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curious how movie financing works and why banks would be ok with lending money against future movie IP.
by b20000 5y ago
curious how movie financing works and why banks would be ok with lending money against future movie IP.
- HillRat 5y agoFilm financing is ... complex, to say the least, but the classic debt financing model is backed by presale agreements, where you shop a package (script, director, actors, etc.) to distributors, who agree to buy territorial rights (which may include derivative rights to the IP, such as toys or novelizations); those contracts are then used as discountable collateral for the actual financing. (There are approximately 1,795 other ways film is financed, many requiring a comprehensive understanding of multiple national tax codes, but that's the way it used to be done.)
- b20000 5y agook, so a distributor thinks a movie will make $100MM, they buy the rights for $50MM, and the bank discounts this to $10MM, so they get a loan for $10MM?
- HillRat 5y agoApproximately, yep! For a variety of reasons this approach doesn't hold the pride of place it used to in the indie space; instead you see filmmakers taking on alternate funding, including equity, and then selling distribution at market (the idea here being that a good film with strong reviews will command higher prices after screening, particularly if streamers are interested). For smaller filmmakers, debt instruments are generally relegated to gap financing: high-risk and expensive loans that cover relatively small percentages (10-20%) of the total budget, and are backed less by secured contracts and more by the track record of the team package (including sales agent) -- basically, think mezzanine financing.
- b20000 5y agoweird film people can raise debt on their reputation without personal guarantees but tech people cannot