Independent Film Finance
Filmmaking is rarely a cheap endeavor. Even a “budget” independent film may require tens or hundreds of thousands of dollars to produce, market and distribute. Here are the most common ways an independent filmmaker can finance his or her project:
This is where a studio agrees to pay for the costs of the film in exchange for the right to distribute the film. It is difficult to get this type of funding without some proven money-making element attached to the film, for example, a well-known director, screenwriter or actor, or valuable story rights to a bestselling novel, comic book or game.
This is where the film is financed by one or more persons who either buy shares of the company through which the film will be produced, or execute some form of “investment contract” related to the future revenues of the film.
Be VERY aware of state and federal securities laws that may kick in, depending on the form of your production entity or the number of investors involved. Even if you plan to finance your film with friends and family investors, reviewing state and federal securities laws with a knowledgeable attorney is mandatory. Consequences of violating securities laws can include rescission (meaning you must legally give all the money back, even if you’ve already spent it!), civil fines, or even criminal liability.
This is becoming a more common and more popular avenue for film financing. Spike Lee raised nearly $1.5 million via Kickstarter to produce his film, Da Sweet Blood of Jesus. The team behind 1998 cult classic SLC Punk also raised money for the sequel, Punk’s Dead: SLC Punk 2, through Indiegogo. If you go this route, be sure you review individual website rules carefully to ensure compliance.
You may just be lucky enough to have a significant amount of spare cash or disposable income to devote to your independent film. If so, the tales you may have heard about Hollywood’s creative accounting aside, keep in mind that only about 20% of all films actually turn a profit. Hollywood’s multibillion dollar production companies play a numbers game – hoping a few hits can cover all the other films that lost money that year. You probably don’t have the business model or resources to follow a similar plan.
If you do decide to proceed with self-funding however, consider taking advantage of local film tax credits. Numerous states offer tax credits for productions made, at least in part, in their state. Such tax credits can also be sold to a third party, typically at a discount, to raise cash for the production or marketing of the film.
The Colorado Office of Film, Television & Media, for example, offers a 20% cash rebate program for up to $100,000 of eligible production costs. Nevada’s revamped film tax credit law took effect in 2014 and allocated $80 million in credits to be issued to qualifying productions over a 4-year period. Other states offering tax incentives include California, New York, Louisiana, Georgia, and New Mexico
Limit Your Liability!
Keep in mind that, as with most other business ventures, you should ultimately work through a corporate shield for protection from personal liability. The form and timing of establishing this shield (typically an LLC) will depend on your particular circumstances.
However, if you’ve already started some activity for your independent film, make sure that all the contracts you have already entered into (or are imminently about to enter) are freely assignable. That way, you can assign those contracts to your new entity without problem.
If you need assistance with any of the legal issues discussed here, please do not hesitate to contact our Arts & Entertainment team at DTG!