I’ve previously written posts on financing movies in the studio arena. The principals of raising independent film finance are similar. The main difference lies in the extended patchwork of funding sources to get an indie film made. Each piece of the budget pie also tends to be smaller. There is no hard and fast rule for the budget of an indie film, but anything with a production budget of up to $1 to $10 million is in the ballpark.

Both studio and independent film budgets are typically divided into three areas – development, production and distribution. The are inter-dependent and not necessarily raised in order.

Here are some ways that indie movies are financed:

DEVELOPMENT

Packaging

Given that indie film budgets are increasingly more difficult to raise, film financiers want to ensure they invest in a pedigree producer with a proven track record.

It also helps to attach a name actor or director. This is often done via bridging finance to attach the bankable talent, which in turn can attract the rest of the production budget.

Talent often attach themselves to low budget films to exercise their creative freedom more than in a studio movie. Sometimes their agents and managers allow their talent to do an indie film (with less commission for them) in exchange for a studio film later on with a higher commission.

Some film distribution companies may provide limited packing funds to help get the film off the ground. This might be script development funds or a bona fide bridging loan.

It’s unlikely one distributor will assume the entire financial risk for a single film.

CO-REPRESENTATION

In larger budget indie films, several producers take a “bigger swing” (bigger risk) by splitting the key elements (such as actors and directors) and simultaneously approach numerous financiers to spread a film’s financial risk. If a producer secures the services of a major/semi-major talent agency such as Gersh, CAA etc., the agent may charge a packaging fee to attach name talent. Talent management companies may also contribute to the production budget.

PRODUCTION

Hedge Funds

These are large private funds which seek either a minimum guarantee rate of return or a proportion of the gross/ net box office takings. Hedge funds often invest in a slate of films rather than a single film to mitigate financial risk.

Equity Funds

These are private specialty financiers which buy a proportion of a completed movie rights. Unlike hedge funds, they favor a co-owner business model to enable a longer term revenue stream.

Private Funds

These are ‘investors’ which prefer to see a film made rather than making a financial return on their investment. They tend to be wealthy individuals, family and friends of the filmmakers. In-kind consumables and equipment in exchange for screen credits are alternative sources of private funds. These include equipment and studio hire at either reduced rates or for free.

Loans

These are loans from specialty media banks or government-funded film organizations. Bank loans always need to be paid back. Government-funded bodies are more lax with repayments, since they are more concerned with keeping local filmmakers employed.

Film Grants

These are financial gifts from government, philanthropic or other arts organizations who want to support their local filmmakers without the expectation of an investment return.

Gap Finance

This type of finance is used to compensate for unsold territories during the pre-sale stage. Without gap finance a film often cannot go into production.

Credit Cards

These provide high-interest short term loans to independent film producers for things like office expenses and smaller ticket items.

Deferred Payments

These are typically the salaries of above and below the line talent who believe in a movie and defer all or part of their payment until after a film generates revenue.

DISTRIBUTION

P&A (prints and advertising) budgets aren’t generated as a simple multiple of the production budget. A $200 million studio picture may have a P&A budget of $100 million, or 50% of its production budget. In contrast, a $1 million dollar indie film may require another $ 1million to distribute it, or 100% of its production budget.

Many distributors such as Film Nation still pre-sell films at the packaging stage at various film markets such as AFM (American Film Market), Berlin, Cannes and Toronto. Pre-sales can also finance development and production phases. Distributors will often finance the P&A in their respective territories.

Distribution deals are based on the attached talent (mainly actors and directors), genre and comparable sales. Action, horror and romantic comedies are still more attractive to distributors. Note that straight comedies often don’t travel well due to cultural differences and local tastes.

NEGATIVE PICKUP

Traditionally, distributors agree to buy the finished film for a fixed amount to distribute in their sales territories. This agreement does not grant the film producers any further profit participation.

MINIMUM GUARANTEE

This more modern agreement grants film producers a minimum amount along with further profit participation.

ACQUISITION

Negative pickup and minimum guarantee agreements tend to be made before a film is made to raise production funds. Acquisition deals occur when distributors purchase the distribution rights after a film is made. They do this to mitigate their investment risk.

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