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The multiple players in financing a feature film
Film producers have an essential mission: to put together the financing plan. They will therefore search for funds and aid. The overall budget of a film therefore consists of multiple contributions:
- the producer, one of the main financial backers of the film, contributes 1/4 to 1/3 of the budget;
- distributors, who will market the film to cinemas, contribute part of the financing, which is reimbursed to them on ticket sales;
- television channels are legally required to devote part of their revenue to production and therefore often assume a role as co-producer;
- government aid, which finances films for cultural reasons (support for French film production) and economic reasons (support for the cinema economy), is distributed by the CNC (French national film and moving image centre). The CNC is also responsible for approving the film budget developed by the producer;
- regional aid;
- SOFICA funds (companies for the financing of the film and audiovisual industry), which collect funds from individuals;
- banks allow the financial arrangements to be completed by granting loans.
Advertising, through product placement, also represents a growing share of funding. The principle: an advertiser pays to have its product visible on the screen (watch on the hero’s wrist, drink consumed by the hero, car driven by the hero, etc.). The advertiser’s participation can be financial or material (for example, loans of vehicles in exchange for promoting the brand).
The key role of banks
The banking world is involved in several ways in financing a film project:
- through the granted the bank loan as part of its core business: the bank provides industrial funding;
- by granting other specific loans, such as short-term loans (contract discounts), or gap financing, a “bridge loan” to ensure the completion of the financing arrangements;
- in the form of aid as cultural patronage, according to the strategy specific to each bank;
- by making SOFICA funds available to its customers looking for an investment or a tax optimisation solution.
The involvement of banks is therefore not only important, but also highly variable, due to the risk presented by the film industry, which can be compared with an “industry of prototypes”: each production is a new bet, and there are no assets to secure the loan.
Not all banks accept this risk. Those that decide to finance audiovisual productions set loan conditions according to objective criteria: investors who are present, producers who are involved, and the presence of a known director and “bankable” actors.
To facilitate access to bank financing for films, the IFCIC (French institute for the financing of cinema and the cultural industries) was created. The IFCIC, 49% held by the government, assumes the role as mediator and offers banks a financial guarantee in case the project fails.
BNP Paribas and film: long-term relationships
While some banks are reluctant to become involved with audiovisual productions, others consider supporting film to be a long-standing commitment. This is the case for the BNP Paribas group, which has a long and close relationship with the 7th art: financial support through participation in a company specialising in film financing, partnerships with festivals and iconic cinemas, or financing of old film restoration.
In France, the teams of the Image and Media Centre also follow independent players, like the more structured groups. They support all the links in the chain: producers, broadcasters, distributor, etc.
One in two films is directly or indirectly financed by BNP Paribas. Each project is unique and requires an appropriate solution. Valerian, the largest European film ever produced, is an excellent example. The new film by Luc Besson required an innovative solution, through equity participation supported by a dedicated structure within the Group. BNP Paribas is involved across the entire value chain, from camera financing to production or studio financing.
Within the Group, no fewer than 60 experts are dedicated to film financing across Europe.
- In Italy, BNL plays an instrument role in the organisation of the production market around larger, better structured players. The bank strives to ensure a financial engineering role to enable players to take full advantage of the aid and benefits granted by the government to support film. The aim is to retain and maintain the energy of Italian film. To do this, BNL also designs new financial solutions, just like the solution developed in 2015 to help cinemas having digitised their screens.
- In Belgium, in addition to support for several iconic operations and awards such as Film Days and the Magritte Awards, BNP Paribas Fortis finances film thanks to BNP Paribas Fortis Film Finance, its own financing vehicle. This subsidiary dedicated to financing Belgian film supports investors as part of the Tax Shelter, a mechanism to provide funding for audiovisual projects carried out on a European scale. BNP Paribas Fortis Film Finance acts as intermediary and co-production company. Since 2008, it has financed and co-produced 215 works totalling 215 million euros overall.
- BNP Paribas has also had a position in the United States since 1987, when Paribas established a Media & Telecom department. The Group has special long-term relationships with companies such as Disney (parent company of Walt Disney Studios, Pixar, Marvel, and Lucasfilm), Time Warner, Comcast/NBCU, which is the parent company of Universal Studios, Viacom (Paramount Pictures), and Lionsgate. BNP Paribas supports its customers through financing in the form of credit or debt issues as well as through management of cash and interest rate risk of companies.
SOFICA: fund your passion for the 7th art
With SOFICA funds (companies for the financing of the film and audiovisual industry), created in 1985, the film industry receives a boost:
- individuals, who invest in the production;
- banks, which are responsible for distributing this very particular investment;
- the government, which has put in place a tax incentive making SOFICA funds particularly attractive!
Result: SOFICA funds finance approximately 3 per cent of audiovisual production in France.
The operation of SOFICA funds is heavily regulated:
- they must apply for an annual approval, granted on a joint decision of the DGFiP (French directorate general of public finances) and the CNC. The list of approved SOFICA funds is published each year;
- inflows are allocated to the eligible SOFICA according to the assessment of its investments and commitments made;
- the AMF issues it an authorisation to collect funds from individuals.
By buying SOFICA units, individuals are eligible for a tax reduction of 30% of the invested amount, up to 25% of the total net income and 18,000 euros. This means a maximum tax reduction of 5,400 euros, as long as they hold their units for 5 years. This tax incentive is increased to 36% (up to a maximum of 6,480 euros) if the SOFICA invests 10 per cent of the funds, starting from the first year, in the capital of production companies.
Keep in mind, though, that investing in film represents a significant risk and must be considered within the framework of a global diversification of the asset portfolio and not only for the associated tax exemption. However, for film fans, this is an opportunity to combine investment and involvement in their passion!
Become a co-producer!
Today, individuals have another way to contribute to the financing of film production: dedicated crowdfunding platforms. This crowdfunding turns you into a “co-producer” (of a short or feature film, documentary, animation film, etc.) of a project that you choose according to your affinities. Note that this type of funding is not comparable to a SOFICA! In France, it is most often a donation that you make to support a project that interests you. In return, you sometimes receive gifts: goodies, advance screening of the film, invitation to the set, your name in the credits, etc.
Crowd-investment, which involves a subsequent financial return, is not common in France in the audiovisual world.