MOVIES, FINANCE, AND BUSINESS.

Don’t you think movies always fascinate people? Is there someone who doesn’t love movies in the present world? Absolutely not! I always wondered how movies make business in the present world.

Bhajrangi Bhaijan is a great movie which grossed $600 million. We quite often see on various websites that someone keeps on posting “the most profitable movies of the year”. This list usually uses the budget of the movie and the collections it has made after the initial release. This always confounded me whenever I give a quick glance to the list. Making movies is a kind of business where financing has to be made which is noted as “film financing”

HOW WILL THE FINANCING HAPPEN?

Financing is the important aspect of movie making. Without money, movies can’t exist, but it is a kind of topic where least information is floating around. The main factors that determine the commercial success of a movie are public taste, artistic merit, competition from other films released, the quality of the script, the quality of cash, etc. But there is no accurate method to determine the level of revenue returns for a film though it is mentioned commercial on paper. Many commercial films make money over decades. The time value of money plays an important role here. The film which got released today will be played on the televisions for over a decade or two which would generate the revenue for the succession years after the initial release of the movie.     In the past, there was only box office for the investors to gain present value return on their investment.

The difficulty in raising a capital for any venture is two-folded. Firstly, the market is too crowded with a plethora of opportunities that are currently earning strong returns. Secondly, speculation is the killer of financial deals. Future is uncertain and unlikely to know. Few people want to invest in an opportunity where returns are unlikely.

When it comes to film financing other than capital many other aspects like talent, timeline, multiple financiers, scheduling, and structure comes into play. So keeping this in mind, how do we finance a film?

There are plenty of ways to finance a film:

1.    Government subsidies: Government of many nations run various programs to provide subsidies to the various films. They are willing to provide subsidies in order to attract the creative individuals to their territory and to nourish employment.

2.    Tax incentives: Some US states and other territories provide provisions 15% to 70% tax or cash incentives for the cost of production to the films/televisions as expenditure. This is called soft money. This money is incurred by the production unit after the final payments to the workers, financial institutions, and other prop companies.

3.    Private equity financing: Most often the cost of production is regained by a couple of taxes which are state level and federal level tax incentives, eliminating the most of the risk. Though the risk is eliminated, capital is required as a direct investment here. For instance, if an investor invests capital into film production, he/she will receive the equal amount of capital in the form of tax incentives, pre-sales, and state tax credits.

4.    Debt financing: Pre-sales play a key role in debt financing. The production unit of the movie will distribute the copyrights of the movie to various territories before the movie gets completed. Typically, the buyer who buys the movie will pay 20% of the amount to the production unit as an advance and the remaining 80% balance will be paid after the initial release of the movie.

5.    Crowdfunding: It is a practice where general public started financing in movies. They are less risky, more profitable, more innovative independent films. Crowd financed films are iron sky, kung fury, star trek and veronica mars.

Even after scaling these hurdles, making the movie is one of the biggest challenges to the crew of the movie. Each and every person in the movie have to strive hard to make it a magnum opus.