What is movie financing?

Film producers source finance through multiple options to fund the making of their films. It is the duty of the producer to structure the finance in such a way that the movie can be completed with proper allocation of funds for each little detail, for example equipment, technology, skilled workers, star costs, logistics etc. The act of procuring the funds or finance through a single or multiple sources is called movie financing. There are many options open to producers today to finance their movie.

We will take a look at the various aspects of movie financing here.

Who funds the movies?

Private investors:

As the name implies, in this type of financing the funds are made available by individuals or entities from their own savings or property. These individuals invest into films for the potential high returns in spite of the risks that are involved.

Film financing companies:

These are business entities that provide a range of financing services including equity financing, gap financing, and slate financing. Film financing companies also provide production loans for taking care of the production costs of the films.

Bank finance:

There are many banks which finance film projects. With banks coming into the arena of film financing, film producers now have an option to turn their cinematic dreams to reality. With interest rates ranging between 12% to 24%, the financing of 50% of the project is now a reality.

Debt financing:

In this type of financing, money is borrowed to provide funds for the production. The interest for such borrowing is calculated considering the risks involved in the project. This type of finance means that the principal should also be returned along with the interest.

Tax exemption:

The government in some countries offers tax exemptions and subsidies to boost film production. These are offered in the form of tax exemptions, tax breaks or other mechanisms of financial support.

Grants:

Some films are made with grants from the government or INGOs etc. For example the state government may provide grants to produce a documentary on tourism in the state, or some other awareness program etc. The National Film Development Corporation (NFDC) rolled out by the Government of India is one such endeavor to provide finance to independent filmmakers.

Types of film financing

Equity financing:

When film investment companies pool in money from the investors to fund a movie or project, it is known as private equity funding, or equity financing.

Pre-sales financing:

This means that the rights to the movie are sold before the movie is made. This ensures that the producers do not face a fund crisis while making the film.This also establishes the film's commercial viability before other potential investors.

Slate financing:

When a financing company provides the finance for a number of projects all under the same banner, it is called slate financing. The benefit in this type of financing is that the risks are not concentrated on one film or project and the chances of recovering profits are maximized.

Gap financing:

Sometimes, a film may have already acquired some amount of financing, but requires some more for its completion.The financing that is received in this scenario is called gap financing.

Negative pick-up deal:

When a producer enters into an agreement with the distributor wherein the latter agrees to buy the finished film at a price that is determined at the time of the agreement. This agreement ensures some minimum returns for the producer even in the worst case scenario of the film getting flop at the box office. Therefore, the producer finds it easy to procure loans or raise debt financing to complete the film.

Crowdfunding:

In this type of raising finance, the producers engages directly with potential audiences and try to acquire funding for the films. For example, finance raised through sites like Indiegogo.

Movie financing seems daunting and involves huge complexities and rik. However, with the right knowledge based strategy, movie financing can turn out to be stress free and smooth