?? Film and Broadway Financing
Welcome to?Alts Sunday Edition???
Hope you enjoyed last week’s issue on?Investing in Film Houses . Welcome to the?1,686 ?subscribers who've joined since then.
Today I'm sticking with the movies theme for the 2nd week in a row. After all, today is The Oscars (otherwise known as that thing people?used to care about .) But while Oscar viewership is down, our love for films is eternal.
So today I'm adding another part to our?film financing?series. We'll look at how movies & broadway shows get off the ground, and explore the landscape for alternative investors.
This is our second time on this cool topic.?You can check out Part 1 here .
Take a short break from the Silicon Valley Bank noise and explore ??
Big budget film studios
Film financing lives across two totally separate worlds:?Big budget, and?indie films.
At the high end, filmmaking is all about?safe bets.
Neither studios nor investors want to take risks anymore. This has led to?boring, predictable superhero movies ?that usually do pretty well financially (especially?internationally ).
It's frustrating as hell to everyone from movie lovers to Martin Scorsese, who famously said?Marvel movies aren't really movies ." But economically it makes sense.
Think of it like venture investing. A repeat founder with a history of successful billion-dollar exits will have a far easier time getting funding than a first-time founder with no track record or industry connections.
If Steven Spielberg wants ten million dollars for his next flick, his team could pull it together with a few phone calls and a luncheon. He could show up at any major film studio in the world, and walk out half an hour later, check in hand.
Film production studios?are the world's premier film financiers. These include some of the world's biggest media conglomerates, including Universal, Warner Bros, and of course, Disney.
Disney?really holds the crown here. They've produced?336?films, and are buying up the world's major production companies left & right. Think Marvel, Pixar, Lucasfilm, and 20th Century (which is no longer called 20th Century Fox since Disney bought them in 2019).
They also produced the two?highest-grossing films of all time :?Avatar?(both of them) and?Avengers: Endgame.
Production companies vs studios
The difference between a production company and a production studio is that?studios own all the rights to a project, whereas production companies only produce it.
And we can't talk about production studios without talking about?Netflix.
Netflix is the world's most prolific studio. With 1,500 titles in their back pocket, the "kings of streaming" are?making more films ?than any other company. (Some of these films are terrific, others are?not )
This year Netflix has?16 Oscar nominations?— nine of which are for?All Quiet on the Western Front.?This is the only streaming movie to snag a Best Picture nomination.
When Netflix buys the rights to a film, they pay for?all?the production costs upfront, but?own the full rights forever. It's a terrific model, but a double-edged sword.
Still, for filmmakers large and small, Netflix has become?the?first place you go for financing. They approve so many projects that it's become a joke:
Indie film studios
If big-budget movies are about safe bets, independent films are about?risk-taking.
To extend the VC metaphor, this world is about making small bets in low-budget flicks that could be huge (Except they never are, but we'll get to that later).
What's interesting about Netflix is that it's both a big-budget studio?and?a medium-budget studio. They spend?17 billion per year ?on content, but most Netflix originals are in a range above low budget, but not “blockbuster” (from around?$25m to $100m.)
But it's not really a small-budget studio. For budgets under $20m, indie film studios and financiers are the first port-of-call.
Here are three you should know about:
A24 Films
A24 Films ?helped fund the incredible & terrifying 2018 film?Hereditary ?(one of my favorite thrillers).
But their biggest win is?Everything Everywhere All at Once.
Annapurna Pictures
Annapurna Pictures ?is responsible for films like?American Hustle?and chatbot love story,?Her.
Owner?Megan Ellison , is a billionaire, which is quite helpful, since most indie flicks don't make any money.
30WEST
30WEST ?is an investment-focused studio that helps small and mid-sized films with their investment pitches and finding collaborators. In this way they're almost like a movie?accelerator,
They often do documentaries, and are the ones behind?FYRE,?Triangle of Sadness?and?I, Tonya.
Luckily, indie directors have another trick up their sleeves —?crowdfunding.
Crowdfunding
Crowdfunding is turning into the backbone of independent film funding. Kickstarter is still the king, but there are specific film crowdfunding platforms.
Seed & Spark
Seed & Spark ?is the main niche player here.
The average film listed on the site is trying to raise?$25k?– and a whopping?80% of projects get fully funded ! (To put that in perspective, Kickstarter’s success rate is just 40%)
Slated
Slated ?is another marketplace for film financing and dealmaking. They aim to connect a global network of investors, filmmakers, and industry professionals.
While Seed & Spark helps connect filmmakers with individuals who want to pitch in money to help launch the film, Slated focuses on accredited investors who can write bigger checks.
Crowdfunding success stories
Veronica Mars
The biggest crowdfunding story to date is easily?Veronica Mars.
Veronica Mars ?was a TV show that ran for 15 years (2004 - 2019)?and was the first big break for?Kristen Bell.
Despite a cult following, the show was canceled abruptly in 2007, leaving angry fans and an unresolved plot in its wake.
Dissatisfied, Kristen Bell and director Rob Thomas (not the guy from Matchbox Twenty) approached Warner Bros with a Veronica Mars film script. The studio declined, so the pair said screw it, and turned to?Kickstarter.
In 2013, the crowdfunding campaign for a?Veronica Mars?film became the?most successful Kickstarter ever ?(at the time) receiving nearly $2 million in funding in less than twelve hours.
All up, the project raked in?$5.7m?from?91,000?investors.
Fans are?torn ?on whether or not the film was a box office success. It grossed?$3.5m?in theater sales, though given most of its budget was crowdfunded, nobody knows the exact profit margins.
However, the film was clearly a cultural hit, and still has an?active subreddit .
领英推荐
The Chosen
The Chosen?is a critically acclaimed period drama following the early life of Jesus Christ.
The crowdfunding campaign raised?$11m in funding ?from?16,000?investors, and the team created its own indie film studio:?Angel Studios .
What’s interesting about this deal was that investors weren’t just throwing their money at a "passion project" (pun intended). Everyone who committed at least $100?received an equity stake ?in?The Chosen, LLC.
Shareholders are paid out from merchandise profits, show licensing deals and more. And if the company generates 120% profits,?investors are paid out ?before the showrunners receive a dime.
Angel Studios (now called?Angel.com ) has retail investors, venture investors, and yes,?angel?investors on the cap table.
So it's not really an "indie" studio anymore. To be honest, I don't know how to classify it.
But it's unique, and it's working.
What about Broadway?
Broadway financing is a whole other game. Ticket prices have outpaced inflation for decades, and broadway investing is still largely seen as an "older rich people game."
It's a tight-knit circle, and finding your way into the community can be tough. But it's possible. Producer?Lamar Richardson?landed his first investments by?cold-emailing congratulations to Tony Award winners .
Traditionally, broadway investors pay?$100k+?to finance a show. But the process is becoming more accessible.
Take broadway financiers?Steve Baruch ?and?Ken Davenport . While their minimum investments are still in the six figures, these two have built email lists of serious broadway investors. Now, instead of one investor risking hundreds of thousands on just one show, a pool of investors creates a syndicate at?$10k - $15k per investor.
If you’re interested, there are a few companies worth checking out:
How many films are actually profitable?
Big-budget movie returns
The average cost to produce a feature film sits between?$100m - $150m . (Note: The average is skewed by outliers like?Avatar,?and median figures are tough to find.)
One common misconception (even?Forbes runs with it ) is that 80% of blockbusters fail to turn a profit. Most experts now agree this is?simply untrue .
Data points toward a 50/50 split, with?margins much tighter ?than you’d expect.
It's a lopsided game. The overall win/loss split is roughly even, but losses can be tremendous.
Compare it to venture capital for a moment. While seed-stage investing is always risky, by the time a startup hits Series B and Series C rounds, escape velocity has usually been achieved, and the chances of losing money are greatly reduced.
But in filmmaking, all bets are off. You only get one chance to nail the revenue, and bad timing and poor marketing can sink a film into oblivion.
Indie movie returns
Independent films usually cost?$2m at most , and most indie filmmakers try to make movies for around?$25k. But while there's less downside with indie films, the chances of success are?much?rarer.
Here's a sobering stat:?97 percent of indie films fail to turn a profit . ??
Oof.
It's easy to see why investors are wary of financing this stuff.
Indie films don’t usually star Meryl Streep or Ryan Gosling (though nabbing a big star is probably the single?best thing you can do ?to increase chances of success) and they have no easy distribution network. It's rough out there.
This is why crowdfunding is the lifeblood of indie filmmakers. CF investors aren't necessarily expecting to make money, they just want to provide support, get a few perks, solidify a connection to the filmmakers, etc.
Most of all, they just want to see the movie get made.
How much can film financiers earn?
Film and TV profits are distributed in a chain known as the?Recoupment waterfall .
There's a pecking order of investors, producers and talent all waiting to get their slice of the pie, which turns into crumbs the further down you go.
Don't forget that investors essentially need to pay for distribution, agents, marketing, everything. It adds up fast.
There are other factors to consider too:
Investors are one of the last people to see the net profits, often waiting?18+ months ?to get their share.
Though remember that the box office isn't the end of the road.?Other revenue streams ?like merchandising, home entertainment sales, spin-off series, video games, etc. can continue to pour in long after box office sales have finished up.
Closing thoughts
Film financing seems like one of the riskiest alternative investments out there.
The high-end Hollywood blockbusters are only accessible through hedge funds and private equity, and indie films have a shockingly low success rate.
When an indie movie lands,?it seriously lands.?But even then, the investor upside seems frustratingly limited.
Take?The Blair Witch Project, for example. The 1999 horror film (btw why are so many indie films horror?) had a budget of?$200k - $500k ,
Rights to the film were picked up investor (and Mirimax CEO) Bill Block for?about a million , and it went on to gross?$249m . Great news, right?
Well, not really. If Block only saw 2% of profits (as the recoupment waterfall suggests), that would mean a $5m gain – or a?5x?ROI.
Meh???
One safer option is to provide capital as?debt, rather than equity. This way, you can almost guarantee returns instead of relying on a film’s success.
Bottom line: Making a profit with indie films is basically unheard of.
But there’s more to investing than just money.
Financing a film grants you access to an exclusive club. It gives you the?personal satisfaction?of incubating a great project that, with your help, will see the light of day.
Investing in a film may not make you money. But there’s a good chance it’ll make you happy. ??
Further Reading
Disclosures
Film Producer at BGV Films LLC
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