Producers beware during the crunch

Someone I know and who will remain anonymous called me the other day looking for P&A funding in the amount of 15MUSD for their completed film that has A list talent attached to the project. I asked him who was distributing the film and he replied that it was Sony. My next question was WHY did he need to acquire P&A funds when this film was independently financed to the tune of 22MUSD? Was SONY not picking up that tab? Why would anyone raise 22M if they knew beforehand that the studio was not taking any risk?

The answer...THE CREDIT CRUNCH. Sony had no money of their own to put into the P&A fund.

WOW!

Someone's either lyin' their ass off or some company is really hurting. In any case this film should not have been made without bullet proof contracts from the producers and/or the distributor. I can tell you now....that's 22MUSD in the toilet.

FILM INVESTORS BEWARE!

Do your due diligence and don't put money up without the other side putting some skin in the game.

credit crunch my ass....

good film investment during the crunch

Here's something that if your interested in getting into film investing will keep you sane and provide you with a managed risk approach to getting into the game.

There are new funds out there that offer investors the opportunity of interim financing soft monies that are guaranteed by local, and federal governments.

Basically if Joe has a film that has a tax rebate program attached to his film, the bank would normally fund these up front; however, with the credit crunch causing havoc, private lenders are now doing this with good success and ROI.

Example:
Joe is making his 2M dollar indie and the region he is shooting in provides a 25% tax credit of lets say an even 500K.

Joe can make the film over a period of 40 weeks before the post audit is performed and the delivery time of the refund is about 10 weeks. Lets just round it out to a year for this example.

Joe goes to the fund and the fund gives him 85% LTV on the 500K, and once he issues his statements the government issues him 100% of the rebate. That's a 15% ROI on investment people and that is guaranteed by government!

Joe gets his film made...you help him out...and make 15%!

give me a holler if you want to find out where and who administers these funds in Canada and the US.

cheers
dave

Murdoch and Syme Capital Partners set to launch new film financing method

After 12 months of due diligence raising fund awareness and completing exhausting legal and accounting work, a new boutique firm known as Murdoch & Syme Capital Partners will be launching the first Principal Protected Private Venture Fund (P3V Fund). Shares in the fund will be available to accredited investors only and come in around 150K per unit.

The fund is privately managed, and is expected to fund 3- 5 films per year in the 8-20MUSD range.

The way the fund is set up and managed, investors will see better than average returns, annual dividends, and early liquidity options.

If you are a filmmaker or film investor, and would like more information on the fund you can contact me at the fund as I will be involved with the marketing off it at david@murdochsyme.com

Please outline in your email if you are an investor or a filmmaker with a project.

thanks

update on P3V fund

With all the talk in Hollywood about loss of funds on film projects, and investors now having a less than 1% chance of ROI and the system going to hell in a handbasket...If there was a way for people to have their say as to what they put their money into creatively and be protected on the principal of their investment and participate in an upside that had a healthy and ongoing ROI do you think this would change the industry...YOU BET IT WOULD!

Its called P3V FUNDS or (principal protected private venture funds). This is the most innovative way of funding media projects that I have ever seen, and its only available to people who can market and bring their own investors to the table. If you can show "proof of funds" with a group of investors on a film project with a 10 million dollar budget or better, this is the way to go as far as I'm concerned. 

The method as to how this is done is completely legal and ethical, but does require this proof system as the fund managers have a small team and wish to only work with serious investors and filmmakers to ensure that this relatively new system has a long and healthy track record.

If you would like more information on this system please feel free to contact me as I am now marketing this system and would be more than happy to go over the details once you provide the proper information on your project.

The fund managers are currently working on several projects ranging from 10 - 400 million in principal investment.

For personal investors who are unable to place 10 Million dollars I am also structuring a private investment that will place units of 250K X 40 to bring that 10M to the table as well. There is currently no project outlined for that investment and we would commence the search for a best in class packaged project for this opportunity.

Leveraged Funds a WIN WIN in film funding.

The search for safe film funding methods has been an arduous one over the last 10 years as piracy and a glut of content has flooded the market. Recently however, I was approached by a group that provided me with a unique solution that is truly the first Win Win in motion picture investing. 

There are two factors that triggered this opportunity and after a lot of due diligence I can say with confidence that this is a great deal. Here is how it works....

1. The US banks are in dire need of secured term deposits that can be held and lent over 1 year terms. As people are pulling out of the banks, the banks have decided to allow private "custodial" funds to be inside the bank allowing them obtain a 4:1 leverage position on every dollar deposited. 

2. Tax credits and soft moneys are reaching new highs with some places offering 40% of the entire budget as a rebate on investment. This of course makes it competitive for the producer looking for the best deal on crew and services. 

3. The deposit with the banks is insured! 

Now...with these 3 things in place here is my scenario for investors.

25MUSD Fund 

Term 2 years

tax credit for purpose of this model 25%

Investor gets principle back

100% ROI over 2 years and....

upside of the film

If the ROI is reinvested it even becomes more incredible. The hard part is finding the groups to hobble together the equity term deposit, as these deals start at around 10MUSD. 

If anyone out there wants more information on this I would be happy to show you the deal sheet we have created. 

cheers

Interior Studios Tax Credit deal for VFX driven shows

The Province of BC just announced a new tax incentive for people who wish to come to our region in beautiful wine country to shoot films. If the film is a VFX driven show it is even sweeter. i want to outline what a deal looks like for you people to come here and shoot, especially if you are a Canadian producer with your own content.

Assumptions

budget - 1.5MCAD

VFX budget - 500K

VFX labour - 400K

Labour on the film - 1.1MCAD

I'm assuming you are shooting an practical set with green screen environments. 

Here is what it looks like:

Provincial Credit is 53.5%  eligible labour = 588,500

Eligible labour minus this amount and multiplied by 25% gives you the federal = 127,875

The VFX labour is additionally multiplied by 15% = 60,000

Your budget is now 776,375 funded by soft money. 

PEOPLE WITH MATCH FUNDS PLEASE CALL....

I'M TAKING ORDERS FOR VFX FILMS!

Off Shore Service Deals

When deciding to send some of your post production work offshore one should really look at the value v control and see if this scenario fits for you. My example is an 8ooK low budget thriller starring really no one but has some value already as there has been a commitment from a broadcaster for pay and free TV rights. From this I was able to secure 220K of my budget putting me in a good position to shoot the film in Canada in a new tax zone and get about 32% of the overall budget in Tax Credit rebates that I can also interim finance at about 85% LTV. That puts me at about 400K. 

The interesting part is that I was approached by a VFX company in India that does great work and they are interested in partnering on the film with us. I looked at my VFX budget and found that 300K is based in VFX if it were to be shot here and posted here in Canada. The budget I received from them was considerably lower and I was unsure if I wanted a partner in the film. 

Then I did some research on the market in India for this film and it was basically 10-12K for all rights for India if I were to sell it traditionally. So I called them back and made them a deal that they could have all of India, Pakistan, and few other small territories for them doing the VFX to a level of production value we all agreed upon. 

That got me thinking more about certain places that I don't really like selling to (or trying to monitor pay schedules) and thought.... what if the music was done in Bulgaria or Ukraine, and what if the Foley was done in Columbia? Am i really going to miss those territories? 

Stay tuned as I explore the piece mealing of entire film for rights. 

assumed fee - realistic fee = equity

On our next project I am going to implement this negotiation practice as I am also going to self distribute the film and this may actually help the film have legs on the web from a viral sense.

I'm going to use the equation AF-RF= E. This basically means I am going to get rate card quotes on the work from my crew and then subtract the rate I'm actually going to pay them to come to an equity ownership number that will be based on 1 dollar equaling 1 unit of equity. All of these equity units added up will equal up to a maximum of 30% of the films value. I am then going to keep 20% for myself and give 50% away to the funders of the project on a straight pari pasu agreement on every dollar coming in.

By having your crew truly involved in the upside I do think you will benefit in viral campaigns. My crew on this film will be around 50 people. That's not a lot but it is enough to begin a successful campaign on a low budget film.

This technique will be used for all expenditures, not just labour. If someone quotes me 200/night for a hotel room...i'll request 75/night and give them 125 shares of the project. If they say no...i'll take my business elsewhere until I can meet my budget and find the right partners in production.

This is not a new idea, but one has not been successful in the past due to restrictive distribution methods. With online and non exclusive deals being signed with hundreds of marketers per project this method may lead the way to increased interest and involvement in independent film making

So I'm looking for a VFX house....any takers?

pseudo metcalfe experiment

Ok...lets assume that we all know a bit about http://en.wikipedia.org/wiki/Metcalfe's_law.

In the world of film piracy where most of the complaints come from people who feel:

1. They are being gouged on ticket and DVD prices from studios and that they are not getting value for their money, and

2. Overseas economies are having to pay up to a days or sometimes a weeks wages to have access to quality cinema....

there is a need to offer incentives to go to the cinema again, all the while creating the funding for the movie so that it can get made with the best available skilled people.

If one person was able to own a fractional piece of a film by pre-buying this film at a set price of say 10 dollars, and then as a result of that was given the right to market the finished film at a reduced price to the audience at fair market value as the film would essentially be debt free at delivery....and lets say that person was rewarded an affiliate coupon for doing this work at say 10% of the purchase price...lets do the math.

Tom is one of 500,000 people who pre-buy the next Philip Seymour Hoffman movie at 10 bucks thus making the film funded to the amount of 5MUSD.

Tom knows, and his friends know that they can buy the finished film off Tom for 5 bucks once the movies is finished and Tom receives .50 cents for his effort. If Tom attracts 20 friends he can now take that 10 dollars and put it back into the system or use it to purchase other goods in the media cycle.

If enough people play this game then most people can have access to films they want to see and are also fractional owners...which makes them aware of piracy and how destructive it can be as they will be affected by it albeit at a micro level.

This is part of the Biracy Movement and is what we are building online. We are not visible as of yet but if this interests you...reach out and tell me your thoughts.

thanks

My wine project

Here is an overview of our wine investment offering. Please contact me or Murray Swales to to discuss if you are interested in investing.

SKAHA CELLARS & RESORT LIMITED PARTNERSHIP

THE PROJECT

Skaha Cellars & Resort Limited Partnership (the “LP”) has been formed for the purpose of developing a very unique 103 Acre environmental gem parcel of land in Okanagan Falls B.C. The Limited Partnership expects to develop the property in a phased manner. At the completion of each phase of development a review of alternatives and their potential returns will be made to ensure maximum return to the partners while limiting financial exposure. The complete plan includes the following stages:

1. Plant approximately 28 acres of vineyard;

2. Develop an international wine brand with our own grapes, together with grape suppliers from South America, Europe, Australia and the United States;

3. Develop an environmental best practices hotel/spa/condo complex, of approximately 80 rooms / units; and

4. Develop a unique wine sales facility.

EQUITY FUNDING REQUIREMENT

Up to $10,000,000 (Minimum $5,000,000) for acquisition, planting of vineyard, development of wine brand, planning and infrastructure development for hotel/spa/condo complex.

THE PROPERTY

The property is comprised of three distinct areas, with separate zoning potential:

1. Approximately 28 acres of Agricultural Land Reserve, Class 1 grape land, which requires some contouring to eliminate frost pockets and ensure maximum potential for the land;

2. Approximately 15 acres of flat valley bottom. The valley is suitable for planting grapes or development as residential (requires rezoning), commercial (currently zoned specialized commercial) or vineyard (an allowed used under current zoning); and

3. Approximately 60 acres of rocky hillside, surrounding the 15 acre parcel on three sides, which should be a protected area for mountain sheep habitat and lambing area. This parcel is also zoned specialized commercial.

Subdivision of the property into three lots, to segregate the 28 acres of agricultural land (two lots - zoned agricultural) and the remaining upland and valley areas zoned specialized commercial, has been approved by the regional district. Rezoning is only subject to approval of a restrictive covenant preventing building on the sheep habitat on the upper portion of the property.

VALUATION UPSIDE

Land Discussions are underway with the Province of BC about “swapping” the upland portion of the property for adjacent level crown land. The land acquired by such a swap must be used for commercial development, such as an addition to the hotel / spa.

Brand As Okanagan wines become more mature and available on the global market, their limited availability compared to other regions makes them more desirable as demand increases and supply is limited. Additionally, having the Brand represent the concerns of the planet and be supported by media people with reach, will drive the brand equity component of the Project making it desirable for travelers and investors alike to visit the Project once completed.

USE OF FUNDS

Phase I – Acquisition and Planning

Land acquisition and related costs $ 2,565,000

Contouring of agricultural land 250,000

Planting 28 acres 700,000

Subdivision / rezoning (no residential or crown land acquisition) 100,000

Contingency 385,000

Total Phase I $ 4,000,000

Phase IIA – No Residential or Commercial Development

Phase I Costs $ 4,000,000

Plant 14 acres 350,000

Contingency 150,000

Total Costs – Phase IIA $ 4,500,000

Phase IIB – Residential / Commercial Development (will require additional funds)

Phase I Costs $ 4,000,000

Infrastructure (roads, water, sewer, hydro, telephone) 3,500,000

Construction (portion of first 50 Units) 2,500,000

Total Costs – Phase IIB $ 10,000,000

EXIT STRATEGY

Sell at Phase IIA

42 acres of planted vineyard $ 7,350,000

Total Costs to Phase IIA 4,500,000

Estimated profit - 3 to 4 year time frame $ 2,850,000

Sell at Phase IIB

Approximately 50 Units $ 33,500,000

28 acres of planted vineyard 4,900,000

38,400,000

Total Costs to Phase IIB 28,000,000

Estimated Profit – 3 to 4 year time frame $ 10,400,000

CONTACT

Murray Swales, CA; 604-209-5994; swales@telus.net

Semantic Web Film Trust

One of the biggest problems that is trying to be solved at the moment is that of the functional semantic web. Below is an interesting Abstract and paper from Jennifer Goldbeck on her proposal for a website called Filmtrust. Its worth a read as in the future it will be a critical component to the future of motion picture finance.

Generating Predictive Movie Recommendations
from Trust in Social Networks

Abstract.

Social networks are growing in number and size, with
hundreds of millions of user accounts among them. One added
benefit of these networks is that they allow users to encode more
information about their relationships than just stating who they
know. In this work, we are particularly interested in trust
relationships, and how they can be used in designing interfaces. In
this paper, we present FilmTrust, a website that uses trust in webbased
social networks to create predictive movie recommendations.
Using the FilmTrust system as a foundation, we show that these
recommendations are more accurate than other techniques when the
user's opinions about a film are divergent from the average. We
discuss this technique both as an application of social network
analysis, as well as how it suggests other analyses that can be
performed to help improve collaborative filtering algorithms of all
types.

agreements for leverage (a must have for all indies)

Here's a really common dilemma that surfaces all the time when your trying to attach "star" equity to a project while working a day job and paying down a mortgage or student loan. The Agency ie: CAA, WMA, ICM, etc etc...wants you to provide proof of funding or a non recoupable advance or pay or play fee to help you get the money from a distributor or private investment group. This is usually around 50,000 dollars and goes toward keeping the clerks who work for the agents employed and working on much bigger deals to provide money for the stars and agents.

The money people want to see a star before they commit and will not sign conditional letters until that time. Where does this leave you as a producer?

My belief is that it starts with the Stars and Agents. Lets use this analogy:

The Script is a piece of dirt that was optioned by a producer or in this case a land developer. The agent is the person who represents the star or in this case the aesthetic treatment of what is going on the dirt. The agent may also represent the architect and the general contractor (director and line producer/PM). Knowing that it is in the best interest of his clients to be on this dirt he goes out of his way to ensure that the funding groups will like the project by "working" on a deal that afterwards can be sold into production and eventually marketing.

This agreement to leverage stars can be done simply by putting a one sheet deal memo of understanding together based on completion of funding, availability of said star at a sliding scale based on monies raised.

If the star is a big shot then the price of the unit sale will increase with demand and the option for that star to earn additional monies will be made upon performance. After all they are performers so should they not "perform" for earnings?

Why should anyone, be on the hook financially more than anyone else in such a risky business that is changing as we speak in areas like distribution, fees, transparency, and DRM.

If Agents and Stars would think like real estate people in that deal flow is the way to keep this business alive and that stars need to be working 300 days a year, instead of 100 at 10X the cost...we'd all be in a better place. This of course could be done if one "universal" agreement on leverage was created.

If anyone with an entertainment law degree wants to work on this with me I would be grateful. I'm not holding my breathe though...most agents are lawyers and its all about billable hours.

four eyed monsters collateral

This is more of a query than an anecdotal reference. I'm wondering if the folks that produced Four Eyed Monsters would have been able to collateralize their project by having an institutional investor lend against a percentage of the people who said they would see the film by pledging online.

If for example 10,000 people in say 10 cities agreed to see the film, could you not discount the producers take to say 4 bucks an admission and multiply it 40% to come to a number of that would enable the producers to finance their film? I mean 16K is not a lot of money but what if the numbers grew and you started to see box office commitments of 10,000,000 people on a film with a 2 million dollar budget?

Look for this method to come alive on the new site we will be launching soon!

Film Finance Method #1

I moved to a smaller town in regards to motion picture centers like LA, NY, Vancouver and Toronto. The town is growing very quickly and is very excited about growing an indigenous film sector here. Distributors all want to see what can come from this town but are afraid to put the MG up to fund the project we have picked as a pilot as we are trying to use as many locals for key crew as possible.

The challenge was to create a vehicle for people to to invest into. hmmmmmm......

1. I joined the board of directors of the local film festival that has a charity status.
2. I then vended in the script to the charity so that the charity owns the copyright of the project.
3. I then set up deal with business development vendors to supply services to the film at rate card price for a full tax receipt on the donation of goods to the film.
4. Now I am raising the equity through donations to the film for hard costs.

As the films budget is based on a 3 week prep, 2 week production and TBA post period, I know that with community volunteers the films hard budget will cost around 125K.

The deal I am making with the charity for doing this is a split with them and a new foundation I have created that will use the accrued annuity to provide outside producers with experience to come to our town and use our crew for an additional non recoupable grant to their film. This of course increases the economy here in our town and the skills of people who have the desire to grow in this industry.

As for the film itself...if it receives well it will provide the ongoing capital to do this 3-4 more times before the local government says enough (this is what we discussed) and that our fair city should be seasoned enough to stand on their own to fund additional projects with regular distributors.

equity V deferral

Hey Indie Crew People! How many times have you heard this "come out on my show on deferral and I'll pay you once the film makes money"? There is a clever word in there that producers like to use and that is "deferral". The actual word should be "equity" as this is truly what you are doing is performing your task related to the films production for a piece of the action. If the act was a deferral you could or should in fact be able to put a lien on the producers assets IE: House, car, membership at the club, etc etc for asset until you get paid.

The producer of course, in most cases never sees a profit and that is why deferred payment is becoming a contentious word and issue with talented crafts people in the industry of media production.

That being said, as budgets shrink and piracy looms how do you make it comfortable for crew to invest time (key word being invest) into a potential cash flow positive film?

Over here at B=X we are developing that model. So...if you are a media person, join this blog and tell me a bit about yourself. I need about 1000 people to sign up for our beta which will be launching soon.

thanks and stay tuned for more updates on the BIRACY movement.

Script Coverage Writers Needed!

B=X is looking for Script Coverage Writers to help conduct an experiment in motion picture funding. To help us with the Beta of our latest film funding model we need writers who have had experience in covering feature film scripts.

We are conducting an experiment to determine if aggregating script coverage that is given a numerical value can be used in cooperation with other empirical data to predict a films chance for success. Other groups have tried this in the past, some with writers involved without other data and some basing it merely on the writers comments. We feel that as film is a collaborative process there needs to be a combination of all values that go into the equation. Our problem is: What is the weight of each variable?

All people that participate in the BETA will be given an equal share in the revenue off of the first film that is selected by this mechanism. If this interests you or you know of someone who might find this an innovative idea please have them contact me here at the Blog or at district35@hotmail.com

Please be sure to include your name and contact info so that we may contact you to discuss our process.

crunchy development

"The creative process is still important, but creativity is literally an input to the testing process"

Ian Ayres - Author of Supercrunchers

After continuing my own research on the ability to predetermine whether a film has an increased probability of ROI after it has been crunched from a series of data sets pertaining to the films content, producers, locations and about 47 other variables...I now know that very soon I should be able to deliver the first method of motion picture development that starts and ends with crunching data. Not to say that there are intuitive bits that are then converted into data to create a balanced approach to the overall equation, but the majority of the results thus far are beginning to look like they stem from empirical data sets.

This of course is being done as over the years as the "value" of cinema and motion pictures quickly plummets towards ZERO, there is a concern as to how movies will get funded in the future with piracy reaching levels of close to 7 Billion USD this year.

Banks, Funds, Studios, and Distributors will be looking for better reasons to put money into films that cost 100M+ dollars and this will be one of those ways to predicate whether it has the chance of making it in world after the pirates have had at it.

B=X is my blog and B is for Biracy, a movement that I have created to reinvent the ownership structure, financing and delivery of media based projects. X is the multiple or rate of return a project has once it has been inside this system.

Stay tuned for more updates....

cheers