Having just delivered the cash flow and financial projections for a $50m fund with a $6m development company residing on top, there are many issues that these kinds of companies bring to my mind. Forgive me if some of the discussion here today seems arcane or complex, but I want to try to explain some of the questions this brings up in discussions with current clients, as well as things that may be helpful to incoming clients (or to anyone who reads this).
One of the key items I always want to think about when first approaching the idea of a fund is EFFICIENCY. What do I mean by efficiency? First, I like to see if there are similarities among the films anticipated to be on the slate of projects, or similarities in approach. They could all be animations, or they could all be below $20 million, with some at $5M, some at $10m budgets, and so on. They could all be dramas or all very indie projects.
It may be that clustering projects can allow us to also cluster comparable films studying, and even cluster the projections that would drive the cash flow spreadsheet. As well, clustering can allow us to reduce the work in the business plan, in the audience analysis and description, and in other areas. This does not mean that it is bad not to have clusters, but just to illustrate that my approach is to try to find efficiency, which will be to your benefit when we are developing a plan for your work.
Clarity In Communications
Our next, most crucial element is to focus on what will bring clarity also to your team communications and to your communications with potential partners and investors. Simplification and efficiency are also aids there, but, in truth, this is a complex business and it sometimes takes a bit of time and talking to turn the complex into something that all can understand. The main thing to know is that clarity is one of our primary goals in all the work we do for you.
Development and Production Companies
Is It Necessary To Have Two Companies, One Development and One Production?
I won’t be trying to answer the legal ramifications of these issues, but more the business planning issues, and how they impact what we do for you, including the financial modeling.
In some cases, more efficiency can be achieved in planning to embed the development costs for a project right in the budget of each project, eliminating the need for a development company as a separate entity, or overarching entity. This is sometimes hard for folks to see how it works, whichever way we go. But, to simplify this decision, if the costs of development are all embedded in the projects, you are essentially saying that you don’t need cash to run operations until a film or package of films is funded. If, however, a producer needs money to be able to pursue the business of the development, from scripts, to office, to staff, to travel, etc., then it would seem to necessitate either a side letter (and I won’t explain that either, but let your lawyer explain if it works for you) or a development company would be the approach.
Some of the issues to think about for this development company that could be helpful to you:
–Will it develop films that do not go to production, get flipped (developing it and selling it off to someone else), go into turnaround (the company decides to quit pursuing it and sells it to another company), or abandoned (just drop it)?
–Will it develop films that go into co-productions?
Will it develop films that are fully funded and managed by the development fund?
–Will the development company take a management scrape on the production fund?
–How will the development company share in the proceeds of the production fund, fully, or in part?
These and other issues being thought out a little bit up front can aid in getting your company faster to market and help simplify the management of your activities.
So, the early decision tree and how you pass down through the series of decisions that need to be made can really aid in clarifying the activities of the company and the most efficient way to get to your goals of funding and doing the business of the company you want to pursue.
I find that all of the key decisions of a company wind up in the financials. This is not to say that a company is numbers, but is to say that the numbers illustrate a plan for reality and the pursuit of all of your activities. Financial folks, too, are used to looking into numbers to find out how things will work. So, an excellent business plan that talks about the activities of the company, the people, the issues and the plan to execute on them, is crucial, but the numbers will tell the story of the opportunity, and, though they are not remotely a crystal ball, they enable one to dig into the potential and see how it plays out.
The way different kinds of films will perform in the marketplace and the timing of releases in conjunction with production are totally different on an animated film compared to a low-budget indie. As well, the timing of market incomes, from domestic theatrical to television, to all of the foreign markets and everything in between, are different for each type of film. So, a cash flow is like looking at a photograph of the activities of the company, as opposed to just reading about it.
Anything we can do to create efficiency in the work we do for your company and your projects we consider to be good work, which comes out to the benefit of all of us. We can get you to market faster, with less fuss, and with a solid plan. Most of our clients are happy with that.
For anyone contemplating a company slate, I hope this is helpful.
Onward and Upward