Oct 31st 2013, 00:52, by smoore@stroock.com (Schuyler M. Moore)
Advertisers
An important recent trend is the influx of equity from advertisers to finance films and TV shows. Advertisers are being pushed out of television by TiVo, DVRs, and VOD, and they are fighting back by investing equity in films and TV series in order to integrate their product into the message in a way they can control. Many advertisers have set up dedicated entertainment divisions to produce or invest in films. The cost of a film can be less than these companies spend to sponsor a major sports event, but, in addition to the advertising benefit they receive, when they invest equity, they stand to make their money back and even make a profit.
The boundaries of this trend are being pushed by Hasbro, which was so enthralled with the success of its toy line from Transformers that it invested in the film Battleship (based on a Hasbro board game) and has gone to the logical extreme of opening its own studio on the lot at Universal for creating TV shows for a network it co-owns with Discovery Communications. In the extreme sports realm, Red Bull dominates with its sponsorship of and content creation for everything from snowboard competitions to parachute jumps from space. Similarly, Proctor & Gamble and Wal-Mart recently sponsored a TV series with family-oriented programming that includes product placements and presentation credits for each of them.
Product placement alone is not fully satisfactory to advertisers for a number of reasons. In particular, they cannot control the exact contours of whether and how their product will be used, and they cannot control the content of the film itself. They often are chagrined to find that the final film contains more graphic violence, sex, or whatever than they contemplated, leaving them concerned about possible negative associations with their product.
When advertisers invest in and own the films, they have control over the creative aspects of the film itself and, specifically, the use of their products, and they don't risk being left on the cutting room floor. This alone is a compelling reason for advertisers to take this step. But there are even more compelling reasons: All the money in the world spent for product placement and associated advertising is just that -- money spent. While the advertisers hope that product sales will increase, there is no other source for recoupment of this expenditure. When advertisers instead invest in a film, they have a source for recoupment of their investment, plus a profit if the film works. A little money goes a long way. Advertisers do not need to finance 100% of a budget; they need only plug the gap, which might be a small portion of the budget of a film.
Retailers
Another important recent development is the disintermediation of the studios through the creation of content by companies who have a direct link to consumers, including those companies who deliver content through digital means. An early pioneer of this approach was ClickStar, a VOD company founded by Morgan Freeman and Intel, with the goal of releasing films via VOD day and date with the theatrical release, and the film 10 Items or Less starring Morgan Freeman and produced by Revelations was made specifically as a trial of this approach. This trend is accelerating on many fronts, including the creation of content by internet companies (Netflix and YouTube), theater chains (Open Road), premium cable channels (Showtime), and DVD retailers (Wal-Mart). These retailers now provide a vibrant, important source of new financing that disrupts the studio system and bypasses standard distribution channels. Rather than going to Cannes to attempt to pre-sell a film to foreign distributors, film producers now can knock on Netflix's door and ask it for production financing.
The retailers generally pay on delivery (or even later in installments), so it is necessary for the producer to borrow against these payment commitments. This brings with it the tried and true method of banking pre-sales, and there has been a bit of a learning curve to get the retailers familiar with standard pre-sale banking documentation, such as notices of assignment and interparty agreements.
So be a trailblazer and try advertisers and retailers as a new source of financing.
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