New models for financing smaller-budget movies have had big success. Are they the future of the film business?
Major and mini-major motion picture production studios often focus on established brands and sequels in an effort to limit the inherent downside financial risks. Movies, after all, require a significant financial investment. That can make it very difficult for original scripts to become movies, and for original films to secure wide releases. Motion picture investors are naturally wary of committing to fund the production of projects outside of established brands and sequels. That is why producing entertaining and commercially successful original films on a low-budget scale has been the continuing dream of producers and motion picture financers in Los Angeles and around the world since Hollywood came into existence.
Recently, film producers and financing companies may have hit on some successful new motion picture financing formulas.
Incremental financing and other low-budget financing models proving successful
These low-budget film financing models are gaining traction. As Jason Blum, producer of “The Purge” and “Paranormal Activity” described it to Indiewire during SXSW, it’s “auteur filmmaking, but for commercial movies.”
This trend is not limited to one individual or production company. For example, an ex-president of Paramount Studios recently left to create his own production company, using an “incremental” financing model to complete projects. Rather than set a budget for the production of the entire movie, Adam Goodman’s Dichotomy allows enough advanced funding for 20 days of production. After 20 days, the movie is tested with audiences. Then assuming that the project shows enough promise to proceed, Dichotomy will provide $1 million to continue shooting for another five days, followed by another test period. In some cases, where the material warrants further investment, the company will finance additional filming, with shoots running from 25 to 45 days and budgets capped at $5 million.
Creativity required in all aspects of filmmaking – including financing
In addition to a new take on the production schedules of movies, some film producers have employed measures to lower the cost of production and are only willing to finance film projects that require fewer up-front costs. For example, Blum has recently provided some insight into his process for creating low-budget and, in his particular case, highly successful commercial movies:
- Work with experienced directors, who prefer having ‘final cut’ rights rather than a big paycheck from a studio that would otherwise require creative control
- Actors, directors and all above-the-line personnel work for union minimum scale wages or free on back-end structured deals that are dependent upon to the commercial success of the film
- Have smaller, limited releases to recoup production costs then, depending upon market performance, consider whether to incur the additional costs of a wide release
- Shoot in Los Angeles where most actors, directors and film production workers maintain homes, so that everyone associated with the project can stay with their families during filming (as well as qualify for production subsidies and tax breaks)
Blum structures his company’s back-end deals so that the payments are tied directly to box office receipts, a very transparent process. Employing back-end structured deals significantly lowers the production cost of the movie with back-end payments made in direct proportion to the level of commercial success of each film.
Of course, not every movie can be successful, as Blum knows firsthand. But, with lower production budgets and having the option of smaller, limited releases, the failure of any one movie is not as catastrophic as it would be for a big budget, worldwide studio release. According to Blum, his hit film “The Purge” cost $3 Million and grossed $80 Million worldwide. Using Blum’s financing model, a couple of similar type commercially successful films should more than make up for losses on other projects in the same film financing slate that fail to make a profit.
Help structuring a project and finances
Independently produced and financed motion pictures have given us some of the most enduring works of art ever to come out of Hollywood. Yet financing an independent film and negotiating the contracts can involve substantial complexities and significant challenges.
If you have questions on film financing, production or the structure of your film project’s financing, speak to Brian J. Murphy, an experienced entertainment lawyer, to discuss financing and contractual structures that can best help you get a quality project made and released.
