Rethinking the Hollywood Financing Model: A Paradigm Shift for Independent Filmmakers

The Paradigm Shift

From a business and philosophical perspective, the traditional financial model for securing funding for a movie and theatrical distribution, IMHO, is not sustainable, nor equitable. Especially for independent filmmakers.

"Rethinking the Hollywood Financing Model: A Paradigm Shift for Independent Filmmakers" has been begging to surface in support of Independent Filmmakers—with the potential to benefit ALL parties who believe in the power of supporting good stories.

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I can hear some folks accustomed to the “Hollywood Model” arguing that traditional funding and distribution channels will not be drawn to support film projects with the terms I am proposing.

That’s the shift. And times are changing.

The traditional model can layer theatrical exhibitor cuts, distribution fees, marketing and P&A recoupment, sales commissions, expenses and contractual definitions of “net profits” between the money audiences spend and the people who actually financed and created the film. Add to that the controversial practice commonly referred to as “Hollywood accounting” or “creative accounting,” where certain accounting methods, overhead charges and contractual deductions have been known to substantially reduce—or even eliminate—reported net profits, leaving some investors, filmmakers, writers, actors and other profit participants with little or no backend participation despite a film generating significant revenue.

For independent filmmakers, there can be a better way.

I have always questioned the long-standing model in which, even after investors have fully recouped their investment and agreed-upon return, they may continue to receive 50% of the film’s profits or receipts for years to come. From the filmmaker’s perspective, that can be both insulting and unnerving.

The filmmaker may have spent five, ten or even fifteen years developing the story, building the project, creating the underlying intellectual property and investing substantial amounts of their own money and unpaid work—yet after everyone has been repaid, half of the continuing financial success of that creation may still belong to the financing side of the equation.

The traditional argument is that without the investors, the movie would never be made. And that is absolutely true. Investors take substantial financial risk and deserve to be rewarded when a film succeeds.

But the movie also would not exist without the filmmaker who created it.

That is why I don’t believe the answer is filmmaker versus investor. It is alignment.

What if, instead, an investor receives priority recoupment of their original investment, an agreed-upon premium or return, and then continues to participate through, for example, 5 Adjusted Gross Points?

Rather than relying upon a traditional 50% share of potentially elusive “net profits,” the investor retains meaningful participation in the film’s continuing success through a clearly defined percentage of Adjusted Gross Receipts.

Depending upon how Adjusted Gross Receipts are defined in the investment agreement, those 5 points could ultimately prove more valuable than a much larger percentage of “net profits”—while allowing the filmmaker to retain a greater share of the long-term value of the film they created.

That, to me, is far more palatable and potentially more equitable for both sides.

The investor has priority in getting their capital back, receives an agreed-upon return for taking that financial risk, and continues to participate if the film succeeds. The filmmaker retains meaningful ownership and upside after spending years creating and developing the property.

I believe in finding the right funding channels and investors who believe in the story, understand its audience and recognize the value of the people creating it. The goal should be a financial structure where investors are fairly rewarded for the capital they risk, while filmmakers are fairly rewarded for the years of creative risk, sweat equity and sacrifice required to create the asset in the first place—and retain a meaningful stake in its long-term success.

For me, that is what this paradigm shift is really about: finding the right people to bring a story to life—not simply finding the money.

Transparency. Control. Fair investor and producer recoupment. Reasonable distribution fees. And an opportunity for filmmakers to retain ownership and participate meaningfully in the success of the stories they spend years bringing to life.

And this isn't just a theory.

One example of this emerging model is SDG Releasing, founded by veteran filmmakers Cary Solomon and Chuck Konzelman, who have been making movies for 30 years. After their own experiences with what they openly call Hollywood's “creative accounting,” they created a distribution company built around a different approach: radical transparency, low distribution fees, no sales-agent middleman, no markups on third-party services and full access to reporting data through a dedicated bank-account lockbox.

Their philosophy is simple: the distributor should make money when the filmmaker makes money—not bury the film beneath layers of fees, overhead and hidden costs.

THAT is the kind of paradigm shift I am talking about.

It demonstrates that experienced people within the industry are also questioning whether the traditional model is the only way films have to be financed and distributed.

Audiences are hungry for solid, good entertaining stories with relatable characters they can get lost in for a couple of hours. Funding and distribution channels may initially connect with an emotional response to your story, its message and the overall value of your film. But there also needs to be a sound business model behind it—one where the risks, costs, revenue streams and path toward recoupment are clearly presented.

That does not mean eliminating profit for distributors, exhibitors or investors.

Quite the opposite.

A sustainable model should allow everyone who contributes to bringing a film to audiences to have the opportunity to benefit when that film succeeds.

• That includes the investors who took the financial risk.

• It includes the filmmakers who may have spent years developing the project.

• It includes the distribution partners who bring their expertise, infrastructure and relationships.

• And it includes the theaters that put the movie in front of audiences.

The paradigm shift is about creating a more transparent and equitable path for everyone involved.

Independent Filmmakers deserve an equal footing with the major studios to earn a healthy return for our years of hard work and dedication to our purpose-driven calling to unite people around the world through the magic of inspirational stories.

And perhaps most importantly, a successful independent film should create the opportunity to keep creating.

• To finance the next story.

• To employ more cast and crew.

• To support other independent filmmakers.

• And to pay it forward to causes dear to your heart.

Andrea M Clarke

Producer., Director, Writer

Metatron Productions, LLC