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What Is Film Financing?
Mary Aloe explains that movie production is a capital-intensive endeavor,
but when a film is successful, the project could pay itself off in
dividends. Institutional investors and local governments sometimes
become involved in the upfront film financing, extending equity or debt
in order to fund the project. Mary Aloe has found that investors are
repaid with the revenues that a film generates or through
predistribution sales, and if the movie is a failure, nobody wins.
Mary Aloe recognizes film financing can be provided by investment banks, hedge funds, and insurance companies, among other investors. According to FIN Alternatives,
the financing of film projects goes through cycles where one type of
investor tends to be the most active. For instance, in the 1990s,
insurance companies had an active hand in film financing. Banks provided
the loans to the filmmakers, and insurance companies would provide
insurance on that debt.
Investment banks already finance much of the deal activity that occurs
in the financial markets, and these firms have a hand in film financing
as well. Given that the cost to produce movies can be so high, banks
have partnered with movie producers and turned to other institutional
investors, including hedge funds and private equity firms, to provide
the money for the financing. Mary Aloe sheds light that debt financing
typically takes priority over equity, and as a result, the former tends
to be the primary way that institutional investors are willing to fund
film projects. Equity may still be used in film financing, but it is
more likely to derive from wealthy people or venture capital firms.
Public pension funds have
been known to provide film financing in some cases. Mary Aloe recalls
that the public fund uses assets in the investment portfolio to extend
equity or debt financing to a particular director who makes films in the
state of the retirement plan, such as New Mexico in the U.S., for
example. Mary Aloe states that financing is provided to support the
local economy, and revenues are earned from movie sales. A prerequisite
is often that the lion's share of the movie be filmed in a given
Investors who extend film financing may prefer to work with a studio
that is well known or at least has a history of successful movies. Mary
Aloe has found that lenders may offer incentives such as low interest
payments to filmmakers with these qualifications. Benefits for the
filmmakers include quick access to money, which in turn can accelerate
the production of a film.