Inside Hollywood: Financing for the Indie Filmmaker
April 14, 2014 by Katherine Imp
Before digital distribution, very few indie filmmakers saw a return on their financial (and personal) investment. A steel door blocked the path to monetary success, and the only people with key card access were those working for major Hollywood film studios. In today’s world of streaming media, however, major studios are having trouble recouping their massive production and marketing expenses, and indie filmmakers, for the first time in history … are making a living.
So how do you get a piece of that digital streaming frenzy?
You get your head out of the clouds, and start with square 1: financing. First, create a budget based on your business and marketing plan. Now double it. This is your target number for start-up financing.
Though not exhaustive, the below list accounts for most of the major financing options available to small-budget, indie filmmakers:
Self-Financing: In some ways, self-financing is the best option. You don’t have to report to a panel of frustrated investors, and the film’s equity stays entirely in your hands. You’re also more likely to keep expenses low when your own money is on the line. That being said, you risk living in a cardboard box for the next 5 years because you’re out of cash. High risk, high reward.
Family Money: If you take money from Grandpa Joe, make sure you have an attorney formalize this transaction in writing. Why? Because you want to eliminate any confusion as to whether this money was a gift, a loan, or an equity stake. What if Grandpa Joe dies tomorrow? And what if Grandma Jane takes over his estate and isn’t as excited about your artistic endeavors? She’ll come after you, that’s what. Get it in writing, or be prepared for a sticky legal battle and an awkward Thanksgiving.
Crowdfunding: Crowdfunding is when artists and entrepreneurs pre-sell goods and services in an effort to pre-finance their projects. Popular sites for this form of financing include Kickstarter and Indiegogo. On these sites, donors receive a wide range of goods and services, anywhere from a signed magnet to an advance copy of the DVD or product being sold. For the indie filmmaker, this could prove to be the best option because there’s no risk and no hassle with the sale of securities. However, there are 3 major drawbacks to crowdfunding: (1) very few projects actually succeed in reaching their fundraising goal, (2) friends and family get annoyed by the constant request for money, and (3) if 6000 people give $5 for a signed magnet… you’re going to lose a lot of time signing magnets.
Investors: The sale of securities is the most traditional form of funding for motion pictures. Essentially the filmmaker makes a public offering, complete with the requisite filing of the securities with the Securities and Exchange Commission. Regardless of whether these securities are units in a corporation or limited liability company, you need a pretty extensive memorandum regarding the purchaser’s ownership interest, the use of funds, and the financial risks associated with the project. DO NOT TRY THIS AT HOME. If you think you’ve got the next Twilight Saga in your pocket, get an attorney and keep that paperwork organized, filed, and on point.
Grants and Charitable Contributions: Grants and charitable contributions are usually only applicable to not-for-profit films. Oftentimes grants won’t be given to filmmakers unless they can show they are affiliated with a 501(c)(3). Like all non-profit endeavors, grants are hard to come by, as are charitable contributions. However, if your film fits into a specific niche market, and the people in that niche want this film made, they may be willing to contribute to a not-for-profit endeavor in exchange for nothing more than a tax deduction.
Lemonade Stand: When you were young, what did you do for money? Car washes and lemonade stands. Fundraising events can go a long way if done well. Think about it. If you can persuade a few local businesses to provide free products, and get a few friends to play music or provide stand-up comedy, you may be able to raise some of the necessary pre-production funds through ticket sales and raffles.
Financing an indie film project is only one of the many obstacles you will face on the path to digital distribution and multiple revenue streams. If you don’t think outside the box, you’re never going to jump the hurdles coming your way. Get creative. This is Hollywood after all.
Katherine (Kate) Imp is an entertainment attorney at Ramo Law PC and Chicago native. She specializes in film finance, production and distribution for clients in Illinois and across the country. Contact Kate at @KatherineImp or firstname.lastname@example.org.
Disclaimer: The information in this column is intended for general information purposes only and should not be construed as legal advice.