Can Film-makers Think and Act Like Internet Start-ups?

by markversus

Question: Can the financing ideas of Venture Capitalists in Technology be applied to the equally risky sector of independent film financing?

I know next to nothing about about venture capitalism or internet start-ups (and what I do know is taken straight from wikipedia so if they are lying to me I am screwed) but while listening to Jeff Jarvis narrate his excellent book “What Would Google Do?” I was struck by a number of parallels between the financing of  an internet start up with the financing of an independent feature film.  That is not to say that they are entirely analogous, but they do have some similarities.  They both tend to be built on an idea in which a small, core team have absolute belief, they are both industries saturated with product but in which a stellar idea executed well can breakthrough and they are both incredible risky investment prospects.

So I, of course, got to thinking “How come we don’t fund films and start-ups the same way?”  (Apologies to Jeff Jarvis but, by this point, the audiobook had faded into the background.  I hope I haven’t missed the part where he disproves the rest of this post on a postage stamp).

How VC appears to work

The process of VC funding of start-ups seems to be loosely broken down into stages.  Each one further building on the work of the last and each stage reflecting a point of growth in the development of the company and the product, those stages being:-

  1. Seed Finance: Low level financing used to prove a new idea;
  2. Startup Finance: Early stage comapnies. Often used for marketing and Product Development;
  3. 1st Round Funding: Financing for early sales and Manufacture costs;
  4. 2nd Round Funding: Working capital for early stage companies who are selling thier product but are not turning a profit yet:
  5. 3rd Round (Mezzanine Funding): Expansion money for a newly profitable company;
  6. 4th Round (Bridge) Funding: Financing for ‘Going Public’.

Pretty straightforward stuff (says me!). Film financing employs similar terminology but each with their own meanings and context.  The film production process can also broken down into stages.  Put next to one another the similarities and differences are quite obvious.

Proving a new Idea Development Money
Marketing and Product Development More Development Money please
Early sales and Manufacture Production Finance
Selling but not profitable ???
Newly Profitable ???
Going Public Distribution

There seem a lot fewer stages in the process and those stages that are aligned are not really analogous. The process is just too different. Key amongst the differences is that,in the case of independent film financing, a production company will have very little to do beyond delivery of the completed film to a sales agent or distributor. It may have involvement in generating territorial sales prior to production as another method of financing, but it is rarely involved in actually delivering the product to its intended customer, the audience.

This is perhaps a symptom of the difficulties that someone looking for film financing faces.  The creators of the product are generally only interested in the process as far as getting the film shot and completed. The troubles, and the associated financial risks, of sales and distribution, marketing and promotion, fall upon other entities each of whom has an exponentially decreasing incentive to be involved (and financially burdened) at an earlier point in the process. The closer to stage 1 of the process that one of these companies is involved the higher the number of uncountable and uncontrollable factors that are subject to. Remove from their incentive the film-maker’s own, often blind, faith that the film is good and valuable and it becomes a wonder films receive any funding at all.

What if it were possible and practical to split the process of film-making (and its financing) up into chunks more comparable to those of the start-up whilst at the same time making the producer responsible for the entire process, right the way through to delivery to an audience? By doing this you:-

  1. retain the founder’s belief in a project or product from its inception to its reception;
  2. mitigate the level of risk encountered by an investor by establishing  a greater number of potential investment points;
  3. encourage (and require) sustained performance from the production team;
  4. encourage investment from specialists in specific stages of production, whose expertise benefits the production at the points it is most needed;

A possible chart of analogous stages might (and this is by no means definite) be:-

Proving a new Idea Treatment and business plan into first draft script
Marketing and Product Development Project development
Early sales and Manufacture Pre-production and production
Selling but not profitable Post production
Newly Profitable Sales (territorial/transmedia)
Going Public Distribution

Yes, there are gaps in the analogy. The pieces don’t quite fit together. However, there is a principal to apply.

One of the key points to note above is that, under the scenario above, the company making the film is also responsible for distributing it.  are handed off to other larger or more established companies to take care of.  The sales agents and distribution companies.  This has its benefits and its limitations.  The current template for sales and distribution raises the barrier for entry so high that it has to be undertaken as an investment by a distributor. The outlay is huge.  It means that the distributors are not looking to buy into anything unless they can reduce to a sliver their likelihood of making a loss.

But this is the old system and old systems do and will become irrelevant.

To paraphrase Jeff’s book, if a film-maker looked at what they are in the business of doing, I think they would be surprised.  I doubt any  film-maker would deny that they are in the business of making films – it’s in the name – but where most of them would volunteer that they are making them for an audience (however limited they may be in number) really they are not.  With the situation as it is they in the business of making distributable films for a film distributor.  The customer for the product that they are selling, the film, is a distributor. What the distributor chooses to do with the film after that is their business. Literally.

If, like in the world of web services, the creator was not only responsible for the idea, the development and the manufacture of a film but also its distribution they would actually be in the business of making films for an audience.  They would be expected to know and understand their market and investors could choose their involvement accordingly. A blockbuster event movie would and should be made for more money than a small dramatic film.  It is to be expected.  A film-maker acknowledging the true value of their film, based on data (thanks Google) marketed to the right people may even be more qualified to deliver the film to an audience than anyone.

There are barriers for entry and it is in a distributor’s interest to keep that barrier high but as the record and other media companies have learned those barriers are getting lower and will disappear.  Technology and mindset will improve by Moore’s Law and beyond.

I want to be absolutely clear that this is not a post advocating all films be released on the internet (though there certainly is a growing place for that) but in an increasingly digital industry – one where most films are made on film, converted to digital and then printed back to film (!!!) it is worth a film-maker asking “Can I control how my film reaches its audience?” and finance it on that basis.  Under these conditions something like a studio style pick up and release is still an option if a film can support a large release. If it can scale.  It becomes the cinematic equivalent of being bought by Google.  At least there will be other options.

I would hope that a model like this would diversify film finance and encourage expert investment in the specific stages of production.  I would also like to see this promoting an additional financial responsibility and entrepreneurship in film, like it has done with print and the record industry.  That much is up to the film-makers.

I am certain I am not the first guy to think about this.  I fully expect that there is someone out there already trying something similar with better research and a stronger will.  And, if so, good! If you are out there I want to hear about you and from you. I see the shake up of the existing theatrical distribution on the horizon and when it comes it will be up to the film makers to stake their claim on the new land as they are doing on the internet and I would be excited to talk this out further.

Oh, and to those people doing it already, I have this script I’ve been working on…