From 2004-08, there was a flood of new capital that poured into the film industry.
Most of this money came from institutional investors like hedge funds, private equity firms and investment banks.
The bulk of that money went to the studios, but when their coffers were full, it trickled down into the independent markets.
Hundreds of millions of dollars were invested into independent film funds like Grosvenor Park, Aramid, Oceana, Winchester, 120db, Newbridge, Barbarian and many more.
As competition for viable projects increased, lending practices decreased. Soon, finance plans were looking for films, instead of the other way around.
Some of those funds are still around, but most are not.
There were so many films financed during this boom time that the indie film market became saturated with product.
At the same time, the global credit crunch struck and many international buyers lost the lines of credit they used for acquiring films.
The product saturation created a bottleneck and the acquisition glut created a clog in that bottleneck that took two years and hundreds-of-millions-of-dollars in financial Drano to root-out.
The good news is that the crash of 2008 brought a halt to film production, which effectively turned off the product spigot, allowing the clog to slowly drain. This two-year production glut had the added benefit of eventually bringing talent fees (and overall budgets) back down to earth.
Fast forward to Sundance 2010, where the acquisition of 50 films marks the first indication of a freshly cleared distribution pipeline. Distribution slots were finally available to be filled, but due to the production glut, there hadn’t been enough films to fill them, so distributors went on a buying spree.
The lack of funding options also created an opportunity for new financiers and funds to enter the indie market, which in turn has created an uptick in the number of projects that are being financed.
New gap funds, equity funds, tax credit funds and banking divisions are popping up.
Some are new faces, but many are survivors from the previous storm, and they’ve comeback more sophisticated, and more conservative, then their predecessors.
The 30 percent - 40 percent super gap is gone. Lenders are taking fewer chances on foreign buyers (and discounting them accordingly); coverage ratios for gap loans are more conservative and restricted to primary territories.
All of this is placing more demand on equity, which in-turn is demanding more collateral coverage (like first position against the U.S. and tax credit overages.)
So this is the landscape most independent producers now find themselves in, and it’s important that they understand what most of these financiers have been through -- especially if they want them to finance their movies.
For starters, each fund has a set of codified mandates that dictate what types of films they can invest in. These mandates can be based on budget size, genre, type of financing, minimum tax credits, etc.
So the investment criteria for a film fund might sound like: “We only do debt financing (no equity) for thrillers with budgets over $10 million, that shoot in states with incentives over 25 percent, and that have presold 30 percent of the budget (including two major territories).
