Guest Blog: 3 Part Series from Jeff Steele, Expert on Film Finance, Part 3

How to Choose (a sister wife) or a Foreign Sales Agent

by Jeff Steele (www.filmclosings.com/NOTE: Film Closings Inc. will review only projects over $3m, and Magnet will only consider projects over $10m, but please no unsolicited materials.)

If the relationship between a producer and a financier is like a marriage, than the sales agent fills the role of your sister wife #2.

PRODUCER: Hey Jeff, I’ve got a $12m thriller with attachments, but I have a problem.

JEFF: A problem, eh? How can I help?

PRODUCER: I need the best sales agent; who do you recommend?

JEFF: Easy, you will want to work with ***** *****.

One of the more difficult questions I receive on a weekly basis is who I recommend as a sales agent. There are a lot of good agents out there – in fact, I would say that there are more good agents out there then there have been for quite some time. A lot of key sales people from established sales institutions have struck out on their own in the past couple years: Nick Meyer, Stu Ford, Glen Basner, to name a few. In the past, the general rule-of-thumb was that AFM was just an endless cycle of “same names, different companies.” But now, those names (along with Nick Chartier) have setup their own shops and are doing things different, and I think…better.

So who do I recommend? If you need somebody to make presales that a bank will lend against (i.e. “bankable”), then I would recommend one of the above names, as well as some of the established players. However, bankability is more than just who is selling. It’s actually a combination of factors:

1) Who is selling?

• Do they have a history of hitting their Take numbers?
• Can they collect?
• Do they have enough quality product to keep buyers from stiffing them, or renegotiating?

2) Who is buying?

• How deep are their pockets?
• Do they pay on time?
• Do they pay in full, or do they renegotiate?
• Is the buyer paying a 20% deposit? If not, then there’s no incentive for them to pay the MG (or not renegotiate).
• Who is lending?

NOTE: Different sales companies have relationships with different lenders. Some are universally bankable, some may just be bankable by the one or two lenders with whom they’ve had a long relationship with.

All of these factors can positively or adversely affect the credit discounting applied to presales (e.g. will the bank lend at 100% of the value of the contract, or 80%, 50%, or zilch.) As you can see, there are more to sales estimates than just the Take amount. You need to look deeper.

Sometimes a film may need a more hands-on/nurturing touch in order to find its audience, wherein somebody like Robbie Little or Cedric Jeanson would be a good choice. Their backgrounds and their relationships are top notch, but they prefer a more hands-on pipeline of product.

If you have a completed film, then there are agents who are very capable. These agents have chosen not to actively pursue the bankability business and are very capable of getting your film out to the market.

Obviously, there is a lot more to know on this topic and each film may have different needs, so there is no best.

However to be nice, I will leave you with 3 last important notes:

1. If a foreign sales agent ask you to pay anything upfront, move on. 2. It’s a good idea to include a portion of the foreign sales agents marketing fee in the film’s budget. 3. if you squeeze them too hard on their commission, they won’t be incentivized to sell your film – so if it’s not a commercial film, then give them a higher commission – you’ll be better off for it…

Or in other words… your sister wife needs to feel special too.

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Guest Blog: 3 Part Series from Jeff Steele, Expert on Film Finance, Part 2

70% Gospel for Foreign Sales Estimates

by Jeff Steele (www.filmclosings.com/NOTE: Film Closings Inc. will review only projects over $3m, and Magnet will only consider projects over $10m, but please no unsolicited materials.)

PRODUCER: Hey Jeff, I’ve got an awesome $10m sci-fi project.

JEFF STEELE: How much is foreign?

PRODUCER: $6m, but it’s really more of a domestic play anyway.

JEFF STEELE: Yeah well, they all seem to be domestic plays when they're made for the wrong price.

PRODUCER: What!? Really!? Explain.

In the beginning, there were foreign sale estimates, and they were good…

These estimates are such a fundamental truth of goodness that it’s worth bolding: 70% of your budget should be covered by the gross-take-value (gtv) of your foreign sales estimates. And if you don’t, your film budget will be adjusted downward. And, you can’t fool me, I know what your thinking, “Jeff, don’t worry, I’ll just shop around for a sales agent that will give me my magical numbers.” Problem is your magicians won’t be able to deliver. So, to be smart about it! I prefer to recommend 75%-80% (gtv), due to the steep discounting lenders apply to presale contracts today. But 70% should be all film projects’ gospel. Why? Because, to mitigate your domestic risk to an acceptable one, you’ll need :

1. Elevated foreign values

and

2. Tax credit benefits and pre-sales

Don’t delude yourself, the domestic market is saturated with product right now (I’m sure you’ve heard of the $20m direct-to-videos) — the less reliance on the United States the better.

The 70% gospel has spoken; the gospel is good.

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Guest Blog: 3 Part Series from Jeff Steele, Expert on Film Finance, Part 1

Top Independent Filmmakers, Take Finance Plans Seriously

by Jeff Steele (www.filmclosings.com/NOTE: Film Closings Inc. will review only projects over $3m, and Magnet will only consider projects over $10m, but please no unsolicited materials.)

As the CFO for one of the few equity funds actively financing Independent Films, it doesn’t take much for me or any other funder to tell the professionals from the amateurs. One look at a producer’s finance plan (as well as their choice of attorney) tells me right away what kind of closing I’m in for. Being that a film finance closing can last anywhere from 4-12 weeks, this can be a relatively clean, straight forward, experience, or 3 months of hell. Simply put, a finance plan is the best indicator of a producer’s financial I.Q. We need to know that you know how much money you really need and where you’re going to get it from.

You can no more produce a movie with a mediocre budget, than you can finance a movie without a finance plan. It’s the art and science of simultaneously predicting and preemptively satisfying the needs of lenders, investors, attorneys, and bond companies.

Producers tend to think in gross numbers and percentages:

Mr. Grossman says, “Hey Jeff, I’m making a movie for $10 million and I need $2m equity; the rest will be 20% tax credits from New Mexico, we’ll pre-sell 30%, and gap the rest.” These back-of-the-napkin numbers are fine between friends, but you will inevitably end up going back to your financier, hat in hand, to ask for more. You don’t want to be in this situation, especially if the lender or investor has already gone to their board for the initial amount. This is where most deals begin to die.

Because of this, funders have become much more sophisticated: they are either better at punching holes in packages, or they hire someone who is. To inspire confidence with your investors, you don’t have to be smart enough to build your own finance model; you just have to be smart enough to surround yourself with people who can.

The following is what you’ll need to calculate: (a) What your films budget is and (b) What type of capital you’ll be using

1. Budget information
2. Foreign pre-sales and estimates
3. Tax credits
4. Sources of equity
5. Gap calculation
6. Financing costs
7. Credit discounting (presales and unsold territories)
8. Bridge details
9. Worldwide costs of sales (sales agents, etc.)

As you can see, a well thought-out finance plan is not just a requisite for the closing, but is also an essential roadmap that will guide you through the fund raising process. While it can allow you to play with certain variables, the market conditions will typically reveal how the film should be financed, as opposed to how you would like it to be financed. If done properly, your roadmap will lead you to the net-to-production. Remember, Net Net Net! Because, if it’s not net, it’s gross.

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Focus Group Screening for Take Me Home

We are in the home stretch on editing our film Take Me Home and felt it was the perfect time for a focus group screening of it. My producing partner Mike Hobert called around and found a great little screening room in Santa Monica that would work with our budget. Check them out here: Santa Monica Screening Room.

Our editor Damien LeVeck saved the film to Blu-Ray and we projected it. It looked great! We had a full house of about 40 people (most not knowing anything about the film). It's important to invite people who don't know much, if anything, about your film and even better if they don't know you. 

Having a focus group screening allows you to stand back and watch how an audience reacts to your film. You can see if people seem engaged or bored or happy or scared or uncomfortable by any moments in your film. It also lets you see and hear if the jokes or scary moments are working for an audience. It's very easy to get too close to a project and not realize that what you are finding charming and funny or scary actually falls flat in front of a new audience. 

Because we didn't have a lot of time after the film, we passed out the questionnaire first and asked that everyone respond to the questions immediately following the screening. It's important to offer a written questionnaire so you can get feedback from every participant. Include multiple choice answers, like Excellent, Very Good, Good, Fair, Poor. This allows for a range of response, instead of a simple Yes or No -- which doesn't tell you as much. You can also do a verbal Q&A but definitely get a written questionnaire filled out by everyone.

It's a good idea to have the questionnaires be anonymous so people can feel comfortable about being completely honest. However, you should ask for gender and age range of the audience member. That way, you can get some stats on how certain demographics are responding to your film. This will help you figure out if you are hitting your target audience. 

You may be surprised and find that you have an audience in a different gender or age bracket than you had expected. Use your findings to create targeted marketing campaigns. For example, if you find your film appealing to a young audience then focus on that age bracket and the best way to advertise to them. A young audience may be great for internet marketing whereas a much older audience may need to be reached in a very different realm.

For us, we had worried about the likability of one of the lead characters. But what the focus group proved was that we shouldn't be worried. She was chosen by half of the audience as their favorite and only one person listed her as least favorite. Seeing that has focused our efforts to the real problems in the film -- which seems to be the pacing in the first act. 

So back to the editing room! And feeling very confident about the film! And that is a great feeling.

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"Gay Baby" Premieres Opening Night at the FilmOut San Diego

My brother and writer/director Kevin Kelly wrote a really charming script called Gay Baby. We fell in love with it's message of tolerance while exploring the idea: What if you knew your unborn son were gay?

The short film is a fun, comedic exploration of a new father's revelation that his unborn son is gay. With the help of a gay store clerk, he realizes that his son will be no different than if he were born straight. 

The film has been chosen to premiere on Opening Night of the FilmOut San Diego film festival. We are super excited for the premiere and we plan to launch a big publicity campaign for the film and its message. 

Kevin is working on a full feature version too! I'm really proud of my brother and want to say that if you are in the San Diego area, please join us for the premiere: April 16, 2010 at 7:30pm at the Birch North Park Theatre, 2891 University Ave., San Diego. (filmoutsandiego.com)

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Theaters in Los Angeles for an Indie Theatrical Release

We are exploring the idea of 4-walling our film Not Since You so we can get some much-needed exposure for it. The rates on 4-walling have been very interesting. I'll post what we find out once we have all the rates compiled. 

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Started a Book Group: Marginalia!

I was feeling very illiterate because I wasn't making time to read. I was always so caught up in my filmmaking and found it incredibly difficult to read a book from cover to cover and definitely hard to track new writers of fiction and even nonfiction.

So I decided to fix my problem. I started a book group with good friends who actually do take time to read. We call it Marginalia! -- thanks to our crossword guru who always comes up with great words to express himself. 

We are using an excellent Web site: www.goodreads.com to keep track of the books we are reading and we can discuss the books there too. I feel so much smarter now. 

We just finished reading Nicole Krauss' History of Love and while I didn't love it, I feel great having read a strong work of fiction and the opportunity to discuss it's pros and cons.

While it takes time away from my filmmaking work, I know it will help my storytelling skills and make me a more well-rounded creative professional. And who knows? Maybe I'll find a book I'll want to make into a movie! Every experience feeds who you are and who you hope to become.

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