Okay, picking up from last Saturday’s post, An Evening With Lew Horwitz, Part 1, let’s continue the discussion about financing films using debt financing.
Lew had an interesting comment about banks: They don’t care if your film makes money. That struck me as a rather odd statement, but it makes sense when you think about it. Banks just care about getting their loan paid back with interest. And getting their money back really has nothing to do with whether you make money or not on your film. What they require is a guarantee that they will get their money back and that guarantee is in the form of collateral. No, they don’t want your house or car. Collateral in the film world is distribution contracts, also known as presales. The term presale is a bit misleading because Lew emphasized that you must never, ever sell your film to a distributor. You always want to retain ownership of your film in order to keep the profits. Instead, you’ll want to license your film to distributors for a specified period.
The world is divided up into many territories, a domestic territory and many foreign ones. Preselling your film to as many of these distributors as possible can give you the collateral you need to get a bank loan. These distributors promise you a minimum guaranteed amount in the distribution contract and it is against those amounts that you can take out a loan with a bank.
Before 1995, it used to be that presales could cover the entire cost of a film. Not anymore. After getting burned a few times, distributors became more cautious. Now, you can expect, on average, around 30% to 40% of your film’s financing to come from presales…sometimes it’s more, sometimes it’s less.
If you approach distributors after your film is finished, instead of before, you can usually negotiate a better deal. But that means that you’ll need to get your funding from other sources and, if you’re like most, you’re cobbling together the financing for your film wherever you can get it.
You really should try to get a U.S. theatrical release because it will help with getting foreign sales. Also (and I’m going to interject something here that I learned from a Dov S-S Simens’ class I took a couple of years back), if you want to license your film to HBO, Showtime, and other pay cable networks, you need to get it out in theaters, even if it is only a limited release, because, according to Dov, the pay cable networks only air films that have had a theatrical release. That said, Lew did mention that straight-to-video films can do very well.
Well, that’s all for tonight. Part three of this series deals with getting a sales agent.