Who finances the movies we watch?

From afar, the movie business might seem very attractive. While it’s possible to make tons of money if you know what you’re doing, on average the economics of producing movies is quite complex. Add in the production costs, enormous marketing budgets, or the flaky nature of movie audiences, and you have a recipe for potential bankruptcy. With all these headaches to consider, how then do our favorite movies usually get the cheque to even begin filming?

How are films made?

Films start with the development of a script, where the screenwriter puts pen to paper in the hopes of spinning gold. After completing the script, the executive producer shares it with the film directors to assess its viability before considering the movie finance options. The producer then secures funds to hire crew and cast members before diving into the shooting process. Post-production begins mid-way through the shoot, and it typically involves editing the raw footage to get as close as possible to the director’s vision. Ultimately, the executive producer develops a marketing strategy to promote the film to the public before its release.

Why do you need film financing?

Most studios tend to keep film budgets under wraps before box office numbers are released, partially to avoid premature speculation but sometimes because these figures can be large enough to make anyone blush. The money secured typically goes to fund production costs like location shoots, prop assets, salaries for talent and crew, post-production work like CGI effects, and much more. For instance, a blockbuster such as The Avengers may cost roughly $250 million to develop. However, this budget spikes significantly once you consider promotion and marketing costs, easily adding an extra $100 million to that amount. Advertising and print costs can be significant for movies that do not have an in-built audience and need to do the leg work to generate awareness. So when you end up watching the 20^th sequel for Fast & Furious in the near future, at least now you know why.

How are films financed?

Film producers determine the possible value of the picture when selling the concept to potential investors, and base its value on the potential sales from theaters, DVD sales, and streaming services. It is after determining the budget that sales agents and producers start to consider the possible options to fund the project. Below are some of the film finance options that producers commonly use:

• Bridge financing: Most filmmakers get loans to finance their films. They use the loans to fill the gaps of what they already have. The film producer personally guarantees the loan and uses other intellectual property rights as collateral.

• Tax Credits: Like bridge loans, filmmakers can use tax credits to bridge the gap between the film finance budget and what they have already raised. Some states allow executive producers to reduce the costs of production using tax benefits.

• Crowdfunding: This is a recent phenomenon involving cross-follower campaigning. Filmmakers can raise a great deal of money from friends and families with intellectual property as collateral. They can increase the amount through equity or donations.

• Deferred Payments: Most filmmakers defer the payment of production expenses to a later date when the film is a success. Filmmakers can combine this method without other options to fund the process successfully.

What are some of the most successful low-budget films?

Producers shoot low-budget films with little funding from a private investor or big film studio. Most independent films (or indie films for short) operate with these micro-budgets and mostly feature an unknown cast or director. For instance, Rocky raised more than $225 million at the box office and elevated Sylvester Stallone into a break-out 90s action star. Astoundingly, the film only had a budget of $1 million so turned over a healthy profit. Similarly, The Blair Witch Project only cost $60 grand but raised $249 million at the box office.

How the streaming era is affecting film financing?

Streaming has changed the industry and challenged the Hollywood status quo. These services have become mammoths in the industry, spending billions on programming annually to entertain the ever-growing market of digital consumers. Today, traditional entertainment companies are now selling their content to consumers directly, rather than relying on middlemen. What’s more, these services are also funding indie projects that would have never gotten financed by larger studios, and in the process turning these pictures into cult-hits (the most recent example of this being Squid Game’s eventual funding by Netflix after a 10-year search). These changes come with a positive outlook for the industry, and even more so for us viewers as we now live in an era where if your idea is good enough, you can get it funded and share it with the world.