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The Sales Agent Perspective on Indie Film Financing

Expert Witness: Kathryn Arnold
In the first installment of our interview with Michele Taverna of MonteCristo Entertainment, "The New Core of the Film Industry," we discussed your position as sales agent being the “natural first stop” on the road to producing films. Let’s take a look at how you go about making the all important decisions on which films to produce and how to get them financed.

KA: Is there a sweet spot for you in terms of budget?

MT: We do primarily “art house” films with independent distributors around the world. Our budgets are around $3-5 million, but the budget is only one part of the picture. The project must have the potential to have a theatrical release in the foreign territories. If the film will only play on television, it’s not worth it to make the picture.

KA: People always talk about an “art house film.” What defines an art house film?

MT: Director driven, story driven projects dealing with social or political issues and human relationships. They’re not
genre films – slashers, action, horror – they’re films that deal with the human condition.

KA: Is there a market for art house films around the world?

MT: Yes

KA: So if the studios are producing the blockbuster films, and companies such as MonteCristo are producing the $3-5 million films, what happens to that middle zone, pictures that are in the $5 million - $15 million range?

MT: It’s called the “Russian Millionaire Film Fund," because you need to find someone with a lot of money to invest in those movies…In the traditional structure, the marketing dollars just aren’t there for that middle range.

KA: So how are you piecing together the financing for your pictures?

MT: 40% pre sales, 40% tax credit, 5-10% deferrals, and 10% equity investment of some sort or an in-kind deal with a post-production or special effects company.

KA: So are you working with the banks only on “debt”/loan type deals? You’re not getting any “gap financing?”

MT: There is no gap financing any more…especially not in the international market. What you do have is debt financing based on discounting presales and tax credits.

KA: How much are the banks discounting?

MT: The banks are discounting from 20-40%.

KA: What?! The banks are only giving you 60 cents on the dollar for a pre-sale?

MT: Depends on the company…depends on the paper you are getting. From an A list distributor it may only be a 10% discount. But with a lesser known distributor the bank’s discount much more.

KA: Why?

MT: Really, it’s because of the amount of the deal. The bank is in business to make money. If you have a $1 million loan, and the bank takes 15%, that nets them only $150,000. There are a lot of costs for the bank associated with that loan (legal, overhead etc.) So if there is any issue with the distributor paying on their pre-sale paper, the bank wants to have enough room in their percentage, to cover their costs, make some money and justify their efforts as a bank.

KA: Are most of the financing entities are feeling this way?

MT: It has been our experience that even the Bond companies are less interested in bonding films under $5 million. The costs of insurance have risen dramatically. So the percentage of the budget that becomes the bond company fee (around 3%) has to be able to cover their costs and profit margin as well. Therefore it really only makes sense for them to bond films with budgets at $5 million or higher.

So here’s the paradox: There is no bond below $5 million. The banks won’t finance a film without a bond. So it’s a domino effect that brings bank financing of films to a level of at least $5 Million.

KA: So how are films in the $5-$15/20 million range getting made then?

MT: Well, European films in this budget range are being made in large part because of government subsidies. American movies at this budget get made because the 1% can afford to invest in movies….A lot of “vanity money" people invest because they want to be associated with the film industry.

KA: There used to be a formula, for what each distributor would pay as a minimum guarantee(MG) towards distribution of a film in their territory. Does that still exist?

MT: No. As a matter of fact, in the last 5 years, countries which used to pay a % based on their territory no longer pay on that basis. It’s more of a global pricing structure based on the value of the film.

KA: And how are those levels defined?

MT: Well, it’s a $10,000 MG if it’s a no name film that will go straight to video. A $100,000 MG will be committed if there is some kind of name talent, and they have the rights for 7 years so they can recoup from television. And then there is $250,000 MG which is for films that have a theatrical release probability. In this case the theatrical, DVD and television distributors get together, (or they already have deals in place) to offer the $250,000. In the $500,000 arena you have the largest independents such as Nu Image, Summit or the Studios. Above $500,000, it is all the Studio world.

KA: And how do you determine who is an A list, B or C list actor, which defines whether a film gets a theatrical release in the international market?

MT: It’s defined by the distributors. They know by the number of units they ship with a given actor.

KA: Does a certain director make a difference in the decision making of financing a film?

MT: Directors are significant, when they can attract the talent.

KA: Is it all about the talent?

MT: Mostly, but the director is an essential part of the puzzle, in so far as he/she can deliver a quality film…once the talent is in place.

KA: To sum it up, Distributors are more savvy now, and they want to make sure they will receive a quality film at the end of the day. So they are looking at ALL the elements involved: subject matter, talent, director, budget… because the risk is so high. They have to kick the tires a bit, take the project out on a test drive, run their numbers and then make very calculated decisions, that at one time, they made based on a one sheet and pre-determined percentage pricing.

The important element to gain here is to budget your project according to what the market will bear. As a producer, do your homework, understand what genre, with which talent, and the appropriate budget, will make financial sense to the sales agent and distributors, who at the end of the day, are the arbiter of what gets made and more importantly, what gets seen.

ABOUT THE AUTHOR: Kathryn Arnold, Michele Taverna
Ms. Arnold has over 15 years of hands on experience in the film production and distribution arenas. Having produced, directed and overseen the production of over 6 feature films, dozens of corporate videos, commercials and events, as well as working in both the studio and independent film environment, Ms. Arnold understands the inner workings of the entertainment industry, its hiring practices, business development and the economic complexities and nuances involved in a world that very few understand. Working closely with each client, she brings the full benefit of this valuable experience to bear on the client's unique case.

Copyright Kathryn Arnold

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.For specific technical or legal advice on the information provided and related topics, please contact the author.

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