember, if you find an executive or a financier within the social media (casually, not responding to any requests or submission calls that is) and immediately shoot off your package, chances are you’re not going anywhere. Build relationships, participate in conversations they are following, engage in talks and then you can bring up your project. Make them like you and make them want to work with you. Otherwise, you’ll just end up being a number on their spreadsheet.
Always, and I truly mean always keep a positive attitude with your mind traveling with excitement, but your feet nailed to the ground. The former will show them you are willing to walk the extra mile, while the latter will make them feel secure that you know what the requirements and the risks are. In short, you’ll give the exact image you want: that you know what you are doing.
What works to your advantage is the following, something to never forget:
Film Funds is an exotic form of financing.
The reason is that they are unaffected by recessions or depressions & always find ways to grow, especially when all the other markets fall apart.
This is why there has been an abundance of them popping out everywhere. So, go ahead. Keep your eyes open and prepare for it.
You got this!