PART 3 Creative Financing: Area 51 (Please Show Badge at all Times)
The Money Shot. NASA calls it a moon shot. Shoot the moon. You dont go into a casino hoping to lose. Everyones there to win supposedly. The artists, the technicians, the salespeople and the financiers. Its a crapshoot, but its normally a calculated risk, a film. (Or, at least, should resemble one illusion is everything in this business!) Movies dont only get made because theyre good, however. Sometimes they get made because it was my idea. Or because it was a good sales ob. Or nepotism. Like inheritance, these options are outside the scope of this article. The premise of this article is talented, vertically-integrated individuals who finance their own wonderful projects, with an emphasis on feature films.
Nowhere could we find a finer entente between the artistic and the finance communities than in the five-letter slogan of IBM: Think. Do not waste any more money: THINK (AWN historical exception #4.) Crapshoots, yes, crap, no. What all of us wants to know is what the producer and director are going to do with our Trust the budget. And how were going to get our money back to, if Im not mistaken, make more quality films: the money shot. But even at bargain basement/fire sale prices, the ticket price these days is 7-10 million euros, or US$9.3-$13.3 million. (Universal Currency Converter: http://www.xe.com/ucc/)
Our Dear, Dear Friends in the Investment Community
Lets face it, artist people; finance people must see the Baghdad Bobs and the Joe Isuzus of the animation community from sunup to sundown. Its part of the problem. Shark-suited, silver-tongued bastards who spoil it for everyone else. Which is why it would be informative and useful to spell it out, explain, share the wealth, tell the truth, point out the problems, cooperate. Information multiplies when you give it away! (Peace yall.)
The other premise of this article is the artist who can count and the creative financier.
And paradigm shifts. Heres another: in Europe, today, you can raise up to 7-10 million euros from a variety of sources (possibly some Asian) for a European feature animated film... by yourself. Breakeven, today, for a European-financed, European-distributed animated feature film, 2D or 3D.
Breakeven for a European-financed, North America-distributed film is US$15 million + US$25 million P&A (2000 copies) = US$40 million box office. Do-able.
Big independents like Go Fish (DreamWorks modest-budgeted auteur and imported films division) or Sony Picture Classics (Sonys art house label) are looking at other types of films. Disney distributes Miyazaki-san (Studio Ghibli.) Why not me?
A new model is emerging for animated feature films under US$25 million, which a U.S. distributor will 50% finance. Curiously, the US$12.5 million representing the other 50%, or 9.4 million euros, falls well within the amount of financing Europe/Asia can/has/could raise and make the picture for!
Finance in Europe/Asia, distribution in the U.S., fabricate with the European/Asia side of the budget, invest in the next film with the American 50%. Or expand your ambitions make a US$25 million film/19 million euros, take your pick. (You really cant even tell the Yanks you can make a film for under US$25 million, theyre not likely to believe you.)
Oh, yea, and then you actually have to make it and all that.
Tax shelters and subsidies: One of the reasons investors dont put money into animation in Europe is because of the perceived long production cycle. Its supposedly18 months. Which is true and false. For most subsidies, the production usually has to start within 12 months but, for most tax shelters, the film actually has to be made in under 12 months, the fiscal year (which is what makes live action so attractive.)
One source of financing could potentially come from the mechanics of this type of financing. A feature film can usually get made in a years time. Cartoon series and films take about 18 months. But, in fact, the pre-production is six months and the fabrication is 12 months, with as many people working as is economical to deliver in a years time. The pre-production could be financed in the last six months of year x, where there is very little possibility of investment in films (since they can rarely be made in under six moths) and the production in year x + 1. With the initial year x investment recouped from the production budget in year x + 1 at a substantial profit because it doesnt represent a lot of money compared to the overall budget. Its a possibility. (Its a good idea whatever happens to get the film in the can in under a year for a lot of reasons but, mostly, for quick return on investment.)
Artists need time to breathe in order to animate well, but its not as difficult to find talent any more, the X factor in determining just how many people it is going to take to do the film in one year. And, animation artists on the whole are very solid professionals. They have to be disciplined and work hard. Its a craft. And an art. Its also heavy production and organization. Not arts and crafts. And once the machine this, this complicated, expensive Starship called Enterprise (gotta love Gene Roddenberry, a true cowboy and indie: www.pathcom.com/~boby/gene.htm) is up and running, its best if it keeps turning. At a rhythm that suits investors one fiscal year. And at a rhythm that would make bring a tear to any producers one good eye a film a year.
And lets not forget that things are constantly in flux in the finance community, too. Consider Great Britain, which just had its second Black Thursday on Dec. 9, 2004, concerning the U.K. Sale & Leaseback (the first Black Thursday came last year when the DCMS (Department of Culture, Media and Sport) announced that television production no longer qualified for S&L because of perceived abuses.) Bill Allen of Baker Street explains, There were four areas of change announced of which only one has an immediate and direct effect on independent producers. This was that, as of 2 December last, producers can no longer claim two sets of tax deferral on the same film in other words, producers can't combine tax-efficient production funding (from such companies as ourselves, Visionview, Movision, etc.) with a Sale & Leaseback. In future it's got to be one or the other.
This is bad news for producers in that it does reduce the total amount of tax-efficient U.K. funding potentially available to a producer on any given British film, but the ruling doesn't directly affect what we do at Baker Street, or the core business of the Sale & Leaseback providers It's true that the other three changes were directly concerned with Sale & Leaseback, but they were fairly technical, and mainly directed at some of the perceived abuses promoted by some Sale & Leaseback companies, and mainly involved higher budget (mainly Hollywood) films.
This will certainly have a negative impact on the use by U.S. studios of U.K. crews and facilities, but I don't think it will affect the independent, lower-budget, film production sector One of the odd things about all this, of course, is that the relevant legislation expires next summer, so everyone's a bit surprised that the government is still making changes at such a late stage. What the government did not announce was any further information on the new tax credit scheme which is supposed to replace all this in about six months' time.
Governments change left and right (yuk, yuk), politics change, the economy changes, attitudes change, exchange rates change. If things change dramatically in the U.K., for example, other forms of finance are certainly going to have to emerge or producers are going elsewhere. For the independent, its the call of the wildcard. (On that banknote, trainspotters should keep an eye on the trend towards financing entirely outside the producers home country.)
Redefining Development Money And Pre-Production
If deferment is a given, pre-production money becomes getting on the same page money. Sales Tools.
Pre-production is the relatively cheap part, remember? We recently had very promising talks in LA with several producers and investors but, as usual, the delay as always has been funds to produce a wow trailer of approximately one minute, continues Athanassiou. Which we believe would be at a cost of £60 to £80,000 to produce an amazing piece that would make all future investors and distributors salivating to get a piece of the action. But this is a big film ( 15,000,000 euros to 18,000,000 euros, approximately 80 minutes long and 29 months to make). Being artist-driven, a lot of projects already have substantial investment on the part of the creators time, talent and collaborators. London-based Stardust Pictures animated on Space Jam, Spirit: Stallion of the Cimarron and Sinbad, Legend of the Seven Seas. I have been planning Jekyll and Hyde for about eight years just over two years ago we managed to finance a budget and a year ago we produced a first draft script. And, erm, obviously, the graphics exist.
A gee-wow moment for all is The Goal. Something that will inspire that reach-for-your-checkbook gesture.
Interest usually surrounds a good project from its inception. Ironically, the possibility exists, now, to have 100% of the production financing in place, but not enough for development to get that financing. Pre-production is done, a script, extensive graphics, the package, potential partners exist and maybe 100% of the marketing to be done yet. Marketing to market to the marketing people is costly, however. But only a hundredth of the cost of the film. Which sounds a lot like slate funding (and a new concept slate branding, or bundling varied and compatible projects.) Slate development funding that is otherwise going to the taxman after the sixth month of the fiscal year because a film cant be made in that short a period of time. Now marketing (formerly known as pre-production) funding can get everyone around the table and perhaps interest these very same partners to guarantee a percentage of the production funding since theyre going to be guaranteeing it with successful pre-production (now called marketing) funding. Ah, presales! And splitting up the risk over five-ten projects for a much more macho US$1 million, maybe?
Youre serious? Its called a pilot?! True pre-production in the etymological sense of tweaking and refining the concept and its audience before going into production testing the pipeline with the pilot and already lining up presales. (For those of you who came in late, thats getting a distribution agreement and credit-worthy guarantee which you take to a bank for loans to make a film on a schedule before going into production. Once the film is done, the funds are disbursed to the assigned bank from the various distributors.) Carpetbagging selling directly at the Cannes Film Festival. Its a film youre making. A well-done animatic of a well-drawn storyboard can be very impressive. The vertically-integrated individual has to market her/himself with a corporate marketing and communications strategy exactly like the corporations they are. They can sell to distributors, producers, Direktors, even, looking for their next project on a hand-held DVD player over bar carp and beverages.
Animations a pain in the neck to finance and make, but a heck of a lot of people seem to want to be doing it all of sudden. Sito remarks, After a four year slump which saw much of the large 2D feature animation crews in Hollywood dismantled, production has picked up. There are more 2D & 3D hybrid feature productions and more television co-productions with international channels. Plus the wages for interactive game work have finally risen to a level competitive with theatrical films, and many interactive game companies want to do films.
(John Query: Past 50% of a live-action films content, is it special effects or animation?)
A Pack of Camels is a Horse Made by Committee
Lacuna Matata -- a blank space or a missing part between you and a problem-free philosophy. Across the table, past that ashtray spilling over with spent Marlboros, Montecristos, Gitanes, bidis, whatever your partners. The Gap, usually. Not the store, although thatd be nice, the amount missing from your budget (and/or the talent, expertise, industrial muscle, etc. you require.) I dread the thought of co-productions, says Manwaring, as you tend to get stuck working with someone who doesn't end up pulling their weight and the quality of the production ultimately suffers. I have seen and heard of it happening all too often.
Yea, its a nail-biting, white nights, chain-smoking proposition, especially if you want to play the American game. And this isnt baseball, hot dogs, apple pie and Mom flag-waving the North American market is simply the juiciest on Earth. You get distribution there, youre, erm, there you might not see a dime of the proceeds, of course, because of legendary creative accounting but you can surf the success back to your home territory, which you and your pardners each ostensibly own. (Or, at least, you should.) But the quality has to be there. And quality is related to creative control and organization.
Paris-based American Ivanka Hahnenberger of Roving Stage Productions, which has offices in Ireland, France and Germany and representation in Los Angeles, has this to say about international co-production, It is getting very hard to fund a co-production now unless it is of U.S. quality standard. That is in a sense a tall order because script writing and show running/producing is not very strong nor culturally accepted outside the U.S. and that is what creates (in theory) strong products. The producer has a different kind of role. More passive. The products are run by the artistic team in a way. So it is really hard to drive these products and have them reach the quality levels that they are in competition with, American products.
Her advice? Make certain you understand the production and workflow process of the co-pro. Who is responsible for what part of the work and is it realistic? (i.e., delivery and quality and a variety of levels of productions fees, quality standards, shipments, ways of working, etc.) In order for a co-pro to be successful for a U.S. style product, there needs to be one lead producer who really understands a co-pros production chain and flexibility at the executive producer level in terms of cultural and creative issues.
In a nuts hell, someone who knows it from the inside. Been there, done that. Ex pats are starting to do it all over the globe with Canadian financing, European financing, Asian financing, etc. to the delight of their local economies. (In general, after five years residency in an EU country, for example, you qualify for subsidies on a par with the nationals.) The flip side is in order to take advantage of local subsidies; a local expert -- financier/consultant/lawyer -- is usually a necessity also. Someone who knows the ropes in order to avoid it turning into a noose.
The English and the Canadians have more or less the same production culture (re: discipline?) as the U.S. Asian studios have been animating for U.S. majors for decades and have also assimilated the culture. Content doesnt necessarily have to be what America is used to or what the world is used to seeing out of America, but the professionalism of the process is requisite for an appropriately saleable end product.
Another emerging model is the consortium of international studios where cowboys and indies alternate doing work-for-hire/co-produce on someone elses project while they are developing, only to have these same partners do work-for-hire/co-produce on their projects while they develop.
But one more bad rap before we wrap. Taylorism was adopted/adapted by Ford and Disney, been maligned, perverted, satirized in Brave New World but, just for the post:neo redux, here are some silver bullets from Fundamentals of Scientific Management:
- Develop a "science" for every job, including rules motion, standardized work implements, and proper working conditions.
- Carefully select workers with the right abilities for the job.
- Carefully train these workers to do the job, and give them proper incentives to cooperate with the job science.
- Support these workers by planning their work and by smoothing the way as they go about their job.
See Spot Run, See Spots Walk Cycle.
Education. Training. Learning. Mentoring. Its a grand tradition in animation. It should be an ongoing, methodical, earnest goal to understand the Kraft, the Art, the Science, the Philosophy, the History, the Tradition the Life, as they say in the mob. For artists, executives and financiers.
And this is about the best thing going on producing animation, for standards and practices: www.awn.com/mag/issue6.03/TM.PDF by Catherine Winder and Zahra Dowlatabadi. And this: mag.awn.com/issue6.05/CWZDCofA.pdf. In spite of the shameless host auto-promotion, highly suggested also are all of the articles at mag.awn.com/index.php?ltype=Columns&column=prodani, although youd do better buying and reading the book, Producing Animation.
All Work and No Play Makes Jack a Dull Boy
Macho sports metaphors figure large in the financial world. Once again, for Animation (with a capital A), its Polo and Yachting. Theres a minimum ticket price in order to deliver a film that will sell and make money (dont confuse the two!).
The laws of mathematics are indeed irrefutable, infallible. Math is a closed universe. Its easy; its ALL about numbers = money. No daydreaming, no long walks in the rain moolah, fun tickets, duckets, kopecks, bank, doubloons, quid, shekels, greenbacks, lucre, simoleons, cake, casharoony. Easy. Monotrack. Uni-tread. One thing. Money.
Yes, it takes cash flow to make a movie.
Lots of it, by any account.
Finally, its out. Lets all heave a collective, cathartic sigh whew, doggy!
But, all work and no play makes Jack a dull boy. If you want to invest in animation, at least be interested in the result, the people, the culture be involved. And lighten up! For the exercise, lets agree on a vocabulary more suited to the Industry I propose, from here on out, to call US$ 1 million a balloon, US$ 100K a lollipop and US$ 1,000 a cookie. Soft, warm, fuzzy FUN!
And if youre financing, finance what has to be financed with wiggle room, pay on time, be fair and one day you just might be dining at Sago with Pam my Anderson. Okay, maybe not, but dream a little! And take that tie off!
(And, for our American finance friends/co-producers, the dollar has lost 13% against the euro since Spring and 40% since January 2001, when the euro began circulating in a dozen countries, including France, Germany, Italy and Spain. Write off that expensive vacation AND fund a huge chunk of your feature!)
The Passion (No, Another One!)
Ahhhh finally, here it is, the wrap party. Diamond in the back, sunroof top, diggin the scene with the gangsta lean Tunes pumpin, shrimp cocktail, cheesy grins, Hawaiian shirts, videoloop, margaritas dude, this is it. You busted your butt and heres the payoff: success. Its a success just to be able to say, I did that. Yes, indeedilydoodily. Hmm, hmm, hmm. A flick you can be proud of, that you got backend on, on the big screen?! Ridem, cowboy!
And when all is said and done, what did it really take? A great idea, a bunch o talented folks, seven years of your life, faith, perseverance, a coupla gambles, a pinch of audacity, a bit o sacrifice, lotsa hard work, discipline, an iron will, devotion a lotta thought, a tad o compromise, a bit o debt, support from family and friends, a lotta wheelin and dealin, some good advice whatd that guy say again? Protect yourself, inform yourself, represent yourself and then you wont be paranoid? good stuff
And, oh yeah PASSION. (AWN historical exception # whatever.)
Special thanks to all the courageous souls who contributed to this article.
Chris Panzner has split the last 25 years doing TV, animation and films. His favorite joke is: Ya know, I was thinking the other day no, wait, that wasnt me. He recently created writing company Power Lines and production/distribution company Eye & Ear.