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How to get financing for your independent film: Insights from lawyer Ernest Goodman

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Law Offices of Ernest Goodman > Copyright Law  > How to get financing for your independent film: Insights from lawyer Ernest Goodman

How to get financing for your independent film: Insights from lawyer Ernest Goodman

The American Film Market 2023 has wrapped up. We rented a booth at this event, where I met numerous filmmakers. Many are looking for an entertainment lawyer, and someone is needed to handle contract drafting. Additionally, many need assistance with immigration matters, and I am happy to help.

Today, we will discuss how to secure financing for independent films. The American Film Market can be very helpful in acquiring finances. However, before attending, there are several preliminary steps you should take.

Check out our YouTube channel. In this particular video, we feature a 20-minute film financing workshop led by Attorney Ernest Goodman. This workshop offers a comprehensive overview of the essentials of film financing, providing valuable insights and practical advice for filmmakers and producers. Whether you’re new to the industry or looking to deepen your understanding of film financing, this workshop with Attorney Goodman is a must-watch.

Some preliminary concepts

This article explores international film projects, particularly those with substantial budgets starting at $500,000 or even $1 million, often featuring star actors. Unlike films made solely for film festivals, which can also have an international scope, our focus here is on larger-scale productions.

Our discussion focuses on how to produce an international film project that could be sold to or financed by a major international distribution company. These films are distributed globally through various channels, ranging from cinema theaters to direct-to-video platforms. The distributor also provides marketing support, which is essential for the profitability of any project.

It’s relatively easy to place any low-budget film, even a short, on platforms like Netfilix or Amazon. However, if your feature film isn’t, for example, an Amazon Original, you won’t profit from views. Films owned by Amazon or Netflix or acquired by major distributors generate maximum revenue.

Hence, your goal is to get your film sold as an Amazon Original or Netflix Original. You don’t want your film placed at the bottom of the watchlist.

Unfortunately, if your film isn’t produced by Netflix, it’s likely to be buried in their content library, and the same applies to Amazon. These platforms typically don’t actively market films unless they’re labeled as Amazon or Netflix originals. While there are distribution companies that can place your film on Netflix, significant earnings are not guaranteed. From my experience with numerous films, Netflix is often where they go to die.

Sometimes, filmmakers use money they’ve received from relatives and friends, so they’re not actively looking for external financing. Nevertheless, selling the film can still be challenging. If your film is already independently produced and you have a compelling movie, you can try a ‘four-wall’ strategy. This involves renting theaters across the country and conducting local promotions in each market where it’s showing. After the run, you’ll have audience numbers to present, which can be used as leverage in negotiations with Netflix and other distribution companies.

But, in this post, we are going to discuss a strategy on how to secure financing from scratch.

Generally, if you have an idea, game, script, screenplay, or production already in development that you’d like to pitch to Netflix, you must work through a licensed agent, producer, attorney, manager, or industry executive who already has a relationship with Netflix.

Whether you’re looking to sell a script or secure financing, it’s important to know that major studios like Netflix, Amazon, and Lionsgate don’t accept unsolicited submissions from the public. These studios exclusively deal with agents, entertainment lawyers, and major distributors for various reasons.

Let’s go back to our topic. This post is about financing films via pre-sale agreements. A pre-sale agreement is also known as a minimum guarantee deal.

What is a pre-sale agreement?

One of the deals a producer can sign with a distributor is called a pre-sale agreement. These deals are often used to secure financing, but also allow for the film to reach many foreign territories.

The deal first requires the producer to complete the film. Once the film has been completed, the distributor will pay the producer the amount as negotiated in the contract and distribute the film in its designated territories.

American Film Market

The American Film Market is traditionally held in Santa Monica, California, annually in November. It’s important to note that this event is exclusively dedicated to independent films. The attendees are primarily producers, distributors and, to a lesser extent, directors. I have attended all the conferences at this significant event and participated in the producers’ forum. I believe it’s highly beneficial for any filmmaker to visit the AFM annually. One of the well-known conferences there is the “pitching conference.” This conference focuses on training. It selects individuals who want to present their pitches and provides feedback on mistakes and suggestions for improvement. It’s crucial to understand that the conference does not select projects; its primary purpose is educational. But, your pitch can still be accepted by production company.

The American Film Market serves as a dynamic platform where producers and directors can network with distributors and financiers from around the globe. AFM is known for facilitating deals and collaborations, offering participants access to a range of funding sources and distribution channels. This environment is particularly conducive for showcasing new projects and securing distribution agreements, both for domestic and international markets. The diverse attendance, including key industry players and decision-makers, makes AFM an invaluable event for those seeking to finance and distribute their film projects effectively.

Unfortunately, if your film is not produced by Netflix, they will bury it in their content library, and the same goes for Amazon. They do not actively market films unless they are Amazon or Netflix originals. There are distribution companies that can get your film on Netflix, but don’t count on making significant money. I’ve worked on many films, and sadly, Netflix is often where they go to die.

You need a film package to get a pre-sale type of deal

A film package is a comprehensive collection of elements that are used to present and market a film project, primarily to potential financiers, studios, distributors, and other industry stakeholders. It’s an essential part of the pre-production phase in filmmaking.

This package is put together long before the project is a sure thing bound for production. In fact, it’s often one of the factors that influence whether the project gets a green light.

In a pre-sale agreement, the distribution rights for a movie in a specific territory are licensed or pre-purchased by a buyer before the film’s production begins. The process typically unfolds as follows: The filmmaker or their sales agent approaches a distributor to negotiate and sign a contract. This contract grants the distributor the rights to distribute the filmmaker’s next movie.

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I describe the film financing method using pre-sale deals as ‘classic’ since it’s commonly used for projects in the United States with budgets starting at $500,000. This post focuses on such projects, not on those with budgets under $500,000, mainly because significant tax incentives usually apply to films with higher budgets. In various jurisdictions, these tax benefits, often available for productions budgeted at $500,000 or more, can be critical for financing, potentially providing tax advantages of 25 percent or more of the project’s budget.

You need a film package to get financing for your film.

When filmmakers say they have “packaged” a film, it means they have created a film package. Lawyers can assist you in this process. Our law firm specializes in helping with package creation.

What film package includes?

Your film package should include the following items:

  1. Script. Ensure your script is copyrighted, preferably with the U.S. Library of Congress. Visit http://copyright.gov/ for online registration. Having a renowned screenwriter can boost your project’s appeal to financiers. Your script should be exceptional and fit the genre’s requirements. It could be a screenplay written by a novice screenwriter, though.
  2. Cover Letter. Obtain an endorsement from a respected script expert in the film industry, confirming your script’s profitability and production viability.
  3. Letter of Intent (LOI) from a star actor. LOI is a written document expressing an actor’s intent to be in a specific project, if various conditions are met, without a full contractual commitment or long negotiation. This is a cornerstone of your package. In most cases, it is extremely difficult to secure film financing without star actors attached.
  4. Director. A prominent director can enhance your project’s attractiveness. However, you can also take up the directorial role, following in the footsteps of filmmakers like Quentin Tarantino and Darren Aronofsky. About 60 percent of independent film projects with budgets of less than 10 million dollars are directed by first-time directors.
  5. Budget. Prepare a detailed budget that follows industry standards. Line producers can assist you with this. If you plan to shoot in different states, consider hiring line producers from each respective state for specialized knowledge and expertise.
  6. Marketing Package. A social media package for online marketing typically encompasses developing a tailored strategy for different platforms, creating engaging content like videos and posters, maintaining a regular posting schedule, and managing community interactions. It also involves social media advertising, monitoring performance analytics, collaborating with influencers, participating in cross-promotions, and running hashtag campaigns. Additionally, the package includes distributing press releases, securing articles in reputable magazines, and managing the film’s IMDb listing to enhance overall media presence.
  7. Film Website. A website that is effectively promoted and features links to social media, while ensuring it operates smoothly on various devices.
  8. Single Property Vehicle (SPV). A Limited Liability Company (LLC) named after your film, including a bank account. This structure protects members from lawsuits and simplifies post-production sales and licensing deals.
  9. Production Designer Look-Book. Have an artist draw sketches of your film’s characters, costumes, and settings. Visuals help convey your vision effectively.
  10. Entertainment Lawyer. Essential for legal guidance, especially in the unique field of entertainment law. Ensure your lawyer is licensed and experienced in the relevant state’s laws.
  11. Certificate of Clearance. Prepared by your lawyer, this document confirms that your script does not infringe on any third-party intellectual property rights, which is a key step in securing financing. For more information, check out my blog post about the role of a certificate of clearance in filmmaking here.
  12. Casting Director. An experienced casting director can access and attract star actors through their industry connections.

What is a development money?

When comparing a complete document package to just a script, it’s clear how much more attractive the former is. A good script is undoubtedly a vital first step, but it’s not enough to interest an investor. Unfortunately, many financiers will not talk to you if you don’t have a package with all essential elements.

Development money, refers to the funds specifically allocated for putting together a comprehensive pitch package. This package is essential for presenting the film project to potential financiers, producers, or studios.

Preparing a film package requires substantial effort and funding, often costing between $25,000 and $50,000, sometimes more.

The money filmmakers spend to create a package is called development money.

On average, you need at least $25,000 for a film with a budget of around $500,000. For a budget of $2 million or more, you’ll need about $50,000.

It’s often easier to find funding over $1 million than smaller amounts, partly due to tax incentives available for films with budgets of $1 million and above (in some states, the threshold is $500,000).

A rough breakdown of ‘development money’ might include:

  1. $10,000 – an option agreement with a screenwriter, giving you rights to the script for a certain period (e.g., one year).
  2. $5,000 – marketing services like a website, promotion, and press releases.
  3. $1,500 – company registration and first-year accounting services.
  4. $20,000 – entertainment lawyer retainer.

Of course, for films with bigger budget you will need much more development money.

 

Film Financing Structure

Okay, you’ve got a fully developed package. Now you can start looking for financing.

Here’s a streamlined explanation of the typical structure for financing a film:

  1. 25% from Minimum Guarantee (MG): To secure an MG deal, talk to foreign sales agents. This is your initial step, involving a distributor who provides an advance payment based on your film’s potential. Attending events such as the American Film Market (AFM) is crucial to connect with foreign sales agents who can facilitate this deal. This arrangement typically covers 25% of your film’s budget upfront, thereby lessening the risk of not finding a buyer after production.
  2. 25% Equity Financing: This segment is funded through investments from financial firms, individual investors, or production companies. Entities that specialize in post-production, such as Technicolor or Deluxe, often invest in projects they’ll later contribute services to. A strong project with a Letter of Intent from recognized actors can make securing this investment more straightforward.
  3. 25% Loans: Banks with film financing departments, like Bank of America, might provide loans for this portion. Getting such loans is increasingly challenging, and banks are typically cautious, especially with newcomers to the film industry.
  4. 25% Tax Incentives: This part of the funding can come from tax credits and incentives offered by different states or countries. While some jurisdictions advertise up to 50% in tax credits, realistically obtaining more than 25% can be difficult.

Securing ‘development money’, or the initial capital for the project, is often the most challenging step. However, with a strong script and confirmed interest from star actors, acquiring the rest of the funding becomes more manageable.

Apart from these four primary sources, there are other financing methods, such as grants and product placement. The key is having a solid base, including an engaging script and star actors attached to the project.

The Bottom Line

A well-constructed film package is vital in securing the necessary finances for a film project. It serves as the cornerstone of the funding process, effectively presenting the project to potential investors and distributors.

The hardest part of film financing is often securing ‘development money’ – the initial capital needed to get the project off the ground. Once you have a strong script and attached star actors, the other pieces tend to fall into place more easily.

Securing a star actor for a film project can be a challenging task. It often involves navigating through agents, meeting specific contractual and financial requirements, and aligning with the actor’s schedule and interests.

Our law firm can provide invaluable assistance in creating these packages, alongside offering a range of other entertainment law services to ensure the legal and financial aspects of your film project are comprehensively managed.

 

 

 

 

 

2 Comments

  • Kellyann Chippendale
    Reply December 10, 2023 at 9:16 pm

    Thank you so much for all of this information!

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