Gads!! The dreaded 'R' word

[ATP]

I'm not an economist, but some of the reports coming out in the papers are starting to mention that the dreaded R word (recession) is now occurring. If so, the effects will take a bit of time to kick in, but they will.

I understand that raising capital for independent filmmakers is perhaps the single most difficult part of the process. As a creative myself, and an independent, I am wondering if indie filmmakers are affected even moreso than in an otherwise 'ok' economy? What strategies do you have for dealing with the dreaded 'R'?
Any here survived through the last long one-officially in 2001?

Thanks.

 

[georgiahoosier]

The salesman in me immediately thinks: turn any bad news about the economy into something positive.

If people aren't investing in the housing market, they are still going to invest in something.

Combine that with the concept that when times get tough people will still spend a little money on entertainment and you have a combination that should be even easier to sell.

Coca Cola made a huge fortune in the 1930s because everyone had a nickle to buy sugar water.
Hollywood was entering their "Golden Age", and it wasn't because people weren't buying tickets.

Although there are pockets of the US that are hurting (and when is there a time that there aren't?), by and large things aren't as bad as they get reported. The "mortgage crisis" overall is in default only by about 5%, which stinks if you are in the 5% but there's no reason to panic until you see it at 15% to 20%
Interest rates are still historically low, consider that in 1979 you could buy a house and get a rate of around 18% if you were lucky, but on the other side, CD rates were really paying off to the people that were investing.

The other day the news people were in a panic because the market slipped as much as 400 points, but that was on a 13,000 point market! Back in 1980 the market dropped 100 points and it was big news because the market was around 1000.

By way of example, I was at CNN in the early 1980s and there was a "crisis" in the automobile industry (mainly because of high interest rates). I spoke to some of the advertising sales people because I was concerned about what a downturn in industry might do to our growing business. I was surprised to learn that revenues were up almost 20% because the carmakers were buying more advertising time to promote their products.

In a roundabout way you could say that they were investing in the entertainment industry.

Like I said before, I would a positive out of the situation (even if the situation is mostly perception) and sell your idea to people that weren't even mildly interested before.

But I'm always an optimist! If I weren't I wouldn't be shooting a feature with cardboard sets!

 

[Joe999]

Some sectors do even better in a recession-- one being education/college-- laid off workers go back to school for retraining, higher enrollments, more teachers hired. And I imagine people stay home more and watch movies rather than burn ga$ and buy meals at restaurants, thus more movie rentals, more groceries bought, etc. So I think a recession could actually be good for filmmaking. And maybe if studios have to cut back they might go for cheaper indie films, I don't know just a thought.

I'm not an economist, but some of the reports coming out in the papers are starting to mention that the dreaded R word (recession) is now occurring. If so, the effects will take a bit of time to kick in, but they will. I understand that raising capital for independent filmmakers is perhaps the single most difficult part of the process. As a creative myself, and an independent, I am wondering if indie filmmakers are affected even moreso than in an otherwise 'ok' economy? What strategies do you have for dealing with the dreaded 'R'? Any here survived through the last long one-officially in 2001?.

 

[clive]

The problems with film investment have very little to do with the state of the economy; although there do have to be people with money to invest, and that is related.

The key issue in film investment is the simple business formula of "percentage of risk vs ROI"

People don't invest in film for four possible reasons:

1) The risk is perceived to be too high
2) The risk is unquantifiable
3) The return is too low
4) The return is unquantifiable

The bench mark for judging high risk investments is the Business Property market, where an investor could expect a 50% return on investment in one year, with a 30% risk of loss.

The problem with independent filmmaking is there is no legitimate way to make a valid comparison from someone else's product to your own. So, even if film X was produced for $100,000 and returned $400,000, you can't use that information to support your pitch to investors, unless you made film X.

The pitch formula to investors goes a bit like this:

This is my concept... which is in this genre, which on average returns anything between X and Y in these markets. The last time I made a film in this genre, with this writer and this director... we made a ROI of $Z for our investors... which represents a 60% return in one year. We are confident we make between $A and $B on this movie because we already have a relationship with distributors a, b, c, d and e all of which have expressed an interest in seeing the movie.

Or formula 2 goes like this:

We have managed to secure artist X and director Y for our film"XXXXX." X's last six films grossed $B and Y just won the Palm D'Or at Cannes... because of this we're already negotiating pre-sales worth $A, with distributor C but we expect to get into a bidding war at Cannes, which should give us a return of between $Z and $double Z for your investment of $B

As you can see, all of these formulas involve someone on the production: the producer, the director or the star, having a provable track record.

Without a track record, then all film investment is either about finding a gullible investor who wants to play at being in the movies... known in the trade as the "Bowfinger" option.... or by raising the money through other means.

Recession tends to hit the "Bowfinger" investors hardest... and that's where your link is.

The alternative is to explore either alternative finance concepts or to make micro-budget films.

Personally I think it's wrong for film makers to go to investors with figures they can't back up with evidence... in my opinion it's the moral equivalent of committing fraud. But that's a personal view and not one I expect many film makers to get behind.