Film Finance 101

Landon D Parks

Landon D Parks

Active member
Hey everyone...
I don't claim to be an expert on film finance. However, I have spent several years researching the subject. I wanted to share in this informational post some of the ways I have learned to raise money for your films.

Disclaimer: The below is not to be considered legal or financial advice. I am not a professional in either of these fields.

Studios
The classic, tried and true way of getting money for your film. Never-mind the fact that your odds of getting financing via this method is in the range of 1 in 1,000. Still, if your looking to raise money for a large motion picture ($5,000,000 plus), then this would be your best route to try first.

Another advantage of studio financing is that your film is guaranteed distribution (most of the time. However, there are setbacks. Namely, you will loose creative control over your film!

Private Placement Investment
Under Regulation D of the US securities act, you can offer and sell and unlimited number and dollar value of shares in your partnership or corporation. However, you will need to keep the following in mind when relying on Regulation D, Rule 506:


  • You cannot use general public solicitation to market the stock.


  • You can only sell the stock to "accredited investors". According the SEC rules, an "accredited Investor" is any person or corporation that meets these requirements:

  1. An Individual with a net worth of at least $1,000,000
  2. An individual who has made $200,000 or more for the last two years
  3. A corporation worth at least $5,000,000 in total assets.
  4. Any investment bankers or brokers.

  • You legally CANNOT sell stock to your friends and family. While most filmmakers will ignore this, I suggest you don't. This is of course assuming your family or friends do not meet one of the qualifications above.
Private investment can be a good choice for filmmakers looking to raise a very large sum of money for your picture, but it general helps if you have some bankable assets in place before trying to obtain a large sum of money this way. The investors you will be approaching under this rule are not stupid, and general will not invest less than $50,000 or more.

Credit Cards / Self Finance
This one is obviously the easiest way to finance your film. Considering of course that you actually have or can get the money to do this. It general does not work for films costing more than $100,000....

Regulation "D", Rule 504 Offerings / Small Corporate Offerings Registration (SCOR) - Direct Public Offering
Regulation D, rule 504 of the US Securities act allows any corporation or limited liability company to raise no more than $1,000,000 in a 12 month period. So, what sets this apart from private placements? THE PUBLIC.

By taking advantage of Regulation D, rule 504, you can offer and sell the shares to the general public and you can use general advertising and solicitation. However, in order to sell to the public and use advertising, you must file a form called a "SCOR" offering, or form U-7 with EACH state that you want to offer or sell your securities in.

In general, the fee to submit the SCOR form to each state will be $100 to $1,500 or more per state. Most states work on a formula of "1/20 of 1% of the offering" or "1/10 of 1% of the offering". Prior to your offering, you MUST file "Form D" with the SEC. "Form D" is only an informational form, and does not require "approval of the SEC". You'll also need audited financial statements for offers of more than $500,000.

The main advantage to this setup is that you can sell shares of stock in your film to ANYONE who wants to buy them, and you can even advertise this offering. Your total cost to register Reg D / SCOR in all 50 states would probably be in the range of $12,000- $30,000.

For more detailed info on Regulation D offerings, see:
http://www.sec.gov/answers/rule504.htm

For more information on SCOR filings, including a list of regional reviews and fees, see:
http://sites.state.pa.us/PA_Exec/Securities/cer/crscor.html

Regulation "A" Direct Public Offering
Regulation A of the US Securities Code exempts any corporation or limited liability company from SEC registration for offerings that do not exceed $5,000,000 in any 12 month period. General Public Solicitation is allowed, and you can sell the shares to anyone. You also do not need audited financial records.

However, you still need to register the securities in any states that you want to sell or market them in. Instead of using the SCOR form though, you would file Form A-1 with each state. You also have to submit form A-1 to the SEC for review. Regulation A is really more of a simplified registration than an exemption from SEC filings.

Keep in mind that most states are more strict than the government. Most states will still require audited financial for offerings over $500,000 or $1,000,000 in some states. There are a few states that do not require audited financial for offerings up to $5,000,000 under regulation A. States filing fee's will be about the same as a SCOR offering above.

This is a good way to raise up to $5,000,000 for your film from the general public!

Keep in mind that shares in your film, under regulation A, are freely triadable. This means that in all actuality, you could have your film listed on a national stock exchange or quoting system.

Regulation S - Foreign Offerings
The SEC exempts corporations and limited liability companies from registering with the SEC for securities sold overseas, to non-US residents. Offering may be in any amount, and general public solicitation is allowed. You must, however, make it known that the stocks are not tradable in the united states.

You will also need to take care to make sure that your offering is in line with the securities commission of the country in which you are selling to. While the SEC does not require filings, you are still bound by anti-fraud laws of the US. The SEC will come after you if you rip someone off; foreign or not.

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Well, there you have it. Sure, its rather lengthy, and most of you probably know about some of those methods. However, my goal was to make the SEC exemptions better known the filmmakers. :engel017:

​
 
Good stuff.

Getting all of the calls from people seeking accredited investors got annoying so fast. I got called for film financing every week there for a while. Usually they'll try to sell you on $5K to $10K packages in my experience, not $50K+ plus. Of course they'd love that, but they try to get a series of smaller investors.
 
I really don't see why more films are not financed via a Direct Public Offering... It allows the general public to get a piece of the "movie" business without needing to invest thousands of dollars...

While our company is not really "just" a production company, we are using Regulation A and S to do our IPO. We, however, are more of a distributor than a production company....
 
Great info Landon. Glad to see someone on here is serious about the business of filmmaking. So what all are you guys looking for or what do you see as being a profitable formula to make some money?

I plan to shoot another feature this year but don't want to do something that doesn't make any money/doesn't sell. You can PM me if you don't want to post it here.
 
Henry,
Moonlight Media Home Entertainment will release around 24 - 36 films per year into the DVD market, as well as handle TV and Foreign sales for films which have those rights available. We are currently toying with the Idea of giving most films an LA / NY run before the DVD Premier as well, although this not yet finalized.

We will also be handling online streaming rights as well, for services such as iTunes and Amazon VOD. We are currently working out agreements with Rentrak, Walmart, Target, Best Buy, Kmart, Ingram, Baker & Taylor, Comcast VOD, Warner VOD, Charter One VOD, Amazon and other.

Most of our titles will be carried in retail stores on a "consignment" basis, giving each title the maximum exposure possible. We also are looking to produce around 2 to 5 films per year, which may either be DVD Premiere or Television programs.

If your asking me what we would look for in a finnished film; that depends on the type of film it is. Most of our titles will be horror genre, released under the "Dark Vision Pictures" label. For these titles, we are not only looking for gore, but also good quality horror and thriller stories... Other films will be picked up based on how good the film is. Of course, having a known actor or some other bankable asset is a big help.

If you have any scripts that you have packaged and would like to pitch to us for production, we can also look into that as well. :furious3: Keep in mind that we are not yet operating, and are waiting for our IPO to clear in order to start full operations. We look to be in full-service by the end of the year.

On the other hand, if your asking me how best to raise money for your film, I would say that a Direct Public Offering under Regulation A and S is your best bet at getting funding. It's still not going to be easy though. Getting financing for a distribution company that plans to profit $2 million a year is easier than getting financing for a single film with no guarantee that it will even be seen, more less make money.
 
Landon D Parks said:
On the other hand, if your asking me how best to raise money for your film, I would say that a Direct Public Offering under Regulation A and S is your best bet at getting funding.
Click to expand...

Do you know of a good DIY guide that I can use to set that up? What are the overall costs, I've always heard it can cost around $5,000. I would probably just do one state to save money and try in that state first. If things go good, expand to other states.
 
Henry,
The cost will depend on what regulation you file under. DIY guides do exist, but there still is not a great deal of information out there about Reg A, D and S... I put my knowledge together from several years of reading different websites and articles in business journals.


Disclaimer: The below is not to be considered legal or financial advice. I am not a professional in either of these fields.

Regulation 'A"
SEC Registration: $58.00
Registration in EACH State: $250 - $3,500. Most states will be on the lower end, with only a few states like California being on the high end.
State Level CPA Audit (Required for some states, not SEC): Could be as little as $0.00 if you are friends with a CPA. Otherwise, your looking at between $1,000 and $3,000 for a complete start up business.
Legal Council: While you do not need a lawyer to put together the offering circular, you will need to get a "Legal opinion letter" from an attorney, stating that he/she has reviewed your offering and finds it acceptable.
Total Cost: Could be as low as $600 if you can get your opinion letter and audit for free, and you only register the offering in one state.
Time Frame: SEC Approval - 3 to 9 months. State Approval - 30 to 90 days.

Keep in mind that under Regulation A, you can only make TWO offers in a 12 month period, and both combined cannot exceed $5,000,000. So if you do decide to "tier" the offering, make sure on your second go that you register with all states you want to offer the $5,000,000 in.

Regulation S
This will not cost you anything, as it is a pure "exemption". You are not required to file for SEC approval, or State approval. Just MAKE SURE you are within the guidelines of the country you are offering in, or the SEC may come after your head! :violin:
More info on Reg S: http://atlanta.bizjournals.com/atlanta/stories/2003/08/25/smallb6.html

How to file REG A
First, you need to prepare your Offering Circular. I would suggest using "Form 1-A" (http://www.sec.gov/about/forms/form1-a.pdf). This is the VERY important part, and will require the most work on your behalf. The circular is around 35 pages long, and filled with business and legal jargon. MAKE SURE that you will this circular our as best you can, because this is what you will both give to the SEC and States for approval AND are required to give to everyone who invests in your company. This of the offering circular as a public companies version of the "Investment Memorandum" for private placements. If you don't already have a business plan in place, do so at this point!

Second, since your a new company with no operating history, you need to put together a "Projected Balance Sheet", showing estimates of all incomes and expenses you expect to result from the business. This will NEED to be audited and reviewed by an Independent CPA.

Third, you need to get a legal opinion letter. Once the audit, business plan and circular are completed, you need to give it all to a lawyer (does not need to be a business or securities lawyer) to review, and to write your opinion letter.

Fourth, you combine "Form 1-A", "Legal Opinion" and "Audited Financial's" and any other "exhibits" they require (listed in Form 1-A Instructions) into a package and submit it to the SEC for review. SEC approval could take as little as 30 days, or as much as 9 months! This mainly depends on how many times they need you to make corrections to the offring circular or to provide them more information. Each time you submit the package to them, your looking at a $58.00 fee.

Fifth. Once you receive SEC approval; you then need to submit the same package to each State that you want to offer in. Some states, such as Colorado, do not review Regulation A offerings. In this case, they consider the offering to be valid in their state once you get SEC approval and submit an informational form to their state securites office (no approvals).

It's impossible for me to give you the contact information for each state. My advice is that once you are ready to submit the package to the states, you then need to personally call each states securites comission to determin where to send the package, and with what fee.

There are regional reviews however! Around 35 of the 50 states take part in whats called "Coordinated Review". More information on this is available HERE:
http://www.nasaa.org/industry___regulatory_resources/corporation_finance/604.cfm

If you are applying under "Coordinated Review", 3 of the "regions" have their fee table and other information posted online. SEE THESE LINKS to go directly to the fee and requirements tables:

MIDWEST REVIEW - http://www.securities.state.ks.us/mrrp/mrrp_about.htm#states - You then need to click on the state(s) link and it will open a fee table for that state.

MID ATLANTIC - http://www.psc.state.pa.us/corpfinance/midatlantic/appendixa1.pdf

WEST - http://www.dfi.wa.gov/sd/scorwestfr.htm

There are three other review regions, Southwest and Southeast and New England. They do not have fee tables online. However, more information on these regions can be obtained from here: http://www.nasaa.org/industry___regulatory_resources/corporation_finance/604.cfm

If you need more help, I would be happy to help-out a fellow filmmaker. I can assist you in filing our your 1-A if needed, or if you just need more advice before going through with it. Also, keep in mind that if you don't want to use Form 1-A, you can also put together your own offering circular, so long as it contains all the same information and disclaimers in the 1-A form.
 
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