FILM FINANCE 101
Like in any industry financing matters. For example, when you deposit your money into a bank, that bank has the rights to create loans up to 10 X your deposit amounts. So for every dollar that they have as deposits, they may lend $10 to someone else, at interest! It's a good business model for the bank and of course this rule applies uniquely to banks, but in filmmaking, there are some interestingly unique financing methods that allow relatively small amounts of money to be turned into larger amounts of funds. We thought since some of our investors might not have a lot of knowledge of the film industry in respect to financing, that we would let them in on some of the trade secrets. So let us dive into film finance 101.
It’s not unusual nowadays that films may cost upwards to 200 million dollars. These types of budgets are normally reserved for the major Hollywood studios -- Disney, WB, Sony, Fox, Universal, and Paramount -- But do you think these Hollywood tycoons spend 200 million per film. The answer is a resounding-- sorta -- yes and well no.
GOVERNMENTS MAKING IT RAIN
Many Hollywood productions nowadays aren’t even shot in and around Los Angeles studios. They’re shot in places like Canada, the UK, or states like Georgia where governments provide tax credits anywhere from 5 to up to 50% of the costs. They do this because these places are trying to boost their local economy and provide work for local production houses and post-production houses. The video game industry is much the same. In Ontario, Canada the tax credit for video game production is up to 50% of costs. This is great news for BELLATOREM as we will be able to count on these media tax benefits in order to finance some of our projects costs.
Government tax credits are probably the #1 source of reliable funding and they are particularly important for smaller studios who don’t have huge cash reserves to risk upwards to 200 million on a project. An example of this is Luc Besson’s Europa Corp which invested approximately 20 million of their own money in order to produce their 200 million dollar project, Valerian And The City Of A Thousand Planets. Now the film wasn’t a major success, and we have some ideas of why that was -- but more on that later--, the film was revolutionary in the way that Europa Corp was able to invest only 20 million dollars in order to come up with a film with a 200 million dollar budget. So other than tax credits where did the rest of the money come from? In short, pre-sales and equity investments.
SELL BEFORE YOU MAKE
Pre-sales are probably the second most important forms of film financing after tax credits but what are they? Basically, the production company sells the rights to distribute the film even before they make the film.
Some production companies even make a profit before their film is created. A perfect example of this is when Quentin Tarintino made Pulp Fiction. He was able to sell the international distribution rights for more money than the actual film’s budget. Meaning they ensured the film made money before they even started shooting it, and that is not to say how much money the production company made from the North American (Canada and U.S.) sales which are considered non-international distribution rights.
Pre-sales are often a bet from the buying distribution company that the film will be worth more later and therefore to the buying distributor it's cheaper to pre-buy the film's distribution rights for certain territories that it deems worthwhile. A pre-sale is often valued by the reputation of the production company on their ability to deliver, the quality of the I.P. (the script quality and if there is a large fan base attached) and the brand of the above the line talent which includes the director and the lead actors.
Pulp Fiction had a good production company attached, the Pulp Fiction script, the reputation of Quentin Tarintino as a director and the star power of Bruce Willis. This is often indipendent films will attach a name actor to their project, sometimes illfately, in order to attract the highest pre-sales which are then used to partially finance the production costs of the film.
SHOW ME THE MONEY
Often times investors will put money into a film production in the hopes of receiving a great ROI. When a production company is seeking more funds for their project’s targeted budget, they’ll often ask private investment companies or high net worth investors/producers to invest in their project.
Let’s say a project that we want to produce will cost 100 million dollars but we’re only able to get 90 million through pre-sales, tax credits, and our own in-house capital. At that point, we might be able to raise another 10 million from private investors in order to make up the remainder. These investors will share on the profits of the film. It's pretty simple and pretty obvious but it is something that BELLATOREM will be on the lookout for, financing partners.
In fact, you may not have paid much attention but a little company called LEGENDARY Pictures, which started back in 2000 by an industry outsider named Thomas Tull, was able to raise 500 million dollars from wall street with a singular mandate to co-finance popular films with well-known distributors. At first, Tull found it difficult to raise the money because wall street had heard a lot about 'HOLLYWOOD ACCOUNTING' which oftentimes screws the financiers out of money in favor of the distributor or the bigger studio. With a lot of effort and a ton of reassurance, Tull was able to raise the money and form relationships with the biggest studios who offered Legendary Pictures fair and honest distribution accounting. Legendary Pictures went on to co-finance many of our favorite movies like The Dark Knight and Jurassic Park: Fallen Kingdom, and eventually sold to WANDA group, a Chinese company for 3.5 Billion dollars.
As our intellectual property rises in popularity we'll be sure to form partnerships with great financing partners like Legendary in order to greatly increase the necessary capital it takes to produce world class films.
Gap loans are loans provided by specialized lending firms and are usually used to finish the last 5-25% funding of a film. They are secured using the unsold territory rights of a film. They are usually paid back in full before the production company and any equity investors are paid back making them the least risky form of investment for a film project.
LICENSING & MERCH RIGHTS
One way to raise extra money for a film's budget and or to create another revenue stream is through licensing a brand as well as their merchandising rights. Think of all the toys, t-shirts, board-games, video games etc. that get made from fantasy universes like Harry Potter, Lord Of The Rings, Marvel, Star Wars, DC etc. Well, the production companies/studios aren’t making all the spin-off products that these franchises inspire.
The best part with selling merchandising rights is that it’s a huge source of income for the franchise and it actually helps to advertise the brand itself. In fact, it isn't widely known that George Lucas licensed the rights of Star Wars to Marvel Comics, for free. Yes, that's right, free! Why? Well, George wanted to ensure that his little Space Opera, Star Wars, would be seen by as many people as possible. One way for him to ensure that there were lineups in front of movie theatres to see his film was to get as many people excited about the upcoming film as possible. The first Star Wars comic came out a month before the first Star Wars film hit theatres.
When the free licensing agreement with Marvel expired, Lucas Film sold the publishing rights to Dark Horse Comics. This not only was a source of revenue for Lucas Film, it also help to keep the brand of Star Wars alive in people's minds.
Although this is a great form of funding for a film or tv project it’s also something that’s just plain weird in a wholly original universe like BELLATOREM. I mean can you imagine the dragon emperor sipping on a can of Coke or Darth Vader driving a Mercedes tie fighter. Not only is this a bit cheesy, it just doesn’t fit the storyline and the universe we’re trying to create. In short, it's a great source of revenue for movies that take place in modern times within our own very human universe like when James Bond jumps behind the wheels to his new Aston Martin.
IT’S EASY IF YOU HAVE THE NUMBERS AND THE PEOPLE
Film financing, in general, is not overly complicated. What increases our ability to make quality pre-sales on projects is our ability to convince distributors that there is indeed an audience willing and waiting to purchase a ticket. The best way we can do that is to increase the underlying fan base which is why we give every member of BELLATOREM a free digital comic book subscription.
Having a great product will hel us attract large fan base which in turn will help us attract quality financial and creative partners in order to make our vision come true of truly epic live-action films, tv series’, animations, video games, comics and more!
YOUR MONEY GOES A LONG WAY
One reason why we believe BELLATOREM has the power to create the next best universe is that by bringing together influencers, creatives and fans we have the power to turn seemingly small investments (BY HOLLYWOOD STANDARDS) into a large big budget franchise. If you think you might be interested in investing in BELLATOREM than please visit and follow our WEFUNDER investor page where you can ask us investment related questions or just stay in the loop.
If investment isn't your thing or perhaps you're just not ready for it that's fine, you're always welcome to join as a member fan of BELLATOREM. We'll keep you updated with interesting news articles about BELLATOREM as well as when our products get launched. By joining, you'll also receive a free digital comic book subscription as well as hear about other future free and paid products as they become available.