Tag Archives: producers

Debt, Equity, Financing, Hedge Funds, Independent Film, Lawyers, Negotiations, Notable

Black Box Dealmaking

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Over the past 18 months, I’ve watched countless film projects rise, flounder and fall with the promise of financing. The prevailing wisdom is that things have gotten so bad with oil, gas and real estate investment that film finance actually looks like a safe bet for equity investors. Oh, if it were only so. Film investment for equity players continues to be a very risky play.

Although debt financing continues to be a dim prospect, Comerica Bank, Union Bank and National Bank of California continue to back certain films from reliable players. From my perspective however, the end of debt financing of motion pictures came almost three months after the collapse of AIG and Lehman Brothers when the US rescued the bank in mid-finance of a movie I was working on. The bank ultimately financed the picture though I like to think that the collective efforts of the lawyers, the bank executives and the producers involved had a hand in getting the deal done.

Depending on the day, sheer will to make things happen is either over-rated or under-rated. And so it goes with film financing.

I’ve reviewed countless Stand By Letters of Credit (SBLC’s), real estate investments restructured for film finance, Sole Trader deals out of the UK, nine figure film funds from – depending on the day – Vancouver, Taipei, Shanghai and New Jersey and sources of black box financing where, for reasons not entirely clear to me, the identities of the investors and the financing methods used are veiled in secrecy. Not one of these sources of financing has come through. For its part, black box financing may be illegal or even dangerous. In a post-Bernie Madoff world, you just can’t leave the risk of financial games to chance. Get transparency or don’t do the deal.

Some of these prospective investors may prove to be the real deal but at best, they are all long shots. Do your due diligence so you know who you’re dealing with, the sources of financing and whether the investor is prepared to provide you with references (i.e., prior projects they’ve financed) and proof that their funds actually exist through escrow or bank confirmation. Some financiers may be more forthcoming than others and at some point, given the limited resources of time, money, knowledge and passion, you may have to go with your gut in deciding whether to proceed.

I have to believe that a number of would-be film investors are earnest and either don’t know that they don’t have money to invest or get cold feet at the prospect of closing; while others may be lookey-loos who simply want to do lunch at The Ivy and play the producer game but really don’t have any money to invest.

But still they come with promises that entice producers and other creatives. Just make sure you don’t get stuck picking up the check.

Equity, Film, Financing, Internet, Notable, Producing, Start-ups, The Culture, Venture Capital

Smart Money vs. Dumb Money

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One of my web start-up clients recently extolled the virtues of smart money over dumb money.

My client asserted that smart money is the best way to grow a start-up. In addition to capital, smart money may provide infrastructure, personnel and the input of boards of directors and advisers. These boards provide additional expertise and guidance. Moreover the optics or perception of their association with the start-up increases the venture’s curb appeal and chances for success.

Dumb money, he cautioned, isn’t pejorative; it merely describes a cash investment with little or no oversight of the actual use of the funds other than initial approval of certain elements, cash flow and the overall budget.

To be fair, it’s like comparing apples and oranges. Smart and dumb money deals are structured in different ways to address different risks and expected returns of very different investors. Nevertheless, I was struck by the disparate thinking of movie producers and start-up entrepreneurs; film financiers and venture capitalists in their capital preferences.

My start up client preferred working with smart money from VC investors because he could leverage greater resources into the growth of his company than he could with the same amount of dumb money.

I explained that smart money is anathema to movie people unless it comes with distribution and even then, they’re never thrilled with an investor armed with approval rights over talent, budget and distribution. Dumb money shuts up and stays out of the way.

That said, we both agreed that if an investor offers up smart money, dumb money or any other kind of money, take it (provided it’s legal).

Awards, Deal Points, Film, Negotiations, Producing, Television

The Oscars, Reposted.

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Since this year’s Academy Awards are on Sunday, I’m reposting my August 28, 2007 post, “Credit Where Credit Is Due: Is There Enough Room On Awards Night For More Producers?” for Dealfatigue readers.

Two pictures in contention – “Michael Clayton” and “Juno” – each have four credited producers but according to the Academy’s website, only three producers on each of these pictures are eligible to accept the Best Picture award. So if either of these pictures picks up the award for Best Picture, apparently one producer won’t be getting an Oscar but the other three will. This, despite the fact that the Motion Picture Academy’s rules allow for the inclusion of an additional producer under “extraordinary circumstances.”

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After five producers received Best Picture Oscars for “Shakespeare in Love” in 1999, the Motion Picture Academy placed a three producer per Oscar limit on any film under contention. The Academy also required the honored three to be fully functioning producers on the pictures; studio execs, personal managers and lawyers (oh, well) need not apply.

Subsequent to enactment, certain producers who were credited on “Crash,” “Little Miss Sunshine” and “The Departed” but eliminated for award contention by this rule made some compelling objections against it. As a result, the Academy is relaxing its requirements, albeit slightly, to allow for the inclusion of one additional producer under certain rare and extraordinary circumstances. Each of the producers must be credited as “producer,” thereby excluding any individuals with executive producer or associate producer credits.

Meanwhile, the Television Academy is tightening its eligibility requirements in an effort to “crackdown on producer credit inflation” by capping the number of individual producers who can receive an Emmy for a comedy series at 11 and a drama series at 10. But even with these higher numbers, exceptions seem to be proliferating with “Gray’s Anatomy” and “House” each having grandfathered eligibility for 13 producer nominations.

Note that neither of these rules limit the number of producer credits accorded to any motion picture or television program. They just limit the number of producers eligible for award nominations. Nevertheless, the academies are right to be concerned with credit dilution. These awards are intended to acknowledge the creative efforts of those responsible for the works in contention. They are also a great way to increase box office gross. As I have said elsewhere in this blog, credits are “the coin of the realm” in the industry and diluting any credit reduces their value just like real currency. However, it is wrong-headed to set arbitrary caps on the number of producers eligible for an award as a means of addressing this capricious credit problem. Mandating that all award eligible producers render meaningful, creative services is a far more equitable way to go.

Until the academies modify their position, reps will need to be creative to increase their clients’ chances. Although the Motion Picture Academy asserts that it is “not bound by any contract or agreement relating to the sharing or giving of credit and reserves the right to make its own determination of credit for award consideration,” I have been involved in several negotiations where reps for producers (myself included) negotiated producer credit order “for all purposes, including award consideration.” Without a more logical approach, it is inevitable that the contractual intent of the parties to producer agreements versus the subjective consideration of the academies will be tested in the near future.