One of the most common film financing techniques for independent films is banking pre-sales, which involves the following steps:
- A producer assembles a film package, typically comprised of a script, director, and key-cast.
- The producer engages a sales agent to pre-sell the film throughout the world, with distributors agreeing to pay a certain amount upon completion and delivery of the film. These pre-sales commonly take place at film markets, with major ones held each year in Cannes, Toronto, Berlin, and Los Angeles. In most cases, the pre-sales are on a country-by-country basis, but in some cases, the pre-sale is of worldwide rights to one distributor (such as a studio or VOD company, such as Netflix and Amazon), and these transactions are referred to as negative pick-ups.
- The producer then requests a bank to loan funds for production secured by the pre-sale contracts.
- The bank requests a completion guarantor to issue a completion guarantee guaranteeing completion and delivery of the film to the distributors, thus triggering the payments owed under the pre-sale contracts.
If all goes well, the film is produced and delivered to the distributors, triggering payments owed under the pre-sale contracts, paying off the loan. Since pre-sale loans are secured by fixed payments owed under existing contracts, the lenders tend to be banks and the pricing tends to be relatively modest, typically requiring an up-front fee equal to 2% of the amount of the loan and interest at two points over LIBOR.
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