Financing film production: worn paths and unexplored lands

In 2016, 49 full-length feature films were produced in Poland, 26 of which were funded with the funds of the Polish Film Institute. The total value of film budgets subsidized by the Institute reached PLN 110 million, whereas in-kind contributions from producers amounted to over twice as much. Should Polish producers, like their Western colleagues, start looking for less classical ways to raise funds?

The role of the Polish Film Institute in the development of Polish cinematography cannot be overestimated. However, there are voices that subsidies make the film community lazy and cause many producers not to look for private money and, by definition, not assume that they will make a profit from the exploitation of the film. This is quite a controversial thesis, although, looking at the statistics, it brings attention to the significant problem of Polish production – namely its sole focus on public funds.

There are themes and genres of cinema which, without the support of public funds, might not have a chance to be implemented. Here I mean genre cinema, debuts, artistic cinema or those touching difficult and important, though not very popular, themes. In Polish conditions, it is also difficult to make high-budget historical productions without the support of public institutions. Grants from the Polish Film Institute and regional film funds are an extremely valuable form of supporting the audio-visual market. However, it is important that producers reaching for such funds, should not have a conviction that it is a matter of “to be or not to be” of the project and it is likely to be impossible otherwise.

A great deal has been written and said about raising public funds for films. However, there are several of alternative sources of film production funding. This is what I want to focus on here. The main ones are private investors, product placement and sponsorship, deferred fees (film deferrals), crowdfunding, MG, and presale.

Private funds

Raising public funds requires knowledge of procedures, tracking of operational programmes, ability to fill in applications, etc. Acquiring private funds, however, is governed by completely different rules. For private investors (I exclude business angels investing in film to support culture or because of an interesting topic), an equally important paper next to the script will be an excel sheet with a financial estimation of the project. When talking to a private investor, you simply need to know what the average cost of a normal cinema ticket in Poland is (in 2016, according to the data of the Polish Film Institute, it was PLN 18.58) and whether our film will be within the average. Or maybe, for example, since the target group is schoolchildren the price will be lower, as group and morning screenings must be taken into account. The producer must also be able to answer what opening they count on and what number of viewers they are aiming at. And, horror of horrors, they should justify this in a different way than just a deep belief in their own success. For example, by referring to similar productions or productions by the same director, or with a similar cast (a kind of benchmark). The investor will also expect to be carried through the intricacies of film accounting and shown how the cinema result will translate into revenues for the producer, co-producers, and investors (and when the contributions will be returned) (that is why it’s good to know the ticket price and the estimated cinema result in various variants), after deducting promotion costs (P&A), distributor’s remuneration, return of any minimum guarantees (MG) and any deferred privileged royalties. In other words, the investor will simply want to know when the film project will reach the break-even point (BEP) or, even simpler when they will start making money on the project.

Finally, some investors may want to obtain some form of security for their investment. In this case, I omit bank or insurance guarantees, as well as sureties, bills of exchange or contribution refund guarantees, where I would recommend extreme caution. With the rational approach of the investor understanding that nobody guarantees the film’s success, it is possible to provide the financing entity with a sense of security by guaranteeing that the film will be completed within a specific budget (e.g. with a 10% margin), within a specific period of time or with a specific line-up of creators and actors. Here, a guarantee may be given by the right to withdraw from the contract and demand the return of funds with interest, e.g. secured by a notary voluntary submission to execution (so-called ‘triple seven’ – from the article number in the Polish Civil Code or ‘three axes’ – illustrating the effect of their conclusion and failure to fulfill the obligation).

The last thing worth remembering when addressing a private investor is the fact that we have to sell our project. This means that although the art should defend itself, it really does not hurt to help it by preparing high-quality presentations, showreels, etc. Finally, it’s important to remember that the credibility of our project is also proven by our approach to the budget, financing plan and the funds already accumulated.

Sponsorship and product placement

Private funds in the film production are not only private investors, but also entities interested in the broadly understood advertising exposure of their products and services. It is not necessary, however, to change the hero’s favourite martini drink for a popular beer. In many scripts the scenes are almost perfect for brand promotion and such actions can be implemented in an elegant manner that does not imply a compromise with artistic effects. An interesting example is ‘Cast Away’ directed by Robert Zemeckis where the main character played by Tom Hanks lands on a deserted island as a result of a plane crash and has a Wilson-branded ball as his only friend. The producer publicly swore that it was only a need of a script and that it was not a product placement. It does not change the fact that the exposure of the brand on the screen lasted about 20 minutes, which in the case of a paid placement would be an absolute record.

When talking to potential sponsors, apart from having a script that allows for placement, it is worth remembering that it is a separate and paid service. Therefore it is not worth combining investment and sponsoring in one transaction. You should also remember not to give too many privileges to the entity placing the product. This may create a risk of conflict with the team and actors who are unlikely to enthusiastically repeat the scene several times just because the can of beverage was not sufficiently covered in frost. Also, make sure that the placement agreements are compatible with the contracts with the actors and main producers. Not all actors will agree to active placement, and even in the case of passive placement, it is a good practice to make them aware of it.

Finally, sponsorship is not only about placement. It is also a possibility of promotion during the premiere, using excerpts from the film or frames on products and in their advertising, or even in a computer game based on the film. There are more and more solutions nowadays – and augmented reality (AR) will inevitably lead to even more of them. Here, however, it will be much easier for producers of animated works, who will not have to keep an eye on the aforementioned compatibility of agreements with actors and obtain additional permissions (except for possible permissions of the authors of books in the case of screen adaptations).

MG and presale, i.e. the most popular garage sale

On the Polish film market, one of the most popular forms of financing outside the Polish Film Institute are minimum guarantees for distributors (MG) and television presales. MG is nothing more than a guaranteed, non-refundable advance payment on account of revenues from exploitation. The lower the film’s chance of commercial success, the more attractive this form seems to be. Usually, the distributor can demand its return only if the producer does not finish the project on time and with certain parameters. It sounds great, but nothing is for free. The MG amount is usually recovered by the distributor in the first place, usually immediately after P&A. Due to the fact that MG is used to close the budget and complete a film – it proportionally reduces the potential revenue. It would be ideal if the film could be made without MG, and MG was paid by the distributor once the film was finished and became one of the variables determining the choice of the distributor by the producer (as is sometimes the case on the US market). Such a minimum guarantee would immediately constitute revenue from exploitation.

Presale, meanwhile, is nothing more than a pre-sale of a licence, usually for television, even at the stage of film production. Again, although it is a good way to close the budget, we should not be surprised that a reasonable private investor, seeing a financing plan built on a large MG and several presales (including free TV, pay TV, and VOD), may become doubtful. After all, what is the point of investing in a film that was sold out on Black Friday and the income from the sale was used for production?

It is also worth remembering that, when negotiating with co-producers and investors, the contract should include the right to use amounts from MG and presales for film production as the producer’s contribution. Formally speaking, these are the revenues from film exploitation.

Film deferrals – how to postpone the inevitable

A popular form of financing low-budget films around the world (and this category includes most Polish productions) is deferred fees, the so-called film deferrals. They boil down to the fact that the producer employs, for example, a director whose market rate is X, but pays him 1/3 of X, while the remaining amount is treated as a deferred payment returned from the proceeds of exploitation. This allows for a radical reduction of the budget, but – last but not least – it also changes the perspective of the creators and artists involved in the project. Their final remuneration depends on the success of the film.

In this case, there are no standards and the matter is very flexible. Therefore, a mechanism can be introduced, according to which a particular actor or crew member will receive his salary with priority over other financiers – from the first revenues of the producer. In another scenario, an actor may be treated according to the same rules as the investors and co-producers, i.e. he will receive pro rata pari passu payments – proportionally and simultaneously with the others. The third way is to pay the profits only after the contributions have been returned. It is also not unusual to increase the fee to include a risk premium. Deferred payment can also be returned to a specific amount, but it can also be a fixed share in profits, where only the sky is the limit. There are also models in which a filmmaker becomes – to the extent that he did not receive remuneration – a co-producer of the film, and the missing fee is treated as an in-kind contribution.

Crowdfunding – can the viewers finance the production of the film?

Crowdfunding is often an underestimated way of financing film production. Meanwhile, there are already cases when on crowdfunding platforms (such as Kickstarter, Indiegogo, Polakpotrafi.pl, wspieramkulture.pl) film projects receive support, often in a spectacular way. As an example let’s recall the film ‘Veronica Mars’ (2014) directed by Rob Thomas. The action on  Kickstarter, which aimed to raise $2 million, was an utter success in less than… 11 hours. In one month, $5.7 million was raised. The collection set several records in the history of Kickstarter – one million dollars raised the fastest, the fastest raised 2 million dollars, the largest minimum goal achieved, and the most people who supported one project.

Since the amendment of the law on public collections in 2014, crowdfunding activity provided it is done non-cash, has become much simpler, and does not require special permissions or permits. Instead, it enables the quite flexible design of the entire process which requires taking into account not only issues related to the production but also consumer, e-commerce, and tax regulations.

To put it in simple terms, this type of activity can be carried out in four basic models. Firstly, based on donations (so-called crowdfunding subsidy) – the least effective tax-wise and practically in the whole audiovisual activity. Secondly, when there is a reciprocal performance (e.g. the supporting party receives a prize, product, or service), we can in principle talk about an unnamed agreement containing many features of a sales agreement (crowdfunding based on prizes or pre-sales). This is the most practical solution with the greatest potential. It is possible to pre-sell tickets for special screenings or sell film props. Let’s name some good examples from around the world. In the case of ‘Super Troopers 2’ directed by Jay Chandrasekhara, with a premiere in 2018, it was possible to buy a car used in this production for 35,000 dollars. However, you can also be more creative and offer the role as an extra in the film, a trip to the set, photos with autographs, dinner with the main character or finally naming the name and surname of one of the film’s protagonists who subsidizes the project.

Sometimes there is also crowdfunding where in exchange for the investment one obtains shares or stocks a film production company or in a specially created co-production company. There is also so-called debt crowdfunding where the financing is repayable, most often in the form of a loan.

Reverse

Finally, one more aspect of the financing of production is worth noting – the reverse side, namely the recoupment plan. When planning the financing, one should remember that funds invested in one way or another will usually have to be given back or at least settled. And it’s not only about adding up percentages to 100 (which still doesn’t always work out), but also about keeping the producer’s chances to earn money on a film for himself. On our market, it often happens that producers who have carried out development for 2 years, put a year of their work into production, took risks and responsibilities, and in the end received nothing or a minimum percentage of return of their own in-kind contribution. On the global market, the model often used is where 50% of revenues from the exploitation of the film is intended for producers. Only the other half is shared by investors and financiers. I am aware that it will take a while before such a model will become usual in Polish productions, but such projects are appearing. It is worthwhile for the production community to fight for such solutions in our ‘film backyard’.

Obtaining financing is never trivial, but it can be simpler than producers think, especially if they go off the beaten track and venture into more unexplored lands. It has to be done with caution and responsibility, but it is worth trying. As Brad Pitt said when playing Benjamin Button, ‘It seems that our lives are defined by opportunities, including those we don’t take advantage of ’.