Industry Report: Financing
Private Investment in Audiovisual
by CARTOON (European Association of Animation Film)
- Thierry Baujard, CEO of peacefulfish, explained how production finance is affecting the way producers finance their films. On one side the State subsidies are more and more limited. On the other side, the distribution paradigm is also changing. There is a strong competition between theatre releases and Internet and VOD services, less MG in distribution and sales, decrease of TV advertising efficiency and a lack of sustainable business models in non linear distribution.
Thierry Baujard is founder and CEO of peacefulfish.
He offers 15 years experience in the communication and entertainment industry. He is bringing together a strong business consulting background, a good understanding of the content industry worldwide and a passion for innovative creative projects.
Which are the main factors affecting
the way films are financed today?
There are several factors. The national and regional funds are getting limited. The territorialisation criterias impose producers to spend the money in the country, making co-productions more difficult. On the other side tax credit criteria are expensive in terms of cash flow. Many regional and public funds work as equity funds. We see that banks look mostly at large deals. Producers need a more «neutral» gap financing.
What are the main changes
in distribution finance?
There is a strong competition to theatre release from the newcomers: Internet and VOD platforms. The producers receive less MG in distribution and sales. We witness the decrease of TV advertising efficiency and a strong interest in local TV programmes. Consequently there are less MG from broadcasters. At the same time there is a lack of sustainable business models in non linear distribution. At the moment the only existing business model is revenue sharing. This aspect limits the development of cross media distribution strategies. There is clearly the need for commercial money to ensure circulation of audiovisual products.
What are the main changes
in corporate finance?
There are very few private investors. The private investors are mainly interested in developing slates of projects. These changes of paradigm create needs for new financing sources. The equity investment offers an alternative source of finance for producers.
Peacefulfish together with Cineuropa.org
realised a study on private funds in Europe.
How many funds did you identify?
We identified 6 sources of equity money for the film industry:
> 20 specialised funds
> 20 tax-based funds
> 15 commercial banks
> 15 venture capital
> 1 Business Angel Network
> private investors which are difficult to track and that are mostly working through tax funds.
What is the role of specialised funds?
Film Funds are mostly gap financing or equity investment for projects. The tax based funds are specific content industry and only exist for films in countries like France (Sofica) or Belgium (tax shelter). UK developed a specific type of business: the accounting principles (GAAP) funds and enterprise investment scheme (EIS) funds.
What is the role of commercial banks?
Content companies develop intangible assets which are difficult to evaluate and work mostly on a project base. Hence, most commercial banks are reluctant in providing credit facilities to such companies. In a few European countries though, a small group of commercial banks have a department dedicated to evaluating requests for cash flow facilities and corporate loans from content companies. These banks are mostly focusing on film.
What role can the business
angel networks play?
The BANs (Business Angel Networks) are mostly investing at regional level. They look at industries they know. Business Angels invest in companies, not in a single project. They are interested in tax benefits, as they are people paying taxes.
How are venture capital funds getting
involved in film finance?
The venture capital funds are investing at international level. These funds are mostly interested in larger deals - more than €5 million - and want big Return on Investments (ROI). The target is generally no less than 20% ROI per year.
The limit of venture capital is that they want to invest in companies and take shares. Venture capitals do not invest in projects. The main investments are done in ICT and mobile technologies and cannot be considered as real partners for audiovisual producers.
What are the trends you see
in the near future?
The public incentives will continue to be very important for producers to secure private funding. National funds are less interested to put the money as a grant. The subsidy is used as a leverage to work with private equity. Most specialised film funds are consequences of tax schemes in different countries.
The tendency is nevertheless a decrease in tax based schemes for investors. There is a lack of public funding. There is a clear disconnection between entrepreneurs and financiers which leads to a lack of interest from the banks.
Together with Cineuropa.org you realised
a questionnaire addressed to European
producers. What were the results
of this questionnaire?
We discovered that there are some opportunities
for private investment. Some of the people who
answered used private investments. There are
many advantages: more money and more creative
freedom, faster cash, faster access to the market
and bigger, more commercially competitive films.
The dangers of private investment are that profits go to the investors not to the producers. If private investment develops, there could be too many films released and market cluttering. Using private investments may have as a consequence that financial criteria may override artistic criteria. Here there is a clear danger for arthouse films.
What are the main problems of putting
together producers and private investors?
Probably the main problem is that producers and investors have different expectations.
Producers need project financing, money to develop their film, secure distribution deals, find local subsidies, secure the rights… The investor is looking for something different: slates of projects, business ideas, company financing, return on investment, strategic partnerships, best production deals, selling shares with upside and a balanced risk profile.
The public authorities have some questions about their role. Public funds are initiators and facilitators of public/private finance partnerships. They try to limit market failure by creating the right environment and enable meetings between producers and investors.
The private investors are really working on matching others’ investments. Investors want to share the risk with other investors. They are looking to cash financiers more than, let’s say, a studio deal. On the other side each investor wants to have the best terms and it is very difficult to make everybody happy.
Working with private money is questioning the problem of recoupment and exit. The main objective of the investors is to exit the investment they have made in the company or in the project. Most of the time private investors want to be last money in, first money out.
Cartoon Master Donostia – San Sebastian, Spain, November 2008
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