Young filmmakers today – those of you in your early to mid-twenties – entered filmmaking after the Great Recession and complications of rapid technological developments began to cripple the independent filmmaking industry in America. You entered the field just as the then-new perks-based donor crowdfunding function blossomed in the debris of crushed distribution companies, shrunken Minimum Guarantees, destroyed bank credit, and disappearance of most equity investment by hedge funds, institutions, and high-net-worth individuals. Those of us who are older are still smarting from the destruction, still aware of the way things had been.
The independent film industry in America shows signs of poverty, with many independent filmmakers living lives of ‘the starving artist,’ and jobs within the industry seem to be rare. Rarer still are consistent jobs that pay a living wage.
President Obama signed into law the American JOBS Act last spring. Called the “Jumpstart Our Business Startups Act,” its purpose is to help Americans who have good, sound business projects to attract cash from investors more easily. Businesses create jobs and hire people, and America needs that. The independent film industry in America needs that.
President Obama said, “We are a nation of doers. We think big. We take risks. This is a country that’s always been on the cutting edge. The reason is, America has always had the most daring entrepreneurs. When their businesses take off, more people get employed.”
By amending the Securities Act of 1933, the JOBS Act should make it easier for indie filmmakers to raise money so they can create jobs and help rebuild the American economy. It can have a profound impact on the independent filmmaking industry.
Filmmakers, here are details of why we need the JOBS Act, how it will help filmmakers, and the status of the JOBS Act today.
THE WAY THINGS USED TO BE
Earlier generations of young filmmakers were often surprised to discover that their public pleas for money to make their movies ran afoul of federal SEC regulations that control offerings of securities, rules that demand rigorous registration under equity investment laws.
“Securities? Equity? Registration? SEC? What are those things,” asked the new filmmakers from previous generations. “I just want to make a movie.”
The young filmmakers who came before you were shocked to discover they could not just tell everybody on Friendster and MySpace, or through ads in printed newspapers and magazines, that they wanted investors to pour money into their movie project in return for great profits later.
This was the first thing filmmakers learned after they finished writing their script: raising money can be very illegal.
THE GREAT DEPRESSION
Eight decades prior to the Great Recession, we faced the Great Depression, which started in 1929. Times were worse because there were few protections or “safety nets” for citizens. When huge numbers of American citizens lost all their money after the crash of crazy, outrageous investment schemes and scams, they really lost everything, ending up on the street, eating in charity soup kitchens, and begging.
The economic destruction to America was so great that the country created severe, restrictive rules to prevent it from ever happening again. Those rules included the Securities Act of 1933 and the Exchange Act of 1934 to protect citizens from shrewd, myopic, or criminal people who had persuasive high-power pitches for getting citizens to invest money in their projects, whether real or imaginary.
America needs investment; that’s what made this country great. It does not need more economic destruction from poorly thought out or deliberately deceptive projects.
The rules and regulations still control investment in America.
They are implemented and overseen by the U.S. Securities and Exchange Commission (SEC). All of the SEC laws, rules, forms and regulations associated with the Securities Act of 1933 and Exchange Act of 1934 are on the SEC’s site at http://www.SEC.gov/divisions/corpfin/cfrules.shtml
The big news from last year was the American JOBS Act, signed into law by President Obama on April 5, 2012, which offers some changes to ease this process of investing in America. The goal is to create jobs.
“This is what is going to be the solution for job creation in this country,” says Richard Salute of Cohn Reznick Accounting in New York (see http://www.cohnreznick.com/richard-j-salute), “And, that’s what will keep us in the forefront of developed nations. Access to capital is essential for success.”
THE GREAT RECESSION
The economic destruction of the Great Recession that struck in 2008, just as our new generation of filmmakers came on the scene, affected the independent film industry in America as harshly as other industries, maybe even more harshly than many industries.
“The industry kind of imploded five or six years ago when Fine Line, New Line, Paramount Classics and a few other smaller companies disappeared,” says Richard Abramowitz of consulting firm Abramorama (see http://pro.imdb.com/name/nm0009150/), which specializes in production, marketing, distribution and representation of indie movies. “There was certainly a dip there when the economy tanked.”
“There has definitely been a hit. We’ve seen a downward trend, especially in New York City,” says Mike Nichols, East Coast Rental Manager of AbelCine (see http://abelcine.com), a long-established national equipment rental house. “In 2008, I was bidding on equipment packages for about three dozen indie films. In 2009, that dropped to less than a dozen.”
“I think the independent filmmaking biz got was coming to it, it got corrected, just like housing,” says Jeff Steele of Film Closings (see http://filmclosings.com/), a strategic advisor and film finance veteran specializing in structured-financing for film. “It had attracted a ridiculous amount of hedge fund money out of Wall Street in 2006 to 2008 when I worked for a $300 million fund where we had done thirty films in two years. It was a time when finance plans were looking for films, rather than the other way around. Then the credit crunch hit in 2008, and all of the foreign buyers had their credit lines dry up, so they couldn’t acquire any more films. There was suddenly a surplus of films, films made for $10, $20, $30, even $40 million independent films ended up going straight to video because they had nowhere else to go. It forced filmmakers to drastically reduce their budgets.”
According to prolific indie producer Ted Hope, with more than five dozen prominent indie films across the history of the current independent film culture to his credit, “The real issue right now is the artists and the people that support them are not benefiting from their work, and it just can’t be done. I’ve watched six years of my own personal earnings keep going down each year. I’m not making a living producing the movies. And the system as it’s set up right now does not benefit artists or those that support them.”
Almost to prove his point, Hope has stepped away from producing and is now the Executive Director of the San Francisco Film Society in California.
“I produced close to 70 films, and I know in my heart that movies like The Ice Storm, 21 Grams, American Splendor, Happiness, or In The Bedroom would not get made today,” says Hope.
THIS IS EQUITY
New filmmakers are often surprised to find out (usually from friends, but sometimes more harshly from Federal authorities) that it is illegal to randomly offer securities to the public to raise money to make their movies. Their first reaction is to try to find a way around the term “securities,” only to learn that a security is pretty much any offer of a potential return in the future for any cash investment made now. See “security” at http://www.investorwords.com/4446/security.html
Young filmmakers often argue that the SEC could not possibly be interested in pursuing and prosecuting their own small, insignificant movie project.
Correct. Sort of.
Your worry is not the SEC; your worry is your investor. While the SEC may never notice your movie project, the people who invest in your movie are paying a lot of attention to it, and America is full of investors who become disillusioned and disgruntled about the difference between what they feel they were promised, and what they feel they really ended up with. Those are the people who will sue you, and they win by relying on the rules and regulations of the SEC that you ignored.
Offering securities for your film is tightly restricted and regulated. Even under what are known as “Reg. D exemptions,” there are still many expensive regulations to keep you from investors’ money.
Those problems often boil down to enthusiastic, over-confident filmmakers overstating the potential of their movies. You need to be confident to get a movie made, but when you pitch investors, you must include the realities of the risks. Not only is that the ethical course to take, it is also the course that will help you protect yourself.
Tomorrow, in Part 2, we will look into the legal ways to raise money for your movie.
Michael R. Barnard is a writer and filmmaker who has been researching the American JOBS Act since it was first proposed. Barnard is currently working on creating an independent feature film, A FATHER AND SON (http://AFatherAndSon.wordpress.com). Barnard lives in Brooklyn, New York, and is the author of the historical novel NATE AND KELLY. You can reach Barnard on Twitter at @mrbarnard1 and on Facebook at michael.barnard.
This article is an overview and observation, not legal advice.
STAY TUNED FOR TOMORROW’S INSTALLMENT ON THIS CRITICAL ISSUE!