Independent Film as Part of an Investment Strategy - (in development)

A guide for filmmakers and potential investors. An investigation into financing the Independent film including investment structures, how the money is spent, how it is recovered and how a profit is made. Includes a history of Independent film, background on the process, a look at the entire industry, marketing, production and distribution.

A Little Background

The purpose of this document is to explain the pitfalls and the positives of investing in Independent Films.

The Off-Hollywood Guide, describes Independent Film as, "any film produced outside the Hollywood Studio System, as such system is defined by The Sundance Film Festival and The Independent Spirit Awards." For the purpose of this report, which is formulated to inform investors about a specific type of film investment, I have narrowed the parameters of that description to works of fiction produced and financed solely in the US and Canada, thereby eliminating all foreign films and all documentaries.

There have always been Independent films. At the dawn of the industry everyone making films was an independent but as the Studios grew and prospered independents began to fall by the wayside and when the Studios took over the theatre chains, thereby choking off exhibition possibilities for all but Studio product, Independents all but disappeared.

That situation came to an end with the anti-trust suits of the post WWII era and soon a small trickle of Indy product began to re-emerge.

When Indys reappeared in the marketplace in the late Fifties and early Sixties they were regarded as micro-budgeted, mostly exploitation films with limited release possibilities that were relegated to the Art or Grind House venues in a few major cities. That situation has changed but the change has been agonizingly slow and with the exception of two high concept exploitation flicks Dawn of the Dead, and Texas Chainsaw Massacre, and the anti-war film Platoon, no Indy before Crossing Delancy 1988 and Sex Lies and Videotape 1989 was able to count its US gross at over ten million dollars. That situation has changed dramatically in the ensuing years.

This box office boom, fueled by greater visibility and increased promotion is due primarily to the fact that Indy's now appear in all the exhibition venues previously occupied only by Studio product.

This is evidenced by such Indy hits as; Sex, Lies and Videotape $24.7M, Pulp Fiction $213M, Fargo $25M, The Usual Suspects $35.7M, Boys Don't Cry $11.5M, My Big Fat Greek Wedding $244M, Lost in Translation $44.6M and Monster $33.4M, which, because they were of superior quality, found their way into big circuit distribution and bigger circuit profits, but that's only part of the story.

More important, Indy's have now risen in stature to a point where they are a major contender for all artistic awards. Since 2001 they have been winners or major contenders in most of the Oscar categories.

Financing for today's Indy product, especially the smaller ones, comes, historically, from sources outside the traditional Studio system. Even this, however, is no longer completely true. Miramax, once the star of the Indy scene became a subsidiary of Disney and as such does most of its financing through monies supplied by that most major of studios. In doing so they have been part of a trend participated in by such other stalwart Indy's as Fine Line, Content, Forensic Films, Lion's Gate and Focus Features that while not always owned by Studios do receive all or part of their financing from them through pre-established, co-production or distribution agreements.

For the most part, however, Indys do depend on either outside the industry money or the coupling together of other Indy or distribution entities to finance normally smaller than Studio budgets.

One of the biggest obstacles in attempting to put together some kind of cohesive picture of Indy financing is the shortage of research on the subject. This is due in large part to the nature of the beast itself. Indy producers are a maverick lot, not given to publishing records of their financial transactions.

We have, therefore, comprised our own list of Indy product comparing, where available, their production budgets with their US grosses and other sources of income. This, of course does not give anything like a complete financial picture of the industry but it is, unfortunately, all the information that has been published. For this purpose I am deeply in debt to Tom Trenker, CEO of the Institute for International Film Financing, Tom Weiner's Off-Hollywood Film Guide, Daily & Weekly Variety, the Internet Movie Data Base, Baseline, Baskerville Communications, Kagan World Media, The Motion Picture Association of America, Philip Kotler, Neilson EDI, and most especially Louise Levison for her book Filmmakers & Financing.

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The Industry

The motion picture industry is currently divided into two unequal segments, the studios and the independents. They market different products in different ways for different costs and for the most part they reap different rewards but despite their many differences they are in a broader sense doing the same thing, making movies.

Independents contrast sharply from studio product in two major areas:

Content: Independent films are for the most part, seriously conceived works, based on strong, character driven scripts, aimed at an adult audience. They contrast sharply with studio product, which is, for the most part, aimed at a younger (14-29 year old) demographic and uses comic book, action or high concept (stories that can be described in one short sentence), themes that appeal to a wider, less discriminating audience.

Cost: Studio films, depending as they do on A-List stars and high cost special effects and working under the burden of the studio's inflated overhead costs regularly produce films at enormous cost in search of a broader, less discriminating audience. The average cost of a studio film in 2003 was $63M with an additional $39M in prints and advertising costs. Using the conventional industry formula that film will have to gross $157.5M to break even.

Independents pride themselves on smaller operating budgets achieved, mainly, by making story driven rather than effects driven films that contrast with the studio's over-the-top costs of stars and effects as well as the absurd overhead costs that are often compared to The Pentagon's $180.00 screw driver. Their share of the market for a particular film is considerably smaller than the studios but that's acceptable because a small crime film budgeted at $3M will only have to gross $7.5M to break even and as seen from both the charts in the Financial Section and the number of films being released directly to DVD, it's possible to do that from DVD revenues alone.