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February 11 at 8:16am

Get Ready For The Indie Film Investment Deluge!

By Ted Hope

Let’s celebrate!  The prospects look good for a lot of smart money to be available again for appropriately budgeted indie films.  The key now being the “appropriately” part of the equation.

The days of Machiavellian moves to maximize an limited audience art film’s budget seem thankfully over — and as sad as I will be to seem some friends’ films become obsolete, I smell another golden age brewing.  Filmmakers and investors seem to have both embraced the “less is more’ ethos.  Expect may more films to be made in the lower than $5M bracket, and far fewer indie works in Mark Gill’s former sweet spot.  The large indie finance companies of 5 years ago, had to make films at higher budget levels in order to justify their overheads and salaries.  Those companies have crashed and so did the silly models of $20M art films.

The Film Biz is coming off two consecutive extremely robust film markets.  Toronto 2010 saw almost 30 deals close during the festival.  Sundance 2011 exceeded that mark.  Surely there were quite a few deals done post market too (I have not seen any reports to track this; let me know if you know any).  Coming off of two years where the prudent would not expect anything for US rights, this an exceeding positive change.  With a well produced and well positioned films, investors can reasonably hope to recoup — and then some.  Now the challenge for producers will be to be disciplined enough not to allow the budget creep to return.

There are other factors, beyond the sales market itself,  that heighten my optimism.  The financing model for indie films shifted over the last couple of years to be generally inclusive of additional investors.  Seasoned producers generally try to keep investors to a minimum in order to better manage the relationships — although having more than one (but still as few as possible) is still a recommended strategy so that creative control is not beholden to another.  The increase in the number of investment partners was due to a both a reduction of available capital and new investors’ tendency to look towards others to verify a project’s value, and their desire to limit exposure.

With more films selling, and those films having more investors than previously, logic reveals that we have more investors out there who may have actually recouped their investments.  The best part of this is that they are now investors with experience, who hopefully have gained the knowledge on how best to collaborate.

It’s interesting to look at the ROI (return on investment) for the films that sold. Although I don’t have the time to do an accurate comparison, I can tell you what it feels like to me.  The highest ROIs have come from the micro budget world that delivers quality to a quantifiable audience, particularly when they have a somewhat recognizable cast.  Sundance hit, LIKE CRAZY is the posterchild of this model with three accomplished young stars and a tale of love, helmed by a director of proven ability.  Word is that it delivered ten times it’s negative cost on the Sundance sale alone.

For those that want to increase the production value in order limit risk and deliver a more polished look, the low budget range of $500K – $2M did very well this year.  The multiples were not as high, but several films at Sundance seem to have doubled their negative cost by sticking to this formula.  As Kevin Smith pointed out though, the days of Happy Texas sales are long gone.  Granted the higher budgeted star-cast flicks at Sundance may have had the highest sales, but certainly not the highest ROIs, particularly when one factors in the cost of the money, both literal and opportunity-wise.

The challenge this new investor breed faces in repeating this season’s success is how to afford the experienced directors and producers when working on limited budgets.  Genius does bloom every year, but that is a risky game to play.  I have produced about 25 first time feature directors, and as much as I believe that talent is a recognizable attribute, experience is a more valuable resource when navigating the rapid speed and intense volume of decision making that feature film production requires.  Budgets of $2M and less will struggle to attract directors and producers with similar track records.  Lucky for them, many of us still truly love movies and want to see great stories told!

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  1. Tajmilan / Feb 11 at 8:16am

    I love these types of articles. I'm a former CPA, that used to work in Production finance and accounting at a major studio. I left 3 years ago thinking I could make films that the studios couldn't due to their tentpole approach and have been preaching the importance of what I call value-based filmmaking for 3 years. Hoping to demonstrate a lot of what you talk about in this article in the next 2 years and hopefully beyond. Thanks for being a great resource.

  2. Mark Savage / Feb 11 at 8:16am

    I like the creeping confidence present in this item.

    I have waited for years for the industry to get realistic about budgets and ROI's (the two should always share the same bed).

    Unfortunately, many producers focus on exceptions to common sense practices to justify irrational expenditure.

    In truth, there is nothing better than producing films that have a real shot at recouping because a happy investor is an investor who will take another shot — and it's on that trajectory that longevity is built.

  3. Johanna Custer / Feb 11 at 8:16am

    I refuse to read this until it's proofread. Start with “Machiavellian” and keep going until you're done.

  4. Razcunningham / Feb 11 at 8:16am

    Great Post. Hopefully this trend will hold for a while to come, if not at least another year or two.

  5. Wolfgang / Feb 11 at 8:16am

    This is great news. The question I have is, where/how will these films be seen? Seems the multiplexes' screen space is mostly taken up by Hollywood 'tent pole' remakes.

  6. GG / Feb 11 at 8:16am

    Agreed that the under-$5m model is the way to go – very few of those well publicized deals were for more than $2m and, as you pointed out, those that were didn't necessarily make back their negative cost. But I think that union and guild rates and rules are one of the biggest challenges to being able to maximize quality at that budget. I really wish there was more of a low budget voice in those AMPAS bargaining sessions with the unions and guilds.

  7. Dave M / Feb 11 at 8:16am

    keep on keeping it classy johanna

  8. John Wayne Bosley / Feb 11 at 8:16am

    Great post. Gives us all some hope and determination to make films where every shot, every penny spent is justified by what value it really brings. I think sometimes productions are run on the assumption they have a blank check or something. Business should never be run that way.

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