Stage 32 Reader, we meet again!

Most of you know me as a prolific script doctor and as a working screenwriter, but I’ve also got more than a decade of experience working in the trenches of film finance. My career has given me a front-row seat to the rise and fall of packaging and presales as a business model for Hollywood, and I’ve blogged extensively on the unsustainability of any entertainment business plan that cashes out of a project’s risk before we’ve actually sold any tickets. Our success, since the actual, literal Halcyon days of Athens as the center of Western culture, depends on shows being good and people showing up. If we circumvent the need to develop those pillars of success, such as we have, things become unstable.

WHERE DID ALL THE MONEY GO?

Presales have dried up as an early revenue stream for film because their initial value to distributors was predicated on the assumption that Hollywood would continue doing the work that makes movies successful, even when movies started becoming successful before the work was done. Surprise! We didn’t!

Tax incentives have become more scarce, because the territories issuing those incentives have slowly accepted the fact that Hollywood isn’t planning on moving to Croatia or New Orleans or where-it-please-you anytime soon. Soft money is getting softer. First monies are getting harder and harder to find. Every film production is desperate to find that initial seed capital that tells their other financiers that someone has assumed the risk.

In our scramble to find institutional sources for first monies, indie and studio Hollywood alike have grown wholly indiscriminate in where we look for capital.

Dear reader, this blog isn’t going to tell you where you can find production money. Instead, I’m asking you to please consider the motivations driving any partnership by which you plan to greenlight your film.

KILLING RISK

For the bulk of cinema’s industrial history, making a movie was considered a very risky investment. For those who don’t know, financial risk is a measure of the degree to which an investor has control over their return on investment. When I say that film is risky, I mean that if you pay an actor or build a set, you can’t get that money back except through the film’s actual exit strategy. If the movie sucks, or if people don’t show up, the investment is gone. Historically, our job as filmmakers was to turn that risk into reward. By whatever means, our role in the business of Hollywood was to make our industry’s financial highs and lows mean something.

Presales essentially turned film finance into a loan vehicle. Our money was coming from banks, rather than from investors. Movies were making money, before they were even shot… and as a result, people stopped worrying about whether we were selling tickets!

By the time Hollywood realized that this wasn’t working (we never actually realized that this wasn’t working), we’d all gotten used to doing business with the banks. Once an industry becomes less risky in the eyes of the investment market, nobody wants to allow that risk back in. No investor wants the exposure of possibly losing their money in film, when films had been making easy money. Like all businesses do, Hollywood has been getting more and more conservative - fiscally and otherwise - ever since studios started trading on the stock market.

UNLOCKING FIRST MONIES

Our problem is that while Hollywood may refuse to acknowledge the ways in which we miscalculate our risk, the financial institutions on whom Hollywood has become dependent still have some sense of self-preservation. Many of them continue to do business with us, but only on the condition that we find some other financial institution willing to bear the brunt of our risk before we sign them on. If some state or country offers us a tax incentive, the bank will give us a loan for that amount. Great! If some post-production company commits a certain number of dollars in free services, then maybe we can get a loan for that as well… but someone still has to actually supply the cash that secures attachments, starts the payroll, and gets the movie moving towards production. When we talk about first monies, this is the money we’re talking about.

So, how bad has the market for first monies gotten? Right now, institutionally, the most natural places to look for first monies are places that have no actual investment in the film’s financial success. Crowdfunding campaigns are built with the help of people who want to see the content succeed, but who have no financial stake in the project. Investors from Dubai, or Russia, or China all want certain things, and filmmakers and production companies alike are doing everything in their power to meet the needs of those investors and get their productions rolling.

CONFLICTS OF INTEREST

While I don’t have tons of experience working with investors from Russia or the UAE (I do have some, and my experience with the Russian oligarchy is a matter which I refuse to discuss while sober), I can tell you with certain clarity that these people are not just investing for the fear of missing out. If they understand that first monies is a sucker’s game, which they do, they’re buying something worth a lot more to them than anything the risk could possibly ever cost.

Maybe they’re buying ego, pure and simple. Maybe they want to make a beloved niece or nephew into a movie star. Maybe the investor has a cultural agenda. Inevitably, the motivation will vary from investor to investor.

Find out. Ask. Don’t leave any room for misunderstanding.

If your definition of success differs even slightly from the definition that motivates your investor, then that investor is working against your success to at least that small degree. If you are making ethical compromises, and specifically if you are making compromises to the strength of your craft or the strength of your community, in order to secure financing? Know upfront that the movie you’re making will fail to meet your own needs and expectations for the project. If you try to force that issue, in spite of these conflicts of interest, then you wind up failing to meet the needs of your investor.

Do not do that. Do not spend millions of dollars from Russia or the UAE, without meeting the needs of your investors in the most comprehensive manner possible. Do not, at the end of the day, think of these people as equal business partners. In that relationship, your equality is not something you have the privilege or authority to enforce.

Respect and serve that authority, or stay the hell out of that relationship.

SO, CHINA THEN?

What filmmakers and film executives fail to remember is that private business does not exist in China. If a film company, or a holding company, or a finance company is expressing interest in your project from China, then the Ministry of Culture is probably who you’re actually dealing with. Most of these shell companies only exist in order to make China’s communist economy more accessible to Western business.

If the Chinese Ministry of Culture is putting money into your film, what do you think it is they’re buying?

To qualify for Chinese financing, your film needs to be suitable for distribution in China. Your film needs to pass the Ministry of Culture’s censorship board. Even now, all across Hollywood, there are finance brokers from China helping young filmmakers prepare and edit their screenplays in order to ensure a smooth and tidy financing process.

What kinds of notes are these people giving out? What do the Chinese censors like? For one thing, you’re going to see a lot of international thrillers on the screenplay market today in which the villain is a high-ranking CIA operative, and where Chinese intelligence agents wind up resolving the story’s conflict by assassinating corrupt officials in the United States government for the good of the American people.

Let’s be very clear. Getting paid to produce Chinese propaganda, and especially propaganda that urges confidence in Chinese intelligence agencies and military forces at the expense of our own? Folks, that’s “aid and comfort to an enemy of the United States.” That’s literal, actual treason.

Before the comments catch fire, please let me say that I know the views I’m expressing are sensational. Please do not try to refute me in the comments. Just ask your entertainment lawyer.

THE SIMPLE TRUTH

Our industry’s financial imbalance and desperation is getting exploited by wealthy people, all around the world, for a shockingly diverse range of purposes. Why did someone like Jeff Bezos start making movies, producing television, and buying up newspapers? Why did Elon buy Twitter? If you’re looking for production financing, finding the answers to questions like these will prove your key to building productive, long-lasting, and most importantly safe business relationships!

Not all conflicts of interest are inherent evils.

If someone wants something from your production that you actively want to provide, then even if providing that thing isn’t necessarily your primary focus, where’s the harm? Just remember that the investor in question is paying you to deliver that specific thing. Do not convince yourself, after the fact, that this person is investing in the movie itself. They’re not, and you know that.

FINDING A PATH FORWARD

It's true that crowdfunding is a giant pain in the ass. If people are giving me money because they like my goals, and because they believe in my ability to execute them, then the freedom and trust that relationship affords me outweighs any potential grind I might have to face in the crowdfunding process. Crowdfunding keeps my focus on the strength of my craft and the strength of my community, and that focus keeps my projects sustainable in the long term.

When you take money from someone, be very conscious about what it is they’re actually paying you for. Do not hide from your liabilities and commitments, even if those commitments are implied rather than explicit. Don’t hide behind your identity as an artist, and don’t hide behind the terms of whatever agreement you might be signing. In today’s world, depending on who it is we’re doing business with, our contracts may just be a formality! Always make sure that the people putting money into your project want the same things you want. If you do that, then your best efforts to achieve your goals will always be in step with the best interests of your financiers.

In Hollywood, everyone operates under the shared assumption that “money is money.” Then, everybody turns around and makes different assumptions about what that actually means. Some oligarch may assume that financing your project means he has a strong measure of creative control, and that you shouldn’t care who’s calling the shots so long as the check clears. Maybe a Chinese finance broker expects your film to push the “Overton window” when it comes to how much messaging American audiences will accept, and maybe they treat you more like an employee and less like a collaborator in how those boundaries get defined. Money is money, and film is a business… only in a case like this, nobody agrees on which business we’re actually in.

Find out what people want and expect from you upfront. Don’t let your agreements be defined in vague terms. Eliminate “wiggle room,” rather than creating it. Above and beyond anything else, do not take money from someone you don’t like or trust.

Our world is changing, gang. Find financiers who understand and support your vision for how to make this world better. Don’t sell your power.

Use it.

Let's hear your thoughts in the comments below!

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