The latest news from one of Australia’s critical financing sources:

THREE of Australia’s best known filmmakers, Phillip Noyce, Scott Hicks and Adam Elliot, are set to make new films at home next year. The Film Finance Corporation has approved funding support for Hicks’ The Boys are Back in Town and Oscar-winner Elliot’s first full length animation, Mary & Max.

The FFC also issued Noyce with a letter of intent, indicating finance will be given for his version of Tim Winton’s love story Dirt Music subject to the film’s producers’ meeting certain conditions.

Rachel Weisz, Oscar winner as Best Supporting Actress this year for The Constant Gardener, is expected to be one of the international cast in Dirt Music.

…

New television projects include The Falls, directed by Peter Andrikidis, the 13-hour mini-series Underbelly (an expose of the Melbourne gangland wars), and a six-part ABC series East of Everything co-written and co-produced by Deb Cox, of SeaChange.

Read the full story at the Courier Mail’s website www.news.com.au
This link takes you there http://tinyurl.com/yybssf

Adam Elliot

Check out Dov Simen’s 10 steps to raising money for your film:

1. GET THE SCRIPT
2. PREPARE PAPERWORK
3. WRITE A BUSINESS PLAN
4. DO YOUR LEGAL WORK
5. SELECT A CINEMATOGRAPHER
6. GET READY TO SELL
7. PHONE THE INVESTOR(S)
8. SEND PAPERWORK
9. SELL THE SIZZLE
10. ASK THE CLOSING STATEMENT

Get more info from his blog.

http://webfilmschool.blogspot.com/2006/12/chapter-14-financing-12192006.html

I was flamed in the pages of Going Private, a memoir blog chronicling the insights of a private equity professional. Nothing better to do? Read the latest musings here. Short on time? This sort of sums it up:

But, then again, they don’t seem to know the difference between revenue and net income (in my not entirely limited experience a very common problem in Hollywood).

And then there is:

I’m not sure they understand the structure of film production financing, or the nature and purpose of the many preferences that plague such financings. Clearly, the ramifications of changes in these structures in the Cruise case and way they give Cruise a major pay and status cut are lost on the authors. This is a pity, since they purport to be experts on the subject.

Ouch!

Making my job as a hard working Film Funding Blog author rather easy, Going Private provides the data to refute their own argument:

Budget estimates on the film vary, but range between $150 - $220 million in production, marketing and development costs.

I actually think the total costs are much higher than this, but let’s use that range for discussion. The share of box office flowing to the studio from domestic theatrical distribution on a film like MI3 is likely to be approximately 50%.

As an aside, initial exhibition terms probably started out more favorable to the studio, but the contract was likely revised downward. I agree that expectations for MI3 were not met (but maintain that the film will likely still turn a profit.)

Distributor share of box office on international distribution will probably come in closer to 48%, a little lower than U.S. share due to greater “off the top” deductions for box office taxes and theater checking (ticket audits).

Based purely on worldwide theatrical, studio revenue (their share of the box office) would be approximately $225M ($133.5 x 50% plus $330 x .48%). Pretty good for a “flop!” It is rare that a tentpole release breaks even on theatrical distribution. While I think costs are more than $225, coming this close, prior to ancillary releases, is actually a very positive indicator. That means the film will carry over a negative balance, but there are ample opportunities to recoup this shortfall in home video, television, and all other ancillaries.

Low and behold, MI3 is racking up huge sales with its DVD release. The Hollywood Reporter, well, reports:

Studio sources peg first-week sales at 3.7 million units, more than either of the two previous releases in the franchise. And that’s not counting an additional 20,000 units sold on the two next-generation formats, HD DVD and Blu-ray Disc — making “M:I 3″ the biggest-selling next-gen title since HD DVD’s April launch.

http://tinyurl.com/ymbqhr

My revenue estimate for DVD is $144M to $180M with a net of $116M to $145M. In an arcane twist, the studios can capture up to 75% of these DVD revenues without sharing the proceeds with talent, the film’s producers, or other net profit participants.

Even so, with only 25% of the DVD revenues (referred to as a royalty, the base used for revenue calculations in participation agreements) MI3 will still start to cross over into positive territory. DVD sales, TV, and other downstream distribution will trigger contractual residual payments to the writers, actors, and the director. However, I’m fairly confident that DVD revenues and income from the super-secret television output deals will easily cover those costs.

The bottom line? The studio will be fully reimbursed for all costs and stands to earn a distribution fee of 12-15% of total revenues, plus the 75% of DVD (minus replication and marketing). This is very conservatively north of $100M in profit to the studio. Final figures could easily be double this when all distribution channels are considered.

For profit participants, they may see somewhere over $50M depending on distribution, marketing, and overhead costs allocated to the picture. For Tom, he’ll make more money from his points on the film than from his $20M salary.

On a closing note, the latest rounds of hedge fund deals in Hollywood have done away with the stacked deck. Fund investors participate on equal footing with the studios, the portfolio of films include (many of) the crown jewels, and the revenue and cost estimates are fully vetted. (For example, fund investors share in the full pot of DVD revenues.) Come on Going Private, cut us a break! We may not be the sharpest tools in the drawer, but give us credit for at least being able to add and subtract (with an occasional ability to multiply and divide.) Could it be that maybe this time, you’re just wrong? Perish the thought.

ITVS IS LOOKING FOR

• programs that will bring new audiences, topics and voices to public television
• television programs in any genre, including drama, documentary, docudrama, animation, experimental works or innovative combinations
• single programs of standard broadcast length (56:40 or 26:40). In rare cases when a maker’s skills, subject and story structure warrant it, ITVS will consider programs at feature lengths through the Open Call and DDF initiatives.

ITVS IS NOT LOOKING FOR PROGRAMS THAT ARE

• completed and only seeking distribution
• series proposals
• projects intended solely for theatrical release

HOW IS ITVS FUNDING DIFFERENT FROM A GRANT?
Accepted applicants will receive funding in the form of a “Production License Agreement” for production (Open Call or LInCS) or a “Development/Option Agreement” for development (DDF). Both of these contracts assign ITVS certain important rights over the production. Please read carefully the “ITVS License Agreement”.

http://www.itvs.org/producers/funding_guidelines.html

http://www.itvs.org/producers/funding.html

The Going Private blog has an interesting commentary on the recent influx of Wall Street money into Hollywood. A couple of their observations:

“Both the DealBook piece and the New York Times suggest this is a new and revolutionary form of financing for film production. In fact, it is not anything like new and revolutionary finance. What is new and revolutionary is the wonderfully refreshing spanking delivered to spoiled stars like Cruise, and a formalized setup to drag Vegetable Capital into Hollywood.”

…

“What we have here is a Vegetable Capital fishing expedition. MGM wants to pull in outsider money into the coffers so it can direct its attention to sure things. Meanwhile, as to the the riskier projects, those that aren’t part of an existing franchise, well that’s where the Vegetable Capital comes in. What’s interesting is that, while this had become the norm, the only way the deal would fly this time was to throw Cruise and Wagner on the other side of the preferences. Apparently this segment of Vegetable Capital is getting a bit smarter, even if it is still part of the Platyhelminthes phylum. Even Cruise won’t invest in his own films. What does that tell you?”

Read the full post at:
http://equityprivate.typepad.com/ep/2006/11/goddammit_maver.html

I disagree with Going Private and think that this wave of capital flowing into Hollywood from Wall Street firms is much more sophisticated than in years past. An excellent seminar at the American Film Market last week helps to support my perspective. I will define the key details in a subsequent post. But, suffice it to say that the recent private equity and hedge fund investors are much better positioned than the Silver Screen Partners investors of the late 80’s. In those deals, outside investors were stuck with a slate of the weakest pictures.

There is often a question about major talent, and even film producers, personally investing in their own projects. I would argue that when a star like Cruise agrees to make a picture, he is making a tremendous investment, utilizing a currency he controls with a high cash value. The name recognition, and fame, that he brings to a project is conservatively worth tens of millions of dollars.

MI3 is widely considered to be a flop, but that seems to be more the characterization of some bitter Hollywood types. MI3 has a worldwide box office gross nearing $400M. While more of these revenues were generated outside of the U.S., that is less a commentary on the film and more a statement of the importance of international distribution. When global DVD sales and television licensing are factored in, this will likely be a hugely profitable film. It will be one of the few films of the year that generates revenues from every single ancillary market (licensed merchandise, video games, soundtrack sales, airplane & hotel viewing, digital downlaods, etc.) These “ancillaries” will be greater than the primary revenue streams of most films.

Philippe Martinez, a newcomer to Hollywood, won the film by outbidding seasoned art-house studios and by gaining the trust of the movie’s writer and first-time director, David Ayer, who had financed the film by mortgaging his own house.

“I thought, ‘We can be neophytes together and reinvent the system,’ ” Mr. Ayer said in an interview last week at his Silver Lake office, where a folded and framed American flag hung behind his desk.

But the system, he has since learned, is not so easily reinvented. Now, “I want the warm, loving embrace of the studios,” he said. “Studios are the way they are for a very good reason.”

More than a year after Toronto, “Harsh Times” is just making its way toward a Nov. 10 release, with scant public awareness, a nest of tense financiers and a handful of abandoned release dates in its wake. …

The complications over “Harsh Times” — which at first light had some festivalgoers talking Oscar for Mr. Bale — are symptomatic of the perilous road that Hollywood newcomers and independent producers face. Almost everyone involved was new to some aspect of the business: Mr. Ayer was a first-time, self-financing director, Mr. Martinez a brand-new distributor who promptly handed over actual distribution to the newly pared-down MGM.

Read the full story at the New York Times [subscription required]: http://www.nytimes.com/2006/10/26/movies/26hars.html

This article in the New York Times discusses the financing and distirbution of Harsh Times, from first-time director David Ayer and starring Christian Bale. I think it underscores the point that obtaining an acquisition deal, seen by many filmmakers as the end of the journey, is in many ways just the beginning.

Casting a major star in the film, and getting a $4M acquisition deal, has not automatically led to a lucrative film that enables investors to recoup their investment and turn a profit.

Australian stories drown in sea of American films

“WHILE many are talking about the resurgence of the Australian film industry, revenue from overseas sales has slumped.” …

“The soaring number of “independent films”, produced cheaply with international stars outside the Hollywood system, had made it harder for Australian releases to attract attention overseas.” …

“Under the Government’s review of film funding, the corporation has lobbied for a new tax offset that would attract more private investment to the industry.

It has also argued that the existing tax offset for higher-budget productions be increased from 12.5 per cent to 15 per cent to rival the incentives offered by other countries chasing offshore Hollywood productions.”

Garry Maddox, Film Writer, Sydney Morning Herald, October 27, 2006

Film Grants in the State of New York:

As one of the world’s largest and most important production centers, New York City is the ultimate place to break into the media and entertainment industries. To help support the City’s rising film, theatre and broadcasting stars, numerous organizations offer fiscal sponsorship and a variety of other resources. Here’s where to go for more information on grants and sponsorship:

The New York Foundation for the Arts (NYFA) is a non-profit organization dedicated to supporting artists in New York State. NYFA Source is the organization’s online database listing thousands of grants and sponsorship opportunities available to artists in a variety of fields, including film, theatre and broadcasting. The database allows users to search by discipline, geographic area and other criteria to develop lists of grants for which they are eligible to apply. Through NYFA Source Live Assistance, the organization provides free advice via telephone and e-mail to help artists with this process.

NYFA also awards more than $11 million in grants to individual artists annually, and offers fiscal sponsorship to emerging media and artistic organizations. NYFA sponsorship provides these organizations with the legal status and 501 (c) (3) non-profit, tax exempt status required to apply for funding from many organizations. For more information, visit http://www.nyfa.org.

New York State also awards grants to non-profit arts organizations. The program is administered by the New York State Council on the Arts (NYSCA) and funded by the Governor, New York State Legislature and National Endowment for the Arts. For more information on these awards and on other resources available to artists in the State, visit www.nysca.org.

Source: http://www.nyc.gov/html/film/html/incentives/film_grants.shtml

New York City, with a population of over eight million people, is located at the mouth of the Hudson River Estuary which stretches 153 miles inland from the Atlantic ocean and includes a wide range of wetland habitats. Home to more than 200 species of fish, the Hudson River Estuary serves as a nursery ground for sturgeon, striped bass and American shad. It also supports an abundance of other river-dependent wildlife, especially birds. (Photo: Stanne/NYSDEC)

The Quebec government is counting on a new deal with big-budget movie producer Joel Silver to kick-start the province’s film industry.

Societe generale de financement du Quebec, the provincial government’s investment arm, is spending $18 million Cdn in a deal with the producer of both The Matrix and Lethal Weapon series on a a project it hopes will bring $170 million in investment back to the province.

Read the full story from the CBC

This is a very interesting development in the current trend of outside funding sources bankrolling Hollywood films.

It is not that unusual that a Canadian government entity would play a role in film financing. What is interesting is that they chose to partner with a U.S.-based producer, instead of investing directly in the work of their own local filmmakers. This is a shift from the kinds of traditional government programs of the past.

While SGF is putting some money on the table, $US15million is not a significant sum. That would not ordinarily be enough to entice a producer of the stature of Joel Silver. I think the Canadian film production incentives are the stronger motivation for doing this deal.

On the http://filmbiz101.com resource website we posted a page that asks:

A distribution or acquisition deal can help you recoup your investment, but how do you get the financing in the first place???

We think this is a critical question for just about every documentary filmmaker. Check out our observations on the state of funding for this genre.

Here is one tidbit:

Private donors are important and you may be able to obtain their financial contributions. In order to offer a tax benefit to donors, you must either establish a non-profit organization or your project must receive Fiscal Sponsorship.

Read the full article on funding documentaries