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THE MOVIE FUND BLOG

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Independent Film Funding

Source: The Movie Fund

Return on Investment (ROI) : How does a Film Make Money?

So, you’ve invested in a film… what should you expect back?  Your return on your investment (ROI) isn’t just about a return on the capital you’ve put in, but should also include a share of the ongoing profits from other activities following the release of the film, i.e. merchandising, DVDs, Blue-Rays, posters, film festivals, etc., and this could go on for up to five years.  If you are and EIS investor, you will need to hold on to your company certified shares for a minimum of three years in order to account for this additional potential return on your investment by Independent Film Funding.

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How Tax Breaks, Government Incentives Capital Gains Can increase your Profits.

Well, this depends on the production however, at The Movie Fund, we would expect an ROI of 110% to 170%.  But it is worth noting that many, many films have generated far more revenue than predicted targets brought about by keeping production costs low, excellent performances from the cast, and a highly effective marketing and publicity campaign.  Let’s take a low budget horror movie  as an example. Selling region-by-region will statistically produce Advances that may be a mixture of the figures in the table below:

 

Film: Hashtag Movie

High

Medium

Low

Total Territory Advances*

£3,864,600

£1,320,815

£515,280

Total Film Budget

£85,000

£85,000

£85,000

Net Film Returns (Total Advances – Film Budget)

£3,779,600

£1,235,815

£430,280

Your Personal Profits
Share of Profits at 15%

£538,593

£176,104

£61,315

EIS Income Tax Relief (20%)

£718,124

£234,805

£81,754

EIS Capital Gains Tax Deferral (28%)***

£1,005,373

£328,727

£114,455

 *Advances per Territory based on Shoreline Ent. table.

Exit Strategies

Most independent films usually have a number of different investors also Independent Film Funding, at different levels, with different requirements.  Therefore, for the investor, it is important that exit strategies are negotiated and agreed.  The main forms of exit are:

  • starwarsbehindthescenesFixed ROI on capital following recoupment– agree a fixed percentage on the equity capital
  • invested by the investor (including those funds from an external fund or group) for the production costs, which is repaid once a pre-determined target has been reached.
  • Minimum dividends and ROI until dissolution or expiration – an agreement that the investor receives repayments over the lifecycle of the film until the film is no longer commercially viable.  Agree a fixed minimum ROI on the original capital investment, to be repaid in part or full, which then triggers a profit share payment on a regular basis, i.e. a shareholder dividend.
  • Equity sale of the movie, partnership or limited company – the Producer sells equity in the limited company or partnership for the film to another for more than the original purchase cost.
  • Negative pickup – the sale of the entire limited company – although this option doesn’t occur very often, it is possible that a film production may be sold in its entirety to a larger studio or distributor, including its assets, in advance for them to then promote and exploit.  This option usually generates a profit for an investor as it generates a higher share equity price.

Recouping the Initial Outlay

The making of a film or movie requires an initial Independent Film Funding outlay in order to create a commercial release product, so, the company or partnership is effectively making a loss before it sees any generated revenue or ROI.  At first, it is important to recoup the production costs, so, the first monies to be generated are destined for investors as they provided the finance to get the production off the ground.

 

Scheduling of Repayments

According to the business plan that has been developed, there can be several different ways in how the revenues generated from a film are distributed – everyone wants a return on their investment on Independent Film Funding as soon as possible:

  • There is the revenue-sharing ‘corridor’ from equity artists’ contracts.
  • Tax authorities want their corporate returns paid early.
  • Equity investors want their investment recouped prior to creditors being paid.
  • Banks that have lent finance often do so on the proviso that they are repaid before anyone else.
  • And for Producers, it is important that they recoup the monies spend on initial development.

Traditionally, repayment of invested capital is arranged over three levels, with pre-determined ‘corridors’ included.  Tax and bank obligations are usually first in line, then equity investors and producers, followed by other shareholders on Independent Film Funding.

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