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February 15 at 8:15am

The New Model Of Indie Film Finance, v2011.1

By Ted Hope

I recently had one of the top sales agents explain to me that the only indie film that gets made or sold these days are those projects that make absolute sense.  Okay, granted what he was referring to was only within the mainstream indie business — the type of films that he and his cohorts commission — but it is worthy of our time to delve a bit deeper into this.  What indie film project makes absolute sense?

The agent said there was no room for guess work in today’s mainstream indie business.  If you want to get your film made, you have to have to make it for a price that all concerned feel it will certainly recoup at.  ”Absolute sense” is this regard is a film that will inevitably make back what it cost.  ”Absolute sense” can also mean a project that a company feels it has to have, usually due to the people involved or the timeliness of the concept, but those “packages”  are frankly even harder to come by than those that seem to be inevitably recoupable.  You are looking for  the needle in the haystack with either, and need to build it yourself if you want to hope to come close.

My last few projects all were designed to remove any guess work for financiers.  Between foreign sales estimates, tax credit rebates, and the undisputed value or attraction of the stars, if you want to be sure your film will get made, your project needs to read that the value of the work will exceed the cost of creating it.  Value in this regard, is strictly business related, and not cultural (sorry art-for-art’s-sake fans, this isn’t going to be one of those posts).  As much we can understand or even accept, those words though, what is the math that adds up to this formula? And where do the numbers even get their value anyway?

Even with 39 or 40 (and still rising)  films selling at Sundance this year, the first take away from it is we probably should keep our budgets below $5 million.  Granted the highest sales were the ones that had budgets towards the higher side of the scale, but those were also the ones that had the most to lose.  The films at Sundance 2011 were acquired for reasonable amounts with the US acquisition price generally in the low 7 figures or below.  No one, even the large corporate distributors, can stomach losing a great deal of money these days, and the business is currently designed around this preventative action of covering one’s ass (no surprise that several of the corporate funded indies are now exploring the micro-budget field).

If the film business remains in an era of risk mitigation (and how in this economy could it not be?), just as acquisition prices will continue to be reigned in, budgets will be kept to a minimum by most investors.  Let’s leave the issue of how to attract experienced producers and directors to a project when you can’t afford to offer them a reasonable rate aside, and not worry about how budget effects the quality of the project; instead, let’s try to give some greater understanding to what this principal of risk mitigation looks like in practical terms of getting our movies made.

As foolish as it is, the mainstream indie film industry relies on estimates from foreign sales agents to set the value for the films.  It is this “market value” that truly determines the budgets for the films that get made under this system.  Forget for the moment that everyone recognizes that those estimates rarely hold water any more these days.  Let’s ignore the fact that international sales have been dropping 20-30% annually for several years.  Dismiss it as anomaly that certain former major territories no longer license films like they used to.  Until we develop the tools and know how to assign valid figures to the other factors that actually determine a film’s success, this is the system we have.

Tomorrow, I will get into how foreign value appears to be determined.

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