Film Financing

Film finance is a subject of project finance, this means that the film project’s cash flows are used to repay other investors and generally not from external sources. However this has been met with new ways to repay investors to protect principal. Film financing happens during the development stage before pre-production, and it is an aspect of film production. It determines the potential value of proposed films. In the US the value is usually based on either a forecast or revenues.


There are four main methods of financing  the production of a film:
1. government grants
2. tax schemes
3. private equity and hedge funds
4. debt finance
5. equity finance


Government grants

The term government grants means where a number of governments run programmes to subsidise the cost of producing films. For instance the UK film council does provide funding to producers but only if certain conditions are met. States such as Louisiana, New York, Connecticut, Michigan and New Mexico will provide a subsidy or tax credit on the condition that either all or just part of a film is filmed in that state. The reason governments are willing to provide these subsidies is usually based on the fact that they want to attract more people to come to their territory's, so by allowing films to be shot in their state gives them the benefit of being able to advertise their location to an international audience. So in my opinion I believe that government grants is a very good idea as it gives off advantages on each side and doesn't come with risks as the government expect no financial return. 


Tax schemes
Tax Schemes are created which effectively sell the enhanced tax deductions to wealthy individuals with large tax liabilities, the individuals then have to pay the producer a fee in order to obtain these tax deductions, the individual will often become the legal owner of the film or own certain rights relating to the film. A number of countries have introduced legislation that has the effect of generating enhanced tax deductions for producers or owners of films. Too much of the tax benefit is siphoned off by promoters of the tax scheme, also films with littler commercial are produced simply to generate tax deductions.

Private equity financing


When a film maker can not afford funding, they have to use private equity financing this requires them having to sell interests in either the film or film company in exchange of funding, however this method does come with risks for the investor as they will only receive their money back if the film proves to be a hit, however for example if a film maker sells 50% of their corporate interests to an investor and the film turns out to be a failure then the investor will loose his entire investment, although if the film is a huge success then the investor will receive 50% of every pound/dollar of profit, which is far more than what a lender would usually get. So although this can sometimes work out for both the film maker and the investor it doesn't always work out which is why I do not agree with it, as I don't think its fair that the investor will not always get their money back.




Debt finance
Debt finance is based on pre-sales. 

pre-sales:
Pre sales are based on the script and cast, selling the right to distribute a film in different territories before the film is completed.Once the deal is made, the distributer will insist the producers deliver on certain elements of content and cast. In order to gain the “marquee names” essential for drawing in an international audience, distributers and sale agents will often make casting suggestions.For example they will insist that the people in the cast are popular to the public as this will help the film become more attracting to the audience and want more people to watch it because of who is in it.  The reliance on pre-sales explains how much the film industry rely on movie stars, directors and certain film genres. Usually when signing a pre-scale contract, a buyer will pay a 20 percent deposit of the films collection account with the balance of 80 % due upon the films delivery to the foreign sales agent.

Television pre-sales:Although it’s more usual for a producer to sell the TV rights of a film after it has been made, it is also sometimes possible to sell the rights in advance and then use the money to pay for the production. In some cases the television station will be a subsidiary of the movie studio’s parent company.

Equity finance
product placement also known as embedded marketing is a form of advertisement, where branded goods or services are place4d in a context usually devoid of ads, such as movies, music videos, the story line of television  shows, or news programs.

Examples of product placement in movies
Product placement is an investment for brands trying to reach a niche audience and there are strong reasons for investors to expect that film product placement will increase consumer awareness of a particular brand.

In Fritz Lang's film "M" released in (1931) there is a prominent banner display on a stair case in one scene for Wrigley's PK Chewing Gum which is right in the viewers eye for around 20-30 secondsIn the filmLove Happ (1949),






 Harpo Max's character cavorts on a rooftop among various billboards and at one point escapes from the villains on the old Mobil logo, the "Flying Red Horse". Harrison's Reports severely criticized this scene in its film review and in a front-page editorial of the same issue.

Self Promotion
Self promotion is one of the four elements of marketing mix, it is the communication link between buyers and sellers for the purpose of influencing, informing or persuading a potential buyers purchasing decision.
A fine example of self promotion is what Twentieth Century Fox do, they are a subsidiary of News Corporation and  has promoted it's parent company's own  Sky News channel through including it as a plot device when characters are viewing news broadcasts of breaking events.