Last week I moderated the panel on "How to Make Crowd-Funding Work for Filmmakers" for the Winston-Baker's 3rd annual Film Finance Forum West. The panel marked a seminal moment in the evolution (and convergence) of filmmaking and technology. This may sound slightly overstated, considering it was my own panel, but hear me out...
Backstory: If you're unfamiliar with the concept of crowd-funding, let me explain. It's basically using the internet to raise funds from the public (i.e. the masses, the crowd) for the purposes of financing a movie, an album, a start-up, or whatever it is you and your crowd want to finance. Exactly one year ago I wrote my first article on crowd-funding, in which I was skeptical of it being a means for financing an entire film's budget, yet was optimistic the model could be used to augment traditional film financing structures. The question raised was how to generate a return on the crowd's investment without violating federal and state securities laws. The only viable workarounds at the time were IndieGoGo.com and Kickstarter.com, both providing platforms through which a filmmaker could solicit donations from the public in return for memorabilia, DVDs or other chotchkies. These models were limited, but pioneering, though not as pioneering as the godfather of crowd-funding: Soupy Sales.
I may be a financier who works within the traditional film finance model, but I'm not traditional. In other words, I like disruption and I'm open to change.
Fast-forward to last month's article on the Democratization of Film, where I posted that very soon the three historic barriers-to-entry (financing, production and distribution) that independent filmmakers must routinely overcome will no longer be insurmountable. It's already happened to production (I can shoot an HD movie on my iPhone and edit it on my iMac), and finance and distribution are soon to follow. How soon? About two weeks later: at the 3rd Annual Film Finance Forum West, where an inconspicuous crowd-funding panel presented IndieGoGo, Audience Productions and Sokap, three new crowd-based companies that can topple the remaining barriers-to-entry, and fully democratize filmmaking.
We already discussed IndieGoGo (but will circle back to it). Audience Productions is the first film company to be authorized by the SEC and 20+ states to use both the internet and crowd-funding to sell shares in their films for the purpose of raising their financing. George Brumder, the CFO, said it took them over two years of haggling with the SEC to finally win the approval. Just go to their site, pay $10, and you'll own a piece of history with upside potential.
Boom!
Yep. That was the sound of the financing barrier falling down.
Sokap, on the other hand, has created a micro-licensing platform that allows filmmakers to raise money for their films by licensing their U.S. and Canadian distribution rights on a localized level. So if I see a film listed on Sokap that I think will resonate with a community that I am dialed into, then I can license (through Sokap) the right to market and distribute the film in Santa Monica, Westchester, Springfield, Dallas, Chicago, Vancouver, Los Angeles, Manhattan, CA, NY, DC, ON, wherever. According to Phil Botana (who represented Sokap on the panel), it doesn't even need to be a major city, but any town with more than 2,000 people. As the local distributor of your selected territories, you can show the film in local theaters, sell it through local merchants, or directly to interested people or organizations in your territory. You just pay a small upfront license fee to the filmmaker which allows them to make the film and then you market the film until it's delivered, and collect a distribution fee from the revenues you generate. Like Audience Productions, this addresses filmmakers' critical need for alternative sources of financing while at the same time, also addresses the critical need for alternative forms of distribution in the U.S. and Canada, which have all but vanished due to skyrocketing mass-marketing costs.
Boom!
Uh-huh. That was the sound of the distribution barrier falling down.
Where does this leave IndieGoGo? I think (and the audience members at the Panel agreed) that the introduction of Sokap and Audience Productions elevates IndieGoGo from a niche funding vehicle into the film equivalent of a filmmaker's Friends & Family or Angel investing round. Filmmakers can use IndieGoGo (or Kickstarter) to raise funds to option screenplays, pay for a writer, organize their legal paperwork, create sizzle reels, create a budget/schedule, make offers to talent...whatever they need to get their project to such a point that they can get it listed on Sokap or filed with Audience Productions, in order to complete the balance of the financing. If they can't get past the IndieGoGo round, then the audience has spoken.
The companies on this panel -- IndieGoGo, Audience Productions and Sokap -- collectively represent (for the first time) an end-to-end crowd-based solution that can allow independent filmmakers to circumvent the Hollywood financing and distribution bottlenecks. With strong assists from Apple, Canon and Red Cameras, the Development, Finance, Production and Distribution of independent films... have now been democratized. The proverbial foot is in the door.
I think it's worth noting that when technology writer Kara Swisher (who moderated a panel that preceded mine) sardonically declared to this room full of film financiers that their traditional film finance models will be obsolete in five years, she was dead right. But, when one of her panelists subsequently declared that crowd-funding would have no future beyond a gimmicky marketing novelty, he was dead wrong.
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That said...
For mainstream indie film financing, I think the smartest play is to use the crowd to raise your equity piece (or a portion of your equity), as opposed to the entire budget.
- Jeff Steele
They outline a solution that is in the spirit of the Securities law: anti-fraud & investor protection yet will allow the critical flow of capital to startups!
Sorry, but this flunks the laugh test for anybody who doesn't see Sundance as Shangri-la.
Opportunity cost suggests this isn't a viable model unless there's burgeoning existing demand for the brand/filmmaker's work or the campaign has successfully engaged its core audience(s). A factor to consider when crowdfunding substantial sums of money is time.
With regards to pre-licensing, I can't 'see' this growing significantly for product that is sight unseen, especially from filmmakers without a proven track record or familiar faces attached. Perhaps I'll be proven wrong! It's a beautiful business we're in.