An Evening With Lew Horwitz, Part 5

Can you believe that we’ve finally reached the end of this series?  Yep, this is the last installment.  If you’re a new filmmaker, perhaps you learned a thing or two?  If you’re a fan, you’re probably wondering when I’m going to write about something more exciting, such as the next cast appearance.  I don’t blame you.  While I find this all extremely interesting, I realize that it can be rather dry for anyone not interested in the subject of film financing.

So on to the dry stuff…

The Three Components of Film Financing

These are three components of film financing:

  1. Presales
  2. Gap Financing
  3. Equity Financing

We’ve already covered presales in a previous post, so I won’t go into that again.

Gap financing is a loan against your unsold rights.  If you haven’t sold all of your rights yet, the bank can loan you money against those unsold rights.  Now, of course, they have no way of knowing for sure exactly how much those unsold rights will sell for, so they estimate (in other words, guess).  But don’t count on getting the full value of those unsold rights.  Nope, banks will only lend you about half the value of those unsold rights and no more than 20% of the total budget of the film. 

Equity financing, which I briefly mentioned in a previous blog, can be expanded to include the following:

  1. Investors
  2. Production deals with foreign distributors
  3. Studio deals (split rights)
  4. Tax incentives from states and foreign countries
  5. European subsidies

Lew didn’t go into any detail about the above types of equity financing.  He only mentioned them so that we would be aware of them.  I guess it’s up to us filmmakers to do our homework and learn more about them.     

There is one other type of debt financing that Lew mentioned and that is bridge financing.  Bridge financing is very expensive.  You can expect to pay an interest rate of 25%.  Ouch.  But if you can’t get all your money together in time, a bridge loan can help.

The Real Budget

So you’ve got your budget done and you think you’ve got everything covered, right?  Wrong.  Lew explained to us why our budgets aren’t always sufficient.  See there are all these extra expenses that come up when you presale your film and sometimes they can be an unexpected surprise for an inexperienced filmmaker.  So what are some of these added expenses?

  1. Interest – Yep, you’ve got to pay interest on those loans you take out.
  2. Force Majeure – Insurance for events that are beyond the control of the producer or guarantor and that cause an interruption or suspension in the production or delivery of the film to distributors.
  3. Loan Fees
  4. Attorney Fees – The bank hires an attorney when you take out a loan with them and guess who pays for their attorney?  You do. 
  5. Post Delivery Interest
  6. Gap Fee

I was trying to scribble this down on my notepad as quickly as possible, but I’m sure I’m missing a few more expenses in there somewhere. 

Anyway, that pretty much wraps up most of Lew Horwitz’s workshop on debt financing for independent films with the exception of one last piece of advice:  Try to keep your Internet rights.  Don’t sell them off just yet.  While it is currently quite difficult to make a profit showing your film on the Internet, Lew predicts that eventually that will change and that the Internet will someday become a viable outlet for independent filmmakers.

So while this wraps up Lew’s workshop, it didn’t wrap up the evening.  After Lew was finished, a panel of investors took the stage.  I’ll talk about that in a future post.