Recoupment is what every producer hopes for after making a film. It’s when the various parties involved in funding a film start earning money back through royalties, revenue from distribution deals etc. Typically, and especially so in the indie world, the producer will be the last in line when it comes to recoupment, after all other recoupment agreements have been satisfied.
Finance and Investment- what’s the Difference?
It is often assumed that finance and investment are essentially the same. This is, however, not true. Financiers, typically banks, will give the producers a loan in return for legally binding securities against the production’s assets. This is usually enshrined in the SPV set up for a film. Generally financiers will be first in line when it comes to recoupment. Once the financier has been paid the agreed sum and interest, he loses all ties with the production.
An investor, on the other hand, operates on a different basis. He or she will usually only recoup once the financier has been repaid. The investment, also referred to as equity money, allows the investor to recoup before the producer of the film starts to receive any net profits. Once the break even point has been reached and the producer starts to make a profit, the investor will sit alongside with the producer becoming a co-owner of the film and benefitting from any revenue it might generate in perpetuity.
Gap Finance
It is often assumed that finance and investment are essentially the same. This is, however, not true. Financiers, typically banks, will give the producers a loan in return for legally binding securities against the production’s assets. This is usually enshrined in the SPV set up for a film. Generally financiers will be first in line when it comes to recoupment. Once the financier has been paid the agreed sum and interest, he loses all ties with the production.
An investor, on the other hand, operates on a different basis. He or she will usually only recoup once the financier has been repaid. The investment, also referred to as equity money, allows the investor to recoup before the producer of the film starts to receive any net profits. Once the break even point has been reached and the producer starts to make a profit, the investor will sit alongside with the producer becoming a co-owner of the film and benefitting from any revenue it might generate in perpetuity.
Gap Finance
If a film has a financing structure in place but is missing a certain amount of funds to start production, gap finance, usually provided by a bank or professional film funder against the security of unsold international distribution rights, is often a solution. This could for example be spent on services that can be reclaimed against a tax credit system. In term of recoupment a gap loan will be repaid before equity money (see investment) and the producer’s profit. Gap finance can be arranged typically for 5-35% of a production’s budget. If it extends to somewhere above 10-15%, it is usually referred to as a super-gap loan.
Public-Private Funding
The pubic-private funding model, as used for example by Screen Yorkshire, is intended not to warp commercial mechanisms in the free market. Money coming from a public-private investor can only be put towards a project if it is invested to the exact same terms to which a private investor has already agreed to fund the film. The amount of public-private money cannot be higher than that of the private funds.
Special Purpose Vehicle
A Special Purpose Vehicle, or SPV, is a company set up as a one off venture through which to run the production of one particular film. It means that all the parties involved in funding and financing the film are dealing with a “clean slate” partner that doesn’t have a bad credit history, pre-existing debts or obligations to other parties, not involved in the production.
Completion Bond
A completion bond is a type of legal insurance, which forces the producer to finish a film based on an agreed script, budget and often cast and deliver it to the distributer. Thus the producer triggers the release of the minimum distribution guarantees that he receives from the distributer. These funds are then used to repay loans and investments in the project. Should a producer fail to complete a project, the company that provides the completion bond theoretically has the right to take over the production, including the right to replace any cast and crew they see fit. This will only ever happen in extreme circumstances, as the bond company knows that this will have potentially disastrous effects on the creative value of the film.
Public-Private Funding
The pubic-private funding model, as used for example by Screen Yorkshire, is intended not to warp commercial mechanisms in the free market. Money coming from a public-private investor can only be put towards a project if it is invested to the exact same terms to which a private investor has already agreed to fund the film. The amount of public-private money cannot be higher than that of the private funds.
Special Purpose Vehicle
A Special Purpose Vehicle, or SPV, is a company set up as a one off venture through which to run the production of one particular film. It means that all the parties involved in funding and financing the film are dealing with a “clean slate” partner that doesn’t have a bad credit history, pre-existing debts or obligations to other parties, not involved in the production.
Completion Bond
A completion bond is a type of legal insurance, which forces the producer to finish a film based on an agreed script, budget and often cast and deliver it to the distributer. Thus the producer triggers the release of the minimum distribution guarantees that he receives from the distributer. These funds are then used to repay loans and investments in the project. Should a producer fail to complete a project, the company that provides the completion bond theoretically has the right to take over the production, including the right to replace any cast and crew they see fit. This will only ever happen in extreme circumstances, as the bond company knows that this will have potentially disastrous effects on the creative value of the film.
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