When it comes to film investments, there are many sources of money that are combined to create a fund to finance the project. The filmmaker may raise funds for the production by selling the rights to the distribution of the movie. Financing for a film can also come from an outside source through an equity investment. Lastly, there’s debt financing.
Through film investments, there will be a resurgence in the financial stance of the production. There will be more funds that can be used to finance the filming process and guarantee the completion of the movie. Being liquid is a good thing because the production staff will not have to worry about the financial stance of the company.
Difference between Equity and Debt Financing
Equity financing requires the filmmaker to offer a portion of the film or the company in exchange for the investment. It distributes the risks of the film project because the investor can only get back one’s investment if the film makes money.
For example, the filmmaker sells 50 percent of the corporate interest to a film investor, and then the investor will not be able to recuperate the investment if the movie flops. However, the investor will get 50 percent for every dollar of profit if it becomes successful in the box office.
On the other hand, debt financing is when a lender provides money in exchange for a promise that the amount will be paid within a set timeframe. More often than not, the lender is a bank or any other financial institution. The bank charges interest on the loan in order to make a profit.
With a loan financing, the risk of failure is only on the borrower because the loan must be repaid to the lender whether the film is successful or not. However, the lender doesn’t earn any profit from the film project aside from the interest on the loan. That means the borrower will make a lot more profit if the successful film is financed through a loan instead of equity.
An ideal film investment is for the filmmaker to get 100 percent of the production costs through an equity sale in exchange for less than 100 percent of the income. More often than not, the income range is between 25 and 50 percent. In this scenario, the filmmaker doesn’t have any risk of losing cash. But more often than not, independent filmmakers use up their personal funds to finance their films. In that case, the filmmaker has a lot to lose when the project becomes a failure.
And that’s why filmmakers need to get film investments to improve the financial stance of the project. Keep in mind that no matter what the investment scheme might be, it is up to the producer to pay the bills and control the costs of the production. Even if the filmmaker has sold the right to distribute the film, the future transactions will mean nothing if the film has not been completed.