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Film Finance Sources and Documentation

If we step back and analyze the world of film finance sources, for purposes of determining which is the appropriate initial documentation with which to approach such sources, we can divide that world into two broad categories: (1) Industry sources and (2) Investor financing

1. Industry Sources — Industry sources would include the in-house development/production deal, the production-financing/distribution deal (P-F/D) and co-productions (joint ventures), along with the various forms of third-party lender financing for production costs (i.e., worldwide negative pickups, domestic negative pickups, international negative pickups, split rights deals, foreign pre-sales, gap financing and super gap).

Producers Package — All of these industry sources, with the exception of the in-house development/production deal, can only be accessed with a producers package (i.e., at minimum a completed script, a budget and evidence of key attachments). The in-house development/production deal is accessed through pitching an idea for a film, typically before the script is even completed and a package assembled. It would not be appropriate to approach such industry sources with a business plan.

2. Investor Financing — The world of investor financing can be further divided into active versus passive investors.

Securities Disclosure Document — All offerings to passive investors involve the sale of a security (typically, units in a limited partnership or manager-managed LLC or shares in an existing corporation). The securities disclosure document associated with a public/registered offering is called a prospectus. The securities disclosure document associated with a private/exempt offering is called a private placement offering memorandum or PPM.

Business Plan — Generally speaking, active investors (investors who are regularly involved in helping make the important decisions associated with the project — not necessarily a good idea for a creative venture like film) can be approached with a business plan. Of course, a business plan is not an investment vehicle, thus, it must be associated with a suitable active investor investment vehicle (e.g., investor financing agreement, joint venture agreement, initial incorporation or member-managed LLC). Unfortunately, federal appellate courts construing securities regulations have narrowed this field of active investors who may be approached with a business plan even further. This line of cases (see case citations below) require that not only must the active investor be regularly involved in helping to make the important decisions, but all documentation of the deal between the investors and the production company must make it clear that these investors have the authority to participate in such decision-making and most important, they must be capable of participating at a meaningful level (i.e., they must have knowledge and experience in the relevant industry the film industry for purposes of our analysis here).

Upon reflection, we have to admit that these court-imposed limitations relating to the world of active investors (from outside the film industry) with whom a film producer might choose to and be willing to work and that have knowledge and experience in the film industry is very limited indeed. This effectively means that contrary to the misinformation routinely being provided to filmmakers by business plan consultants and others, the business plan is of very little use in seeking to raise film production funds from investors.

Sources and Additional Reading:
Consolidated Management Group, LLC versus the California Department of Corporations, 162 CA4th 598, 75 CR3d 795, 2008 (as reported in the California Business Law Reporter in its July 2008 issue).

Dictionary of Film Finance and Distribution A Guide for Filmmakers, John W. Cones, Marquette Books, 2007.

Forty-Three Ways to Finance Your Feature Film, Third Edition, John W. Cones, Southern Illinois University Press, 2007.

Williamson v. Tucker, 645 F.2d 404, 5th Cir. 1981.

Categories: Film Finance