Film Crowdfunding Provides New Risks as well as Opportunities

Crowdfunding is among the entertainment finance topics discussed by industry experts at the Pepperdine Motion Picture Finance Forum

Crowdfunding is a hot topic right now in entertainment finance due to successful fundraising campaigns such as the $4.6 million raised so far for the Veronica Mars movie project on Kickstarter. “Any financial innovation in this industry that solves a persistent problem is likely to be adopted quickly,” stated Bianca Goodloe, expert panelist at the recent Pepperdine University Motion Picture Finance Forum, and managing partner of Goodloe Law, a prominent Los Angeles entertainment law firm, “In the case of crowdfunding, independent filmmakers may be eager to access this new source of funding, but be unaware of some of the risks involved.”

Some of the crowdfunding risks discussed at the forum included the fact that crowdfunding contributions are often taxable events and that filmmakers must be careful about the gifts that are offered in return for contributions. For example, if a DVD of the film is offered to contributor, then that contribution can be considered part of the film’s gross receipts and becomes subject to any contracts (such as royalties) that are based on gross receipts. Also, if an acting role in the film is offered in return for a contribution, that donation could potentially be interpreted as an employee paying the employer for work, which is illegal in some states (including California).

Ms. Goodloe was joined on the panel by Larry Mortorff, attorney, arbitrator and film producer, and by Peter Graham, entertainment financier and co-founder of 120db Films. The event was moderated by Dr. Craig R. Everett, finance professor and associate director of the Pepperdine Private Capital Markets Project, which sponsored the event. “Our goal was to give our MBA students insight into the complex world of entertainment finance,” explained Dr. Everett, “Film projects can include all of the typical forms of private capital, including equity, bank lending, asset-based lending, mezzanine debt, bridge loans, et cetera, while being subject to very risky contract terms and dependencies. It’s a very fascinating case study.”

Larry Mortorff offered the film producer’s perspective at the forum, sharing finance experiences from some of the films he has produced over the years. In particular, he described the complexities of cross-border co-productions with regard to foreign government incentives and the hedging of foreign currency risks. Having produced more than thirty films over the past twenty years, he was able to offer perspective on the industry trends with respect to independent film financing. “The film business has changed dramatically, and today, independent films have to be more cost effective than ever before. However, at the same time, there are far more channels for films to realize distribution revenues than in any previous era.”

Peter Graham provided insights from the view of a film lender and reinforced Mortorff’s view about current industry trends. “In today’s environment with multiple outlets for entertainment consumption, the mantra is – make it good and make it cheap.” Graham also shared perspectives about success factors in film finance and provided career guidance to the audience that primarily consisted of Pepperdine graduate business students.

“We are very pleased with how this inaugural film finance symposium turned out,” explains Dr. Everett. “So we hope to continue hosting the Pepperdine Motion Picture Finance Forum as an annual event. The entertainment industry is a vital part of the Southern California economy, and the financial aspects of this industry are extremely complex. Here at the Graziadio School, we make a concerted effort to give our finance students the tools that they will need to solve complicated problems in the real business world. In my opinion, if a student can understand the financial details of an international film project, most other corporate finance tasks they will encounter in their future careers will be much simpler in comparison.”

About The Pepperdine Private Capital Markets
The Pepperdine Private Capital Markets Project seeks to understand the true cost of private capital and the investment expectations of private business owners; providing lenders, investors and the businesses that depend on them with critical data to make optimal investment and financing decisions.

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About Pepperdine University Graziadio School of Business and Management
Founded on the core values of integrity, stewardship, courage, and compassion, Pepperdine University’s Graziadio School of Business and Management has been developing values-centered leaders who advance responsible business practice since 1969. Student-focused, experience-driven and globally oriented, the Graziadio School offers fully accredited MBA, Masters of Science, bachelor’s completion and non-degree executive business programs for business professionals, entrepreneurs, managers and senior executives at all stages of their professional and personal development.

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SOURCE: Pepperdine University Graziadio School of Business and Management