Film can pay. Despite the loss of lucrative tax breaks last year, reportedly costing one fund £117 million, those pursuing profit over loopholes can still secure a full house of investors.
‘Most finance houses over the last decade have been marketing films as loss-making with a view to selling tax breaks,’ explains Robert Croucher, executive producer at Them & Us Film. Croucher is well aware of the potential damage done to the industry by perverting investment incentives such as EIS.
‘That’s not sustainable. You have to sell film for its upside. It can be very profitable if done correctly. When it hasn’t been done correctly you’ll find it’s because someone’s going out saying, “EIS is easy money, it’s capped at £5 million, easily enough to make a movie, let’s produce a whole film for that.” Yes you can, but will it be commercially successful? Probably not.’
Croucher represents those in the industry with the wit to think beyond tax avoidance. An independent film costs between $15 and $40 million, and to secure return on that investment Them & Us Film has developed a strategy using decades of experience. Crucially, though, they also have the hands-on experience of those behind the camera.
To attract investors they showcase considerable success in previous projects, typically returning 8-11 per cent. As well as this they emphasise security: ‘We try to recoup at pre-sale… For the actual investors they would look to recoup before we actually enter the first day of principal photography. So your box office is seen as upside.’
Film is no stranger to risk and although the rewards are great (high-risk initial development financing can have a 75 per cent premium over three years), Croucher is clear: ‘That first one, two hundred thousand you spend is completely at risk but once you’ve nailed that into a decent package and you go to, say, Cannes, you can then pre-sale that to buyers in different territories all round the world and you’ve recouped.’
Here then Seed Enterprise Investment Schemes (SEIS) can work by giving tax breaks to development, but as ever discretion is key, not in discerning investment but in identifying quality: ‘The money’s not the problem, the problem is the product. You’ll find finance houses raising huge amounts of SEIS money prior to finding any product, which can be both reckless and naive.’
The exercise of prudence has paid off. Them & Us can name A-list actors as clients as well as HNWs from outside of the industry and even pension funds: ‘They have to be sophisticated – we’re not brokers, we’re not selling shares in a company. We specifically develop feature film projects for production financing.’
The insider knowledge is impressive. Croucher illustrates the flip side of the silver screen with a wisdom born from passion: ‘Independent film has very much been under the radar for the last ten years in the shadow of studio financed tent-pole projects. You’ll see the end of that coming in 2015 as they start to restrict their slates by three-quarters. You’ll start to see the end of big franchises and much, much more indie – that’s fantastic for us.’
Filmmakers occasionally bite off more than they can chew
Such a phenomenon makes competition a bonus: ‘They’re more like allies because the competition is not over raising finance; it’s over sourcing product. That’s our ace in the game.’
The drop-off in mainstream investment in film has been well publicised but clearly those committed to good strategy, thorough risk management and who are passionate about such celebrated end products, can still turn a handsome profit.
And for Them & Us the allure of the medium and its power to transform balance sheets as well as scripts has not been lost. As Croucher champions: ‘The goals are pretty straightforward: create fantastic independent film for the next decade. That’s it. The impact on the industry in the UK alone will be that thousands of jobs are created through the work that we do here. I’m quite proud of that.’