The studio system, slate financing, et cetera. Basically what the title says. I'm not well versed in finance, so if you could explain in simple terms, that'd be great. I understand how pre-sales work, aside from the part where contracts are used as collateral in a bank loan (how, exactly, does that work?).
What are some of the most common ways that films are financed and distributed?
- Thread starter geniusvisionary
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You go to an appropriate bank with the contracts. The bank decides whether they accept the contract(s) and make you an offer. Assuming you're an appropriate prod co with the correct assurities, they give you the money and they normally become the receiver of that contracted pre-sale money.
What exactly don't you understand?
How, if the money is never delivered, could the contract be of any value as collateral?
Very Short version:
There are three levels of debt.
Depending on where you live, the bank recognizes those contracts as assets you can redeem for credit. You have to pay for the credit mind you... lol. Bank gets paid first and is out first.
There are 15 or so org's that look at your cast and tell u the value Based on region. x star in this y movie in this region is worth z. Do this for every 'region' and you have an asset.
No chance of this model if you are in africa.
Pre sales are not what you want, but sometimes you have to.
There are three levels of debt.
Depending on where you live, the bank recognizes those contracts as assets you can redeem for credit. You have to pay for the credit mind you... lol. Bank gets paid first and is out first.
There are 15 or so org's that look at your cast and tell u the value Based on region. x star in this y movie in this region is worth z. Do this for every 'region' and you have an asset.
No chance of this model if you are in africa.
Pre sales are not what you want, but sometimes you have to.
If you sign a contract with a distributor, and the distributor never takes care of his end of the bargain (buying the film), then what would be the point of the bank taking the contract?
There wouldn't be. Banks aren't in the business of taking unmitigated risks, hence the "with the correct assurities". The added difficulty of this finance method is a lot of people have tried to "game the system".
That's why not every presale deal is created equally. They aren't all worth the same. Some contracts aren't worth anything.
Isn't collateral given to the bank if the loan isn't paid, though? In fact, isn't that the exact definition of collateral?
A distributor agrees to pay, say, $200,000 for the distribution
rights once the film is completed. So the filmmaker would go
to the bank (unlikely but this is YOUR scenario) and get a
business loan for $150,000 using the “contract” as collateral.
The bank will NOT accept the contract as collateral unless the
distributor is a well established, legit company. As Sweetie has
said, banks are not in the business of taking risks so they will
NOT loan the filmmaker money if they do not know the reputation
of the distributor.
There is no point in the bank taking the contract. They will not do it
if they do not believe the distributor will honor it.
Slight amendment to this. Some distributors are worth more than others as a percentage of the contract.
It should be mentioned that this loans method using the contracts as collateral is different from the method I was explaining earlier.
There are very few banks who do this, but they purchase the contract for an agreed sum with agreed upon terms (completion deadlines, completion bond etc).
Collateral that banks usually accept are often in the form of real estate, bonds, cash, stock, insurance or a combination of the above. In my opinion, it would be stupid for the producer to accept these terms, but if a bank was to lend, a usual term would include a completion bond underwritten by reputable firm on top of a personal guarantee and/or collateral.
My example wasn't meant to encompass all possibilities. It was
one of many possible scenarios.
I thought that was self-evident and didn't need to be pointed out. I
was answering using one of many possible ways that films are financed
and distributed without going over what you have already gone over.
There are many different ways and I was pointing out a method different
to the one you mentioned.
The thing is, in all your descriptions of pre-sales, you mentioned contracts being collateral. That would mean that if the money wasn't delivered to the bank (because the distributor never bought the film), the contract would go to it, meaning that the bank would have an agreement to sell the film to a distributor at a time that would have already passed. What is the point of that?