Methodology, Skills and Professional Benefits Participants Participants' Comments MEDICI Head of Training «The 12 Labours of Hercules» Report of the Reports – Workshops 1 to 4

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Second Workshop Report – 7 to 9 November, 2012 – Retz (Austria)

Module 3 – Financing Tools

Public funds offer different forms of funding supports: automatic, selective, grant, equity participation, soft loan, interest free loan, recoupable loans, advance on receipts, investment…).

Or, in other words:

• What is at stake behind the notion of such forms of funding?
• Why recoup? What is the current level of recoupment? How do the funds collect their share of revenue? Are cultural grants old-fashioned? What is implied in terms of follow-up?

Performance-based mechanisms: various funding mechanisms are based on success rates (box-office, festivals, sales…).

• Which indicators are used to define “success” and/or “performance”? How do producers use this “currency”?

Nota bene: This topic was not discussed due to a lack of time

1. What is at stake behind the notion of the different forms of funding supports?

The concept of “Impact Investment”, based on the presentation by Jean-Baptiste Babin (Packaging Strategy at Backup Media, Paris) and the debate that followed.

Please also see Jean-Baptiste Babin's presentation “Financing Strategies" (PDF)

The prerequisite of Impact Investment:

• The typologies of public funding across Europe are the fruit of their differing attitudes towards financial counterparts
• The vast majority of the funding mechanisms (60%) do not require any financial return (“subsidy”)
• Those who do require a return on their investment obtain marginal returns (10% max.), and clearly acknowledge that such a return does not belong to their priority investment criteria.

Whether or not the funds recoup cannot be the sole criterion, and these typologies may be outdated:

• Recouping funds also requires non-financial benefits from their investment
• Non recouping funds will want non-financial collateral.
• None of these non-financial benefits have been studied or quantified.

The doctrine of Impact Investment, which appeared in 2008, could be a good way to get a firm grasp of such indirect benefits in film investment.

The idea behind Impact Investment

• Impact can affect behavior, people’s attitudes, and perception, and bring long-term benefits.
• It is different from sponsorship because it is not a straight waiver of the financial returns. It implies a quite precise evaluation of the impact's different stages, including an evaluation of financial assets.
• Impact Investment should entail criteria for evaluation of social change and environmental performance, and integrate these as components of the investment process.
• Impact Investment increases public awareness and engagement. A film should be given a chance to be seen, and its scope of reach should be measured.
• Impact Investment differs from sponsorship inasmuch as the beneficiary of the Impact may not be the financing body.
• Impact Investment ensures a reliable system for producers.

Can public film funding be considered Impact Investment?

• Films can change the world, lives, life perceptions and attitudes. Does this not boil down to Impact Investment?
• The most dominant film-financing scheme in Europe is subsidy (60%). All new EU member states, except for the Czech Republic, have introduced subsidies as well. Impact Investment would decrease the financial risks of such subsidy schemes. Thus, public funds can turn into further Impact Investments.
• Impact Investment is not a total novelty in the film business. The web crowd-financing can be considered as the forerunner of Impact Investment in the film industry, since their goal is also explicitly to build up a community around a given film-project.
• Funds will of course want to know what the film in which they are investing is going to be about: Impact Investment criteria should be stipulated in the guidelines of public film funds.
• The concept of “Impact Investment" can be used as a stronger tool for fulfilling a political agenda. Until now, politicians have been very reluctant about what kind of film deserve support. Impact Investment takes into account the price of obtaining the contemplated social change as part and parcel of their investment, and therefore brings films back into a logic of profitability
• Public funds under-evaluate their assets. They are already impact investors. The problem is that they are not quantifying it because no indicators to carry out their evaluation.
• Public funds should go for it. The concept is still new and could very easily be misused by those resorting to it.
• Impact Investment can be used as a determining factor of performance and value. In this context, the funds must position themselves in order to come to a decision whether or not to support a project:
  • It has to be a good film
  • It has to measure up to what they expect from a public-funded film
  • The risk whether or not impact financing will reach their goal must be measured
  • Diversity of impact should be sought out. Producers should use a diversity of funds in order to benefit more
  • Various funds should work jointly and fit their interests together like in a puzzle, including openings for funding from neighboring territories.

What about private investors?

• The interest of hard money investors should be sought out through intangible economics. It is necessary to convince investors that their investment will make more of a social and environmental impact than mere financial profit.

What do film funds think about this concept?

• Do we want "impact financing" to actually entail criteria to evaluate social and environmental performance and integrate them as components of the investment process?
• What kind of impact should be measured? Does it imply a moralistic or an instrumental attitude? This approach could be dangerous because there is a risk of impairing freedom of expression. Funds should be open to ideas they do not like.
• Is it not more a question of instrumentality rather than the definition of a desirable impact? Films should be supported mainly because they do good, they contribute to encouraging discussions in the countries, and they defy national borders. That is also the impact of our investment.
• The diversity of films supported is already an impact (as exemplified by Scandinavian countries).
• Can it really be applied to film funds? For producers the concept is brilliant.
• In Denmark, we produce films to incite social changes.
• Is impact investment only the “Emperor’s new clothes” to allow hard-financiers to recoup first and because greedy money is out of fashion now? If hard-investors want to save the world with the films they co-finance, they should not look for the upside financial potential of those films.
• This concept compromises the idea of film as art. But art cannot be conceptualized. Art also changes the world. Public services (like BBC) have an impact. It should not come from a public fund.
• Funds should be stirred up. Nevertheless, the idea of teaching them how to consider themselves as impact investors can seem scary to them.
• Impact funding also entails films that are totally different from commercial films. Funds promote films that are provocative and entice changes, but it is not in the guidelines and should not sound like propaganda.
• There should be separate funds that promote only diversity and non-commercial works (like in France), and separate impact-investing public funds.
• The kind of impact and debates the funds tend to create with supported films should be quantified. The bigger the impact, the more difficult it is to assess it.
• Impact investment keeps public funds from opening up to ideas they do not like. Impact investment will turn into promotion of only a specific type of values, and thus impair the freedom of expression and variety of voices.
• Politicians may tend to exploit impact investment. Emphasizing the role of impact, they could establish the type of films public funds must promote.

2. Recoupment

The majority of public moneys do not recoup on film revenues. Those that do—be it through soft loans, equity, advances on receipts - usually have done so at the end of the recoupment line and their current level of recoupment is 1 to 4% (see grid below), which is very low.

Why recoup? What are funds' positions and findings?

• Recoupment is not always what funds want. It exists for political reasons.
• Recouped amounts can go into a common budget or to specific producers.
• Public Funds are soft funders. The recouped money goes back in the double amount to the same producer as automatic funding.
• Automatic support makes producers come back (like at the Irish Film Board). Public funds should define sustainable business standards and work on developing and sheltering a recoupment system that gives back money to producers.
• Instead of making producers dependent on their money, the public funds should encourage producers to carry out the most profitable projects possible and thus make the film business more efficient, and in return give them recouped money. It is a move towards modernization of the public funds, instead of allocating money only through deadlines and open calls.
• Film funds with aggressive recoupment schemes chase away private investments.
• It is difficult to predict which film will be profitable enough to secure satisfactory recoupment.
• Certain regional funds could not invest in new films without recoupment. Investment in new projects should be dependent of the recoupment level from previous projects.
• Regional funds rely more on collateral financial benefits (tourist promotion, economic impact, employment rate) than recoupment. However, they should start being treated more as private companies.
• Recoupment is in disproportion with generating economic impact and other non-financial collaterals.
• There are three recoupment models– net deal, gross deal or off-the top model. The film funds find off-the-top model to be the safest in terms of recoupment.
• It is difficult to recoup if big MGs and P&A are involved.
• Public funds should define sustainable business standards and work on developing and sheltering a recoupment system that gives back money to producers.
• Who are the biggest money collectors? Not the producers. The money goes to distributors and various others. We should fight together for a bigger share.
• If funds want to create a lot of employment, they should not ask for recoupment. The accent should be on the local expenditures and their economic impact.
• You cannot have both money and critical acclaim.

How do funds collect their share of revenue? What does it mean in terms of follow-up?

• A lot of administrative work is entailed. Sometimes, the producers are uncooperative.
• The information on revenues should be collected more efficiently. It must be defined what documents the producer should furnish to facilitate collecting the revenue-related info.
• Bigger, commercial films usually do not pay us back because minimum guarantees, P&A and pre-sales are high. The more arthouse a film is and the smaller minimal guarantee it has, the better the recoupment is.
• The collection agent system grants more transparency, but doesn’t increase recoupment.
• The role of collection agent is to facilitate recoupment in case of bigger films (usually with a budget of over 3 million EUR). Collecting agencies are not interested in films that do not generate big revenues.
• Babin ends up mentioning MovieChainer, a web app designed for modeling complex revenue structures and enabling producers and funds to keep track of their common / respective revenues.

What is the current level of recoupment?

Wallimage	10% of what they invest (including loan)
Danish Film Institute	1-3%
Polish Film Institute	3%
Luxemburg Film Fund (advance-on-receipt scheme)	25%
Eurimages	1'200'000 EUR per annum
Netherlands Film Fund	200'000 EUR per annum

 

• Module 1 — The Role of Public Film Funds
• Module 2 — Coproduction, Minority and Agreements
• Module 3 —Financing Tools
• Module 4 — National Funds / Regional funds – Friends or Competitors?
• Module 5 — A diversity of voices… a real challenge
• Open Space Module
• List of Participants (PDF)
• MEDICI Second Workshop Full Report (PDF)

Illustrations by Rudi Klein, photos by Nora Friedel

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