Production Company Financing
Most production companies fund at least some of their development expenses from cash flow or credit facilities. For most of them, this is only an interim cost and they are reimbursed by the production company, which establishes a separately funded development entity; or the picture may be acquired by its producing company.
The studios’ production departments may provide development financing but only to the best standing production companies, some of which have a good long-term distribution relationship with the studio, or there are former studio executives who negotiate themselves into independent production structures. The chief studio motivation in these relationships is the ownership and distribution of significant pictures.
Mature producers often diversify their development funding by attracting a restricted number of sophisticated private investors, although they might have sufficient funds for the purpose themselves. The development investor partners do the following:
- Promote a more focused management;
- Provide tighter control of expenses;
- Balance the producer’s risk;
- Expand capital availability
In order to obtain this kind of funding, producers need to prepare a development business plan and a private placement memorandum (PPM or offering) with the help of experienced securities attorneys. Everywhere there are government securities regulations to which such offerings must comply.
Government regulators both protect investors and provide a structure that governs and identifies investment offerings to the so-called sophisticated or accredited investors, who are experienced in investments similar in risk and mount to the amount offered.
Sophisticated/accredited investor offerings are restricted in their content, presentation, and number of participants. They give investors reference to the governing laws and a clear statement of the risks related to the investment. A log is usually kept of each investor who has been presented an offering copy, those retrieved, and, certainly, the number of investment shares actually purchased. The number of participating investors may be limited to no more than 10, a quite manageable in size investor group.
Producer’s first development offering is usually the most challenging to prepare and fund. Subsequent offerings are simpler. Typically, some of the original investors want to reinvest in one or more of the producer’s further development entities, and new investors are easier to engage, having the first development company as a powerful point of reference.
Co-production Company Financing
Production companies can obtain development financing from other production companies that have development funds and are seeking the strongest stories.
Co-development/production relations are mainly established for a single picture. One of the companies provides the story and the development progress; the other provides the development capital. They share both in the development and production of the picture. Shares are divided according to the value of each party’s contribution.
Government Agency Financing
Most countries provide a broad variety of support to various sectors of their industry, including film making. This is expressed in tax incentives, rebates, loans and outright grants. Some of these are exclusive to entities head quartered in or at least residing in these countries; others may be participated in globally, if the production entity complies with the specific program’s criteria. Other governing bodies, like states, provinces and territories, may maintain similar support programmes. Some programs are offered by a collaboration of multiple countries, such as the European Union.
As these programmes are usually accompanied by an astounding bundle of difficult-to-follow documents from the agencies that regulate them, it is recommended to use legal or consultancy help from groups that specialize in the specific program(s) and which may apply, allow them to evaluate, recommend the strategy, and apply and manage the relationship.