Introduction

Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy.

Groucho Marx

1890–1977

The unpredictable nature of making movies means that negotiating a film finance deal can be a minefield. For producers, the strategies and structures of financing arrangements are as numerous as the films that are made. The aim of this book is to attempt to demystify some of the complexities of the film industry and specifically a film financing transaction. One of the most common complaints from the banking industry sector is the apparent misapprehension of film makers as to the role banks play in the financing of films.

This book will focus on the world of independent film making where producers working outside the Hollywood studio system put together films by an assortment of international, bilateral and multilateral co-production treaties, pre-sales, equity investment, tax funding, gap financing and whatever other means it takes to get their films made. A great deal of creativity is required in putting together the necessary elements to attract finance to any particular production.

Rather than a guide of where to get the money, this book will look at the technical and legal issues involved once a producer has the money to produce his or her film. For many producers, finding money for their films can take years. Sourcing funds for production can be a long, arduous battle. Countless meetings, attendance at film festivals, promises, broken promises, changes in tax legislation, actors dropping in, dropping out and countless other variables. The process can take months, years, even a lifetime. Financing is one of the most crucial areas of the film industry, but one that has often not been given the importance it deserves.

Once a producer has cobbled together all of the finance for a production, the battle has just begun. Imagine the scenario - after five years of hard work and travelling the globe, a British producer has several pre-sales with foreign distributors in place, a co-production deal with a Canadian co-producer who will bring 40 per cent of the budget from an assortment of tax credits, a television sale, various subsidies, a distribution deal, Telefilm Canada subsidy, a sale and leaseback deal in the UK, equity from private investors, UK Film Council money, a UK broadcasting deal and a UK theatrical deal. At last, a fully financed film! The question is, how does the producer then turn all of these contracts from paper into cash?

With all of these deals in place, the fun part of film making begins. Lawyers, bankers, civil servants, more lawyers, more bankers and perhaps even more civil servants for the producer to deal with. Gone are the days when two or three sources of finance will green-light production of a film. Fortunately or perhaps unfortunately, multiparty financing of independent films is the norm. For a creative producer taking the step from development to assembling the finance is a difficult and time-consuming process. What many creative producers are not prepared for is the next step, into the mysterious world of financiers, bankers and lawyers. On the face of it, banking and finance for the film industry appears to be a highly specialized world. However, most banks in the film business are basic commercial banks. They simply lend cash for a certain period of time, would like a fee and some interest and, of course, they would like their money back. The fundamental purpose of a bank is to make money. Many banks see film financing as a basic banking product. Although they can play a vital role in the financing of a given production, banks do not invest in films.

From a lawyer's perspective, film financing involves many different aspects of law. Issues such as intellectual property, contracts, insurance, employment and other areas can sometimes make closing a film financing transaction very difficult.

Each chapter of this book will look at an integral part of a film financing transaction. Chapter one looks at underlying rights, such as a book, a script or other works of intellectual property, which will form the basis of a bank's or financiers' security. When a bank makes a loan to a film producer, all they really have is an interest in a book or script and some film that is 35 mm wide and 1 mm thick. This chapter analyses the importance of rights ownership and specifically looks at the chain of title in a film and a title opinion.

Chapter two, Co-productions, is written by Alan Harris, an experienced financier and producer, and looks at how bilateral and multilateral treaties are an essential tool in financing films. The chapter will analyse some of the major issues that need to be considered prior to closing a financing deal involving two or more co-producers.

Chapter three is written by Rob Sherr, a banker with many years of film financing experience, who will give an insider's view of the banking process. The chapter will look at how a bank interacts with a producer and analyses a film financing transaction from a bank's perspective.

Chapter four, with contributions by Lucy Walker, an experienced banking and finance lawyer, contains various banking documents that are essential in a film financing transaction. Each agreement has commentary and notes at the bottom of the relevant clause or a general summary of what the document does. The commentary and notes will look at issues that should be considered and how these issues are relevant and impact on a film financing transaction.

Chapter five looks at the ever-difficult and somewhat contentious interparty agreement. Some say this agreement acts as the missing pieces and mortar of the film financing puzzle. However, others say that this complex agreement is just a make-work project for lawyers.

Chapter six looks at completion guarantees. The completion guarantee or bond is an essential part of any film financing transaction. The chapter looks at the completion guarantor's relationship with the financier and producer, with an in-depth look at the actual completion bond and completion agreement.

In chapter seven, the expression ‘he who has the gold makes the rules' is quite appropriate. Collection agents have become a necessity because of complex financing structures and multiple financiers who all have expectations of repayment and an accounting of their investment in a film. This chapter looks at important aspects of collection management and has a collection agreement, courtesy of Freeway Entertainment, attached.

Chapter eight is a natural follow-on to chapter seven as it looks at the complexities of recoupment. Tiers, corridors and other aspects of collecting revenues from the sale and distribution of films are analysed.

Chapter nine is an in-depth look at gap financing, with examples of various financing structures. Gap financing is a popular way for producers to finance their films when it may be difficult to pre-sell distribution rights.

Chapter ten looks briefly at alternative financing structures, such as sale and leaseback, that have been popular in the UK. Gawain Hughes, an experienced corporate lawyer, contributes an interesting section on limited liability partnerships. The final sections of the book contain a helpful glossary of film financing terms, recommended reading and helpful websites.

The legal bit! This book is not a substitute for expert legal advice. It is only a guide, and law and practice evolve and change very quickly. Before acting on any of the sample agreements or documents in this book, you should consult a lawyer with appropriate qualifications and expertise in this area of law for advice.