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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