Jean-Baptiste Babin is a founding partner and Head of Co-productions for Backup Films, a Paris-based Film Financing agency. Law graduate in Paris and London, Jean-Baptiste started his film industry career as business and legal affairs at Paris-based production company Elzevir Films before joining Backup Films.

Can you present Backup Films?
Backup Films was founded in January 2002. It is a pioneer company in film financing. We are one of the few film financing companies in Europe that are not receiving subsidies, either national or European money. Backup Films created the COFICUP film fund under the SOFICA scheme in 2006. The company operates both as a fund operator and as broker of financial solutions, ranging from co-productions, pre-sales, licenses and equity deals for its clients.

(El artículo continúa más abajo - Inf. publicitaria)

What is the good financing strategy chronology?
The financing strategy is composed of three aspects: the artistic element, the fabrication of the film and the budget.
The first stone in your financing plan should be the soft money, which is «cheap» money from national and/or international subsidies. Films have nationalities and of course there are treaties between the countries that enable producers to access to these different sources of soft money. If you want to target financing in another country, you have to reach a co-production agreement or deal with a company from this country.
The second step, and it is essential, is to make sure that the film is going to be released: you have to reach a distribution deal. There are different types of distribution deals: MG, licenses, presales… At a very early stage of the development process, you have to ask yourself the question of the audience you want to target. It is important to get some cash from the distributors but at the same time the distributor must confirm the analysis of the target audience concerned by your film.
The third step is private funds and tax shelters. It is very expensive money. Equity is risky money. The risk of not having your money back when you invest in film industry is high.

What are the «rules» to minimize the risks?
There are 2 golden rules to minimize risks: last in and first out. Last in is to invest in films which have an already established financing plan and films where the recoupment structure is very clear. First out is to get returns of money as quick as possible. Equity partners most of the time do not acquire the film rights, which means that they are not co-producers. This is the difference between financing companies by equity and TV or distributors equity.

What would be a standard financing structure for a film?
An example of a financial structure is the following, let’s call it «Cartoon» project:

CARTOON PROJECT : Budget = 10 M € 100%
SOFT MONEY: 1 M € 90%
PRESALES: 3 M € 60%
EQUITY: 3 M € 30%
ACTOR / PRODUCER DEFERALS: 1 M € 20%
BANK GAP: 2 M €
*In this case the Bank gap coverage is 55% because it is predefined by the estimations of sales agents.

Recoupment structure: «Cartoon» project
PROFIT ZONE
EQUITY PREMIUM: 0 .6 M € 71%
EQUITY RECOUPMENT: 3 M € 35%
ACTOR / PRODUCER DEFERALS: 0 .5 M € 30%
BANK INTEREST: 0 .5 M €
ACTORS 20%
Corridor
BANK GAP: 2 M € Bank gap coverage 55%

The recoupment structure is the official price of financing. The bank is always recouping first, and of course does not work for free. When they recoup their financing, they also take an interest. After that, actors and producers are recouping their deferral and then it’s the equity recoupment, with another percentage for equity premium, which is not an interest. And when you reach 71% of recoupment of the entire amount, you enter in what we call «the profit zone». You don’t have to recoup the 100%. This element is essential, and it is only possible because you use a combination of the 3 types of financing. The soft money you get enables you and your film to be quickly profitable.

What are the consequences of working with all these sources of financing?
If your option is a co-production, your life will be more complex. Most of the time, the budget tends to increase and you have to share the «cake» with the co-producers. A producer must deeply think of the real price of co-production. I think that co-production is the most expensive source of financing. In the animation sector co-production can increase the budget by at least 20%. There are a lot of examples of co- production absurdity. A movie supposed to be based in Berlin can be shot in Lyon to be eligible for a regional French fund, and, at the same time, have the catering coming from Germany to Lyon.
The producer has to think twice before accepting the money from the distributors. If an international sales agent or a distributor is putting x million € as minimum guarantee, the producer will probably never get any equity investment or risky money. The distributor or the sales agent will not redistribute any money to the equity partners until he has generated enough income from the film to recoup his investment.

Is the equity money very expensive?
An equity deal costs a fortune in lawyers and fees because the producer needs to draft very complicated contracts. All together those fees are about 8 or 9% of the equity gap. The producer must be sure that these fees are included in the budget.

What is the pure equity money?
The pure equity money is the tax shelter system, where the investors have a tax incentive to put money in a film. The tax shelter system requires an investment from an investor over a period of time, with returns deferred until the film is released. There may also be a long tail of «rights» income from world-wide distribution, video and DVD sales for example. Tax shelters are leveraging equity and minimizing risk. There are 2 examples of tax shelters:
-EIS (Enterprise Investment Scheme), UK. The EIS is appropriate for those investors who wish to include in their portfolio some high-risk companies. There is a government scheme that provides a range of tax relief for investors who subscribe for qualifying shares in qualifying companies. This scheme is used mostly in low budget films.
-SOFICA, France. It’s a tax shelter for film financing companies which raises money by offering a substantial write-off for investors. SOFICAs are permitted to invest either in a specific production, which must first be approved by the CNC (National Centre of Film), or in a company dedicated to film and TV production. In the case of specific production funding, the amount of funding provided can not exceed 50% of the film’s total budget. Additionally, the French government has recently initiated a tax deduction scheme «crédit d’impôt», under which a production entity is able to write off between 10% and 20% of its below-the-line costs, provided that all the work is carried out on French soil and again, subject to the approval of the CNC.

Cartoon Master Potsdam, Germany, November 2007