Cash and cooperation

Money experts see rise in tax rebates and co-financing

One sure sign that the indie pic market is in full swing again is when it’s tough to get any completion bonders, much less bankers, on the phone.

These financial players report they’ve got plenty of business to tend to this fall, with numerous independent productions trying to close financing to prepare for shoots in the first quarter of 2006.

“We’re clearly busier than last year,” says Steve Mangel, president and chief operations officer of Independent Film Guarantors, one of the leading completion bond companies. “Our number of films in the first three quarters is almost twice that it was over the same period in ’04.”

Mangel says the jump is noticeable in the lower end of the production spectrum, with budgets spanning between $2 million and $15 million.

“The bulk of what we do is in the $5 million to $25 million range,” he says. And although films like Dean Devlin’s $60 million “Flyboys” was financed independently, finance folks say the $100 million-plus super- indies are increasingly rare. “We typically saw a few of those in the past,” says Mangel. “Now they’re fewer and far between.”

As studios reserve their production budgets for making and marketing tentpoles, more and more films in the midbudget range will be financed independently, notes Hal Sadoff, head of ICM’s new international and indie film division.

“Since the studios have to feed their huge worldwide distribution apparatus,” he says, “they have to look for films with outside financing to fill those slots.”

This also means the kinds of kudo contenders that fall outside the mega-budget model are being made more and more outside the studio system.

“Inevitably, those types of films — ‘Million Dollar Baby,’ ‘Hotel Rwanda,’ ‘Capote’ — are not those that a studio will greenlight on their own,” Sadoff adds.

“We’ve seen a steady progression of films being financed outside of the mainstream manner, as independent films rather than studio films,” agrees Kurt Woolner, of guarantor Film Finances. “More films are being tailored to shoot in locations outside of the U.S. to capitalize on subsidies and soft money.”

Woolner points to two films Film Finances recently bonded, both period pictures set in Los Angeles: Robert Towne’s “Ask the Dust,” which lensed in South Africa, and Brian De Palma’s “Black Dahlia,” which shot in Bulgaria.

“It’s the same story,” he says. “They were both put together in a manner to maximize their money,” using foreign tax shelters and overseas coin.

“If you’re looking for a trend, take a look at the rise in co-financing, coupled with shooting outside the U.S. to take advantage of tax subsidies,” echoes Natexis Banque’s Bennett Pozil, who handled such bonded pics as the Toronto-shot vidgame adaptation “Silent Hill,” a partnership between Samuel Hadida’s Davis Film and Focus Intl.; and “Shopgirl,” a co-financing arrangement between Hyde Park and Disney.

Michael Ohoven, CEO of Infinity Media, says some sort of studio participation is often key. For “Capote,” the under-$10 million Oscar buzz pic he produced along with Infinity partner William Vince and Caroline Baron, Ohoven says the film was financed through equity, Canadian tax credits and a negative pickup by United Artists.

“A little while ago, you didn’t have to have the studio involved, but nowadays,” he says, with presales leveling out and German funds disappearing, “you need your soft money and you need your studio deals.”

Changes in financing opportunities in Germany of late and the uncertainty in the U.K.’s tax structures also have created a void, says ICB Entertainment Finance co-managing director David Hutkin, that has been filled by U.S.-based equity (“whether hedge-fund money or straight-ahead equity”) and new state tax incentives like those in Louisiana, New Mexico, North Carolina, Pennsylvania and New York.

But Fred Milstein, prexy of boutique bond company Cine Finance, says the growth of the independent business lies abroad.

“European productions continue to grow, and Asia is a developing market for us,” he says, citing the new Jet Li actioner his firm has recently bonded.

Jonathan Wolf, exec VP of IFTA and managing director of the AFM, agrees. With the expansion of filmed entertainment globally, from local soap operas to TV programming, he says numerous countries are now taking the next step to feature filmmaking.

“At this year’s AFM, there are first-time exhibitors from 24 different countries. That, to me, indicates that this growth is very widespread, and not just in one region of the world or linked to one type of incentive,” he notes.

And a greater sophistication in the world market has created a stronger independent scene, argues ICB’s Hutkin. “There continues to be a flight to quality,” he says. “When I first started, sales were made in every territory, and we were just putting films through the mill. But today, there are films that do not sell in every territory.

“It’s partly what’s attracting the equity and more studio guys into the indie world,” continues Hutkin. “I think they see that the films have a better chance of doing well, be it Oscar nominations or box office. It’s much healthier than it used to be.”

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