Building your Finance Plan - common terms and definitions

Building your Finance Plan - common terms and definitions

SMASH makes it easy to put together a top-line finance plan for your creative project. But the world of film and TV financing is a complex one, unfortunately! Here's a handy cheat sheet of common concepts that you are likely to encounter as you navigate your project from inception all the way to green light.

Development funding

Funds received by a private investor or organisation that needs to be paid back on the first day of filming. Development money is the financial sum that you need to invest in your idea, until it is in a form suitable for presenting to investors and capable of attracting production financing. Development money is used, for example, to pay the writer, while the script is being written or re-written, as well as the producer’s travel expenses to film markets to arrange pre-sales financing from investors, as well as location scouting and camera tests. It also covers the cost of administration and overheads until the film is officially in pre-production. Development finance can be very expensive and financiers who put up development money typically expect a return of their original investment with a premium.

Co-production finance

A co-production is defined as a co-operation between 2 or more companies, that jointly produce, manage the production and own the rights and the physical material of the film.

Pre-sales from a distributor or OTT

Before or during production, a producer may go to various distributors for commitments to distribute the film after it is made. To work effectively, such commitments must include advances or minimum guarantees which may cover all or some of the film’s production and post-production costs. The distributor either (1) pays a cash advance upon signing of the agreement or in multiple installments over the course of production, (2) guarantees to pay that advance upon completion and delivery of the film (and the minimum guarantee is used as collateral for a production loan), (3) pays a share of the distribution revenues, or (4) in limited cases, pays a flat buy-out fee.

Television pre-sales

It is more usual for a producer to sell the TV rights of this film after it has been made, it is sometimes possible to sell the rights in advance and use the money to pay for the production.

Negative pickup deal

A negative pickup deal is a contract entered into by an independent producer and a movie studio wherein the studio agrees to purchase the movie from the producer at a given date and for a fixed sum. Until then, the financing is up to the producer, who must pay any additional costs if the film goes over-budget.

Public Funding - eg. BFI

Also known as 'soft-money'. A number of governments run programs to subsidise the cost of producing films (in the UK eg: National Lottery Distribution Fund, DCMS grant, Film4/Channel 4, BBC Films/BBC, National and Regional Development Agencies, EU MEDIA Programm, Arts Council England (ACE) etc.)

Regional grants

A number of governments run programs to subsidise the cost of producing films. Governments are willing to provide these subsidies as they hope it will attract creative individuals to their territory and stimulate employment. Also, a film shot in a particular location can have the benefit of advertising that location to an international audience. Government subsidies are often pure grants, where the government expects no financial return.

Private equity investment

These are funds invested by an individual who is looking to possibly add more risk to his investment portfolio, or a high net-worth individual with a keen interest in films. Equity investments require that the investor own a stake in the film (the film company or operating structure) and must be paid back (typically on their principal investment + a premium) before profit is seen on the side of the filmmakers.

Film Tax Credit

Film Tax Credits require a producer to spend a minimum amount of money in that country or state as well as sometimes have cultural points to qualify in order to get a rebate. The purpose of the tax credit is to encourage the making of films. Individual states and countries allow film producers to subsidize the money spent on production through tax benefits. Typically, this requires the filmmaker to film a significant portion of the production in a local area, hire a certain number of local crew employees, rent from local vendors, and run payroll through local services. Film tax credit rates vary from country to country and in the US from state to state (eg UK allow 20% if shot in the UK and qualifies as a British Film)

Crowdfunding

Crowdfunding is fundraising for the social media age – online campaigns seeking small contributions from the public at large. There are three main types of crowdfunding – equity crowdfunding offers donors a return on investment; rewards crowdfunding offers donors non-financial incentives; while Donation crowdfunding offers nothing in return. Most arts projects use the rewards crowdfunding model. Crowdfunding can serve to engage in a meaningful way with your audience.

Product placement

The strategy is to team up with brands and get cash for including their products on set. Not only do you get some of your film funding through product placement, but the product exposure the brand enjoys may have a far greater value than the cost of the product placement and is generally seen to be cheaper than comparative advertising on TV or print. However, having a product placement in a film means that you will always be under the scrutiny of brand managers, which may hamper the film creative process.

Gap

Typically a loan from a bank or a private lender on the unsold territories of the film. Gap is the difference between the required budget of film and the amount of finance already raised. Also known as deficit. Gap financing: a speciality lending arrangement whereby a bank will lend the difference between production finance raised and the minimum expected from sales by a reputable sales agentGap financing is a form of mezzanine debt financing where the producer wishes to complete their film finance package by procuring a loan that is secured against the film's unsold territories and rights. Most gap financiers will only lend against the value of unsold foreign rights. Usually less than 10% of the budget.

Deferrals

The strategy is to get everybody to work and be paid later, out of profits if any. Indeed, producers are able to avoid nearly all costs on a project if they are able to negotiate a deferred deal.Deferred agreements basically state that crew, cast, vendors, locations and services are all rendered upfront at no cost, until the film generates money upon release. Deferrals may work but are reliant on the trust the producer has with his team. Often, deferrees are unpaid, even though the film goes on to commercial success. There is also the temptation to overstate the value of the deferment which can lead to bitter arguments if the box office returns do not meet expectations. Moreover, deferred financing is difficult because experienced cast and crew are unwilling to work under these types of structures.

Sef-financed

Self-financed movies mean you do not have to deal with investors and is 100% self-funded by the filmmaker(s).

Updated on: 31/03/2021