By Alexander Cuntz, Alessio Muscarnera, Prince C. Oguguo, Matthias Sahli, Department for Economics and Data Analytics, WIPO
Filmmaking is a highly risky venture. As films can be very expensive to make, securing financing is often a critical part of any filmmaking project. Yet, as each new film is a unique creative project, there is little guarantee that it will find interested audiences, achieve commercial success or even break-even. From the perspective of the financier, this makes film projects difficult to evaluate. And for filmmakers, it makes financing a film project a big challenge.
As films can be very expensive to make, securing financing is often a critical part of any filmmaking project.
New WIPO research sheds light on the standard practices that filmmakers use to obtain funding for the production and distribution of a film in the USA. As the largest film industry in the world by revenue (Statista 2023), the US film industry is highly successful in terms of producing and distributing some of the most expensive (to produce) films of all time. This includes hits such as 2023’s Barbie which cost an estimated 145 million USD (Collider 2023). Filmmakers in the US also benefit from a highly sophisticated financial system that makes it possible for them to use their intellectual property (IP) and other intangible assets as collateral to secure loans to develop their projects. This is particularly relevant since film projects often have very few tangible assets that can be used as collateral for loans, and many filmmakers do not have sufficient personal funds to finance a movie themselves.
Filmmakers in the US […] benefit from a highly sophisticated financial system that makes it possible for them to use their IP and other intangible assets as collateral to secure loans to develop their projects.
- IP has been widely used as collateral in US film debt finance. About 35 percent of loans have used some form of intangible – including IP – asset as collateral.
- Co-production, loan syndication, guarantees and insurance are important strategies used by those financing films to share and transfer risk.
- The entry of streaming platforms has increased competition for content to distribute. Key players increasingly prefer to exploit existing intellectual property exclusively.
- Financial management education for young producers and improved access to information on film finance deals are key policy recommendations from the WIPO research.
There are a variety of ways to finance films, including through debt financing, equity investment, grants, crowdfunding, and partnerships with studios and/or production companies. WIPO’s research focuses on debt financing and identifies the key players and their economic motivations. It shows how risk around film financing is managed and mitigated successfully, and highlights the important role of IP-backed finance in this rapidly evolving sector. The report concludes with important recommendations for policymakers.
Key players in US film finance
Producers, distributors and financiers are the primary players in US film finance. Producers seek out a script, assemble and manage resources to ensure the film is completed on time and according to the script, while distributors acquire the rights to exhibit a film in cinemas and elsewhere.
Producers, distributors and financiers are the primary players in US film finance.
Film production and distribution in the US have been dominated traditionally by vertically integrated companies called studios. Major studios include Disney/Fox, Paramount, Sony, Universal, and Warner Bros, while MGM, Lions Gate and DreamWorks are sometimes referred to as “mini-majors”. These days, independent streaming services such as Netflix, Apple, Amazon and Hulu and studio-owned streaming services such as Disney+, Paramount+ or Peacock play an increasingly important role in film production.
Finally, financial institutions provide financing, typically loans, to film producers. Most external financing in film comes from commercial banks with specialized film finance branches, often located in Los Angeles (USA) or London (UK).
The most common types of financial deals
Much of the financing for big-budget films is debt-based. Independent producers and smaller production companies typically seek to finance one film at a time. This is known as project finance. Such financing may come directly from a studio partner or from a commercial bank with a guarantee from a distributor or studio partner.
Much of the financing for big-budget films is debt-based.
The type of debt deals a producer may obtain depends on the film’s stage of production as well as the guarantees a producer can provide a financier from trusted third parties. However, streaming platforms, studios and larger production companies often rely on corporate financing and larger lines of credit to finance a slate of films at a time. This often involves the use of complex, structured financial instruments that allow them to draw on a combination of debt and equity, thereby minimizing their own risk exposure.
The role of IP and other intangible assets in film deals
WIPO’s research shows that in the US film industry – where tangible assets are particularly scarce – intangibles, including IP, have been widely used as collateral. Indeed, since 2008, around 35 percent of loans in the industry include some form of intangible as collateral, based on the latest data from U.S. credit transparency registers.
Since 2008, around 35 percent of loans in the industry include some form of intangible as collateral.
New data from the US Copyright Office further shows that in the last 40 years, each registered film title saw between four to six recordations of security interest, and that the total number of such recordations per year ranged from between 5,000 and 20,000. This gives an indication of the number of film finance deals backed by the copyright of the film.
Is IP and intangible asset-backed finance used by both large and small filmmakers?
There is evidence that independent film producers and other SMEs use loans backed by intangibles more extensively than larger producers, and that intangibles account for a greater share of the collateral used by SMEs. Intangibles-backed finance is particularly important for smaller filmmakers seeking access to finance because they tend to have fewer tangible assets to offer as collateral compared to larger studios or production companies.
There is evidence that independent film producers and other SMEs use loans backed by intangibles more extensively than larger producers.
Private-sector solutions to financial-risk mitigation
As outlined above, film industry players have evolved a number of strategies to manage their risk. While some of these strategies involve sharing the risk burden, others simply involve isolating a risk or transferring it from one party to another.
Co-production and loan syndication are two important risk-sharing strategies used in film finance. Co-productions help producers manage risk by sharing production and marketing costs with other producers. Whereas for larger loans, multiple financiers may pool their capital to finance the loan. When loans are syndicated in this way, each lender’s risk is limited to the share of the loan they contribute.
Co-production and loan syndication are two important risk-sharing strategies used in film finance.
Risk is often transferred to parties that are better suited to bear, insure or guarantee it. In so called “negative pick-up deals,” film producers and distributors enter into a pre-sale agreement wherein the distributor agrees to pay a minimum amount for the film if produced. By so doing, distributors guarantee themselves a steady supply of films while placing the risks associated with production squarely on the producer. In turn, these distributors accept the risks associated with the exploitation of the film. Meanwhile, insurance companies or specialized agencies called “completion guarantors” may also insure or guarantee some aspect of film production for a fee, thereby assuming some of the production risk.
Finally, special purpose financial vehicles are often used to isolate risk in film finance from corporate balance sheets. Special purpose vehicles are separate legal entities created primarily to isolate the film (or slate of films) debt and revenue risk from that associated with the producer’s other operations.
How are digital changes affecting US film finance
The entry of streaming platforms to the world of film has increased competition for content to distribute. In the immediate term, this means independent producers make more money from each film. However, the tendency of streaming platforms to acquire all rights in a film means that producers forfeit all future royalty payments and thus make less money in the long term. Similarly, as film production costs continue to grow, rather than exploring truly original content, studios, streaming services and other distributors increasingly prefer to exploit existing intellectual property with a proven audience.
The tendency of streaming platforms to acquire all rights in a film means that producers forfeit all future royalty payments and thus make less money in the long term.
Overall, increased competition coupled with the recent tightening of capital markets – where cheap capital for streaming platforms has all but diminished – suggest that the growth of streaming platforms may have peaked. On the other hand, despite the increased use of data analytics in the industry to manage internal operations, the potential for better and easy-to-access information to reduce the cost of financial deal making in this sector has yet to be fully realized. This is because although some crucial data is publicly available in credit transparency registers and US copyright registration systems, other relevant data is often proprietary and guarded jealously by producers and distributing platforms.
Key takeaways for policy-making
Looking ahead, our research suggests that:
- Improving access to information on deals and the companies involved in them would increase transparency of financial markets and reduce the cost of setting up future deals;
- Financial management education for young producers would help them better navigate the complex landscape of film finance, and;
- Encouraging banks and other financiers to work with smaller distributors would create more deal options for independent producers.
In conclusion, the US film industry has evolved sophisticated mechanisms to build on various assets, including intellectual property, to support the creation of big-budget movies while managing the associated high risks. In the future, new WIPO research will explore film finance in other jurisdictions as part of a series aiming to share best practices from film industries and IP-backed financing in other creative sectors around the world.
Additional WIPO materials on film finance and copyright are available from the WIPO official website.