Although Lord Norman made his infamous quote over a half century ago, this attitude towards financing film is all too common among many private investors today.

As an accredited investor, a CPA and long-time patron of the motion picture arts, I believe its high time that the art of raising equity financing for independent film be elevated to a science. Too often, the burden of selling the merits of investing in independent film is placed squarely on the backs of its filmmakers. I don’t mean to disparage independent filmmakers, but they are probably the least prepared to articulate any compelling financial reasons to invest in the sector. The last time I checked, they don’t give finance courses in film schools. I can’t count how many times I’ve seen private placement memorandums, business plans and similar proposals make a passionate plea for a particular film project based on the merits of the script and other creative elements, only to present financial scenarios that result in returns that barely beat the yields on a money market fund.

So here’s a suggestion – lets start correcting some of the misinformation that’s out there about investing in independent film and exposing some of the pitfalls lurking behind the conventional wisdom of investing in competing asset classes. The goal is to provide accurate information to potential investors so that they can make the most informed decision.

I’ll get the ball rolling...

“Wyndham, you’re surely not going to interest yourself in that awful film industry? It’s no good, Wyndham, its unsound.

And those dreadful people are not your class. Keep out of it!”

Lord Montagu NormanGovernor, Bank of England

Making the Case for

Investing in Independent

FilmBy Rodney C. Parnther

February 2010

Rodney Parnther is a senior finance executive at a Fortune 100 media company. He was

intimately involved in the production of Straight Out of Brooklyn (1991 Sundance Special Jury Award) and is a co‑founder of

Clarendon Entertainment which specializes in the digital distribution of urban film content.

Below are responses I suggest filmmakers use when confronted by some of the standard objections to investing in their film that we all hear from time to time from potential investors:

If they (your potential investors) say: I’m not sure about investing. My financial advisor tells me that film investments can’t be leveraged to maximize equity returns like real estate investments can.

You say: Are you kidding? Leverage is the art of using $1 of equity to create multiple dollars of value, right? Well, film investments can be leveraged by deferments, in-kind contributions from key production and post-production vendors and the assortment of soft money tax incentives that are popping up all over the place. I won’t even mention bank loans secured by pre-sales and gap financing since they’re beyond the reach of most independents and I don’t want to engage in rampant speculation that our project can attract them. Regardless, the fact is independent film does employ the creative use of leverage to enhance the potential return on your investment.

If they say: Ok, but what about the fact that film investments are illiquid?

You say: Well so are investments in real estate as well as most closely-held private equity funds and other professionally managed portfolios. The vast majority of them require you to remain invested for a stipulated number of years. The first cycle of release for most independent films can be within 2 years (assuming distribution is secured). We can’t promise you’ll get a return, or your money back, but the time between capitalization and the point in time when we’ll know whether your investing was a complete disaster is a lot shorter.

If they say: Why invest with you when I can do better buying the stock of big media companies like Disney and Time Warner?

You say: Because you need to be closer to the action. See, you’re not only buying into the movie business when you buy big media stocks. You’re buying into advertising-dependent businesses whose stock prices have not fared well in the current economic environment. If you want the potential upside of a hit film, go direct to the source.

Finally, if they say: Why invest in your project when, as a high net worth individual, I can invest in funds like Relativity Media and diversify my risk over a portfolio of films that are distributed by major studios?

You say: Yeah, and watch your returns get eaten up by the studio vig charged off the top for distributing the films and the management fees charged by your brilliant portfolio managers for selling you the worst kind of index fund imaginable. If you invest with us, we’ll give you a premium on your investment before we see a dime (unlike your portfolio managers). You won’t have to worry about distribution fees taken off the top by a studio. You see, we sell our films for cold hard cash in warm soft climates like Los Angeles (during the AFM) and the French Riviera (during the Cannes film market). While the cash may be at fixed prices, we are the lowest cost producers compared to the studios. For example, if revenues from sales are projected to be $5,000,000, we bring our films in at $2,000,000, of which $1,000,000 will be in the form of tax incentives, deferments and in-kind services. Got it?

So, there you have it. These responses may be somewhat acerbic, but you gotta meet the naysayers head on. The stakes are high. I encourage every filmmaker reading this to add it to their website and other communications as an FAQ. (be sure to credit the source). Go get ‘em, and when you’ve raised your financing, do us all a solid by making a great film.