2.1 The complexities
There are a number of subtleties in what's been covered so far. Review these points to make sure they’re clear.
- When distributors finance a film, they often provide a contract committing them to buy the completed film. A bank then lends against that contract. Sometimes this is referred to as the bank ‘discounting’ the contract. The bank assesses the reliability and creditworthiness of the distributor and, on the basis of its risk assessment, lends an amount that it is comfortable can be repaid.
- A financier that agrees to actually provide cash during production is said to supply ‘cash flow’. One of the jobs of the producer is to estimate the timing of cash requirements during production and match the expected outgoings with expected incoming amounts from the bank and the financiers.
- When a bank lends against a distribution contract, it faces two risks. There is the risk that the distributor does not do what it says it is going to do (which will likely trigger a lawsuit) or becomes financially insolvent. The bank makes an assessment of this credit risk on the basis of the reputation and financial statements of the distributor. Second is the risk that the film is not completed as expected and is not delivered to the distributor, so that the distributor’s obligation to pay is not triggered. To remove this risk, many independent films use a completion guarantee. You will be hearing from a completion guarantor in Week 6. (Sometimes a completion guarantee is referred to as a ‘completion bond’.)
- Sometimes a film will be made as a treaty co-production. This means that it is being made under the terms of a co-production treaty between two or more countries. For example, a UK–German co-production will obtain the preferred terms of being both a UK film and a German film in terms of soft money and other national support. For this to happen, the film will have both UK and German creative elements and will also need to have both a UK co-producer and a German co-producer. It will also have production (or post-production) spend in both countries. Many countries have bilateral co-production treaties (you can read about the European Convention. signed in 2014). There is also a general co-production agreement for European countries, called the