Business Plans for Filmmakers

Introduction

1 Introduction Considered from a broad perspective, this book is written for a fairly customary reason: to fill a perceived gap in the film-industry literature. More specifically, however, the existence of this gap is primarily due to a failure on the part of business-plan consultants, entertainment attorneys and film-industry association executives to provide the independent-film community with adequate and accurate information relating to the proper role of business plans in film finance. The sad truth is that the use of business plans has been oversold to the independent-film community. Many of the people involved have consistently perpetuated numerous myths and served as sources of misinformation regarding the legitimate use of business plans, some for self-serving reasons but others for a simple lack of knowledge and understanding. The following statements represent such myths: 1. One of the first things to do when seeking to finance a feature or documentary film is to prepare a business plan. 2. A business plan is useful in seeking film finance from film-industry sources. 3. The primary means for raising money to produce a film from investors outside of the film industry is through the use of a business plan. 4. A business plan can be used by itself to raise money from investors. 5. A business plan may be used to raise money from passive investors. 6. A business plan is just another name for a private-placement offering memorandum (i.e., a business plan and a PPM are the same thing). 7. Even if one needs to use a private-placement offering memorandum, one should also use a business plan as supplementary material. 8. Even if one needs a securities disclosure document, it will be helpful to the securities attorney for the filmmaker to have already prepared a business plan first. Introduction 2 Each of these statements is false and misleading. This book elaborates on the reasons why these statements are false, but here are the corresponding short responses: 1. It depends on the type of film finance being pursued. A business plan is not useful or appropriate for many forms of film finance including certain forms of investor financing.1 2. Industry financing sources such as the major studios, their affiliated distribution companies, other established production companies and most entertainment lenders do not need to see a business plan; rather, a producer’s package provides the appropriate level of documentation for them (see discussion regarding the producer’s package in chapter 1). 3. A business plan’s usefulness in helping to raise money is limited to one to a few fairly rare active investors from outside the industry, people many producers do not want to be involved with their films for the very fact that they will be actively involved in helping make the important management decisions associated with the project (see the discussion regarding the differences between active and passive investors and why that distinction is important in chapter 1). 4. A business plan is not an investment vehicle and therefore must be paired with an investment vehicle that is suitable for use with active investors (see discussion regarding investment vehicles that may be appropriately used with active investors in chapter 1).2 5. A business plan cannot be legally used by itself to raise money from passive investors but may serve as supplemental material to a properly drafted securities disclosure document, although risks are involved in using business plans as supplemental material when seeking to raise money from passive investors (see discussion in chapter 1). 6. Business plans and securities disclosure documents are two different documents with some similar and overlapping content but also some different content, and the two have distinctively different uses (see chapter 1). 7. Using any supplemental material including a separate business plan with a private-placement-offering memorandum in a private offering of securities is accompanied by a certain level of additional risk (see discussion of overly aggressive business-plan consultant tactics below). 8. This may be good advice for a young and inexperienced securities attorney or one with little to no experience putting together a film privateplacement -offering memorandum, but for a securities attorney with considerable experience putting together film offerings, only a small percentage of the information put into a business plan will be useful, Introduction 3 and that will likely have to be carefully edited. The better practice is to just provide the limited and selected information requested by the securities attorney, not a full business...