Producers find tough road to soft money

Film subsidy financing can complicate prod'n, budget

Soft money — tax shelter and government subsidy financing — is often touted as free money, but speakers at an American Film Market seminar warned to expect strings attached and hidden expenses.

“You (can) end up making a different movie than you had set out to make,” warned Howard Kaplan, chief operating officer of Morgan Creek Intl.

His company decided to move location shooting for “The Exorcist: The Beginning” from the U.K. to on location in Morocco and soundstages in Italy to save 20%-25% in expenses. By doing so, it gave up a U.K. sale-and-lease-back infusion that would cover 10%-12% slice of the budget. “It is important to look at all the costs associated with soft money,” he noted.

With indie film buyers paying less in recent years due to declines in TV sales and economic recession, patching together soft money with some pre-sales is crucial to funding independent films.

Attorney Steve Fayne said that 22 sources of financing were required for an unnamed $6 million film. “That seems to be the direction that we’re going,” said Fayne, a partner at Akin Gump Strauss Hauer & Feld. “It requires a lot of effort.”

Bob Hayward, COO of sales company Summit Entertainment, noted that when the Isle of Man offers a production subsidy equivalent to 20% of a film’s budget, it often seeks a slice of the revenue the film generates in a U.S. sale. That so-called cut-through can make it difficult to line up conventional bank financing for the rest of the budget.

To qualify for European co-production funding for “The Upside of Anger,” 75% of the film’s labor costs needed to be spent in Europe, noted producer Mark Damon. “If you miss that by 1%, you don’t get the subsidies,” said Damon, who is chairman of movie outfit Foresight Unlimited.

Shuffling cast and crew to achieve numeric spending goals runs up travel and hotel expenses, panelists warned. “You find that as this progresses, there are a number of compromises being made,” noted Trevor Short, chief financial officer of prolific indie Nu Image.

“There’s a constant struggle between the financiers and filmmakers on what a film will look like and where it will be shot,” Fayne agreed.

With indie film financing increasingly a patchwork of numerous small sources, the failure of one or more to materialize can trigger a collapse. Fayne said that a mini-epidemic is occurring as independent films already in production scramble to patch financing holes from slivers of missing coin.

Sources of soft money include Australia, Austria, Belgium, Canada, Fuji, Germany, Hungary, Iceland, Luxembourg, New Zealand, Scandinavia, South Africa and the U.K. States are also offering incentives, particularly Louisiana, New Jersey, New Mexico and Pennsylvania.

Film finance consultant Lew Horwitz served as panel moderator.

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