What value is the copyright except future ownership and a nightmare if you ever need a sequel (Spider-man films were held back years because of copyright conflicts). I would think folks would prefer specific quantitative values such as x% of DVD sales.

Then again I"m a writer, not a producer so I could be wrong.

RJSchwarz
San Diego, CA

I've never heard of this method here in the States. But if that's how the Canadian government structures film financing, then I guess they've go it figured out.

Here in the States the most common repayment method for investors is a percentage (or points) in the finished project. The investors don't own a piece of the copyright, they own a piece of the profits only.

I agree with RJ - having ten different people or investment groups own part of the actual copyright could be a huge nightmare.

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The aim of an argument or discussion should not be victory, but progress.
Joseph Joubert, essayist (1754-1824)

That's a good point about the sequels-- hadn't thought of that.

I understand the idea that investors are entitled to a piece of the profits only (and no ownership), but how do you structure that legally? Are you talking about LLC's and the various partnership structures that are available? I posed the question to John Cones on his discussion forum, and his response to the idea (selling copyright) was quite negative. Not because of sequel rights or anything, but simply because it's not normally done and as a structure it doesn't have a track record of success.

Thanks for the feedback,
Hal

Hal,

You said the Canadian government granting agencies use this structure to participate in Canadian films. That means you already know more about this than most of us. If your government wants a filmmaker to sell shares in the copyright, then you should do it that way.

Frankly I don't understand how investors recoup their investment if they own a percentage of the copyright. The copyright is, essentially, worthless. Copyright protects the owner from people make copies or using the material without permission.

Here in the States, the government isn't as deeply involved with financing movies as in Canada. The SEC regulates how financing is attained to protect investors. Forming an LLC is the way I have financed my movies. I've never sold a percentage of the copyright - but if you know that to be the Canadian way, then you should look into that method.

Since you are interested in how to structure an LLC, it might be time for you to contact a business lawyer. Messageboards are great places to get simple info, but for legal matters like how to structure a legal business, this might not be the best place.

Do you have a full budget drawn up?

I do have an ent lawyer on board. He's used to the so-called "Canadian" route for financing films, which essentially combines TV broadcaster presales, gov't "equity" (ownership of copyright as described above) participation, gov't tax credits (based on eligible labour expenditures), and sometimes theatrical distribution agreements.

Private investment is very rare in Canadian films, which is why I'm looking around to see how you guys do it south of the border. My lawyer doesn't have much experience with this, but he's very excited about it as he sees it as a route that Canadians ought to look into more deeply.

I've got the corporation lined up and ready to go. The sale of copyright is essentially a kind of investment offering that we were looking into as a simpler alternative to creating a Limited Partnership Agreement (that's what we call it here), where my corp is the General Partner (liable) and the investors are the Limited Partners (liable only for as much as they invest).

I do have a budget-- and it's low! 120 grand is what I'm looking for to produce a no-name direct-to-DVD shot-on-video horror picture. I have two letters of interest lined up from distribcos here, locations, crew, picture and sound post guys, the whole deal. The final thing is figuring out this damn investor financing agreement.

Thanks for all your input.

Is there any chance that we're using different definitions of copyright? If you replace the word copyright in your initial post with the word share...

RJSchwarz
San Diego, CA

rj,

Replacing the word "copyright" with the word "share" is exactly the thing I'm trying to AVOID, believe it or not... but same idea.

Instead of the SHARE representing an equity position in a COMPANY, the UNIT OF COPYRIGHT will represent an equity position in an INTELLECTUAL PROPERTY; i.e., the movie.

Apparently (and I don't have solid cases to back this up yet, just something a business consultant told me) selling pieces of patent ownership to raise financing is a common thing when you're talking about new inventions, technology, etc.

It's cleaner and faster and cheaper (on the paperwork side) than a shareholder's agreement or limited partnership agreement.

The question is whether or not it would be MORE or LESS attractive to potential investors, given that it's a structure they may not be used to seeing?

The other issue is tax considerations. My accountant is looking into it now-- how profits gained through copyright ownership are taxed, and whether or not losses in same can be used to offset other income for a reduction in taxable income.

Now, I see what you're saying.

I am a principle in a LLC here in the States. When we bring on investors for a movie they do not own a piece of the company, they own a share of the project. And they don't share in the copyright of the script or the intellectual property (the movie) - I own both. What the investors have a share in is the return based on distribution.

I suspect selling U.S. investors on owning a share of the copyright is going to be difficult. I'm not even sure how that works.

120 grand is pretty good. I make DTV horror movies for half that.

I could be wrong, but isn't it common to create a company specifically for a single movie to ensure that a larger studio is protected the same way a company isolates an independent filmmaker.

You could create a new company and your old company would be the larger shareholder amung multiple partners. The company could exist as long as you intend to sell the movie, or have a specific termination point at which rights, exctra are dealt with in a predefined way.

Again, I'm out of my depth here but I think I read about this somewhere and it makes sense.

RJSchwarz
San Diego, CA

All right, now we're getting somewhere-- when you say that investors own a "share in the return based on distribution," you're not talking technically about a share as in a stock offering. You're talking about a share as in a portion, right? Their own piece, proportionate to the amount they invest. So you don't actually sell shares in the company (therefore you are the only one who controls the LLC), and you don't sell any piece of the copyright (therefore you control all rights for ownership distribution etc.)

So from the LLC, you simply issue some kind of "Investor Financing Agreement," is that correct? What is the actual title that goes onto the top of the piece of paper you give to investors that explains what you are offering to them?

I spoke to my lawyer again today and my accountant, and it looks like that's the best route for me to go here too. The point the accountant made w/r/t copyright sale is that at that point the investor has actually purchased an asset, and since it's a copyright, profits made on that are technically "royalties," so from a tax point of view it pretty much sucks.

rj, you're talking about the two-company structure where one company acts as a holding company and the other acts as the operating company, right? The movie is produced out of the opco and can be much more limited in scope and, as you say, wound down in a limited time-frame. If I were offering to sell shares in the opco to raise money that's the way I would do it.

But since I'm going to go with this more basic Investor Financing Agreement I probably won't pay the extra expense to do all that incorporating.

Thanks for all the feedback guys, you've helped me get my head on straight here...

To pick up on something the Instigator mentioned...

You're doing your d2dvd movies for closer to 60g's? What kind of movies are they, genre-wise? Are you selling successfully? Investors making money back? You making money yourself? Any kind of recognizable cast? Getting TV sales out of it?

I'm just going to fire away here, don't mind me...

I took my film down to the AFM this past Nov (trailer and pitch package, no actual completed film) and I was advised not to spend over 100,000 if I wanted to make some money on it. That was an eye opener, because I'd originally budgeted to shoot it for half a million on 35mm. Dream on! Not in this market for horror movies, unless it's a breakout hit from a festival.

Well again, I'm out of my depth so I'm hoping Certified or someone with more experience at this can fill in the blanks or tell me I'm off my rocker.

RJSchwarz
San Diego, CA

quote:

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Originally posted by Hal Rankin
You're doing your d2dvd movies for closer to 60g's? What kind of movies are they, genre-wise? Are you selling successfully? Investors making money back? You making money yourself? Any kind of recognizable cast? Getting TV sales out of it?

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As I mentioned, I make horror movies. Usually in the $40,000 to $70,000 range. I have found that a horror movie that has the elements needed by the distributors usually returns between $60,000 and $80,000. Sometime a little more, but without a recognizable name they rarely return more then $100,000.

The advice you got at AFM is correct in my experience. And the amount being offered is getting smaller, not bigger. There are, of course, exceptions and I expect several people to chime in mentioning them - but in general these are the numbers.

How did you do at AFM?

Man, those numbers are even lower than I thought! I've spoken with a rep from Cinemavault Releasing here in Toronto (mostly foreign sales) and his word were that if I made my film (called Rankin's Bog) for 100,000 I could do "quite well with it." I'm sitting down with him this week to obtain a letter of interest for my investor package, and I'm hoping to nail those numbers down a little better.

I also spoke with a rep from Velocity Home Ent, also TO based, and he said that they pay anywhere from 10,000-100,000 for all domestic rights to a genre film, depending on elements like cast, production value, etc.

Do you mind if I ask who you're selling to, and are you using a sales agent or do you sell direct to distribs? And to be clear on the numbers you're talking, that 80-100k is money that flows back directly to you as the Producer? Any idea what kind of grosses the distributor is making on it?

I had a great experience at AFM. Learned a lot about the state of the genre. I could write an essay on all the stuff that's going on. I showed the trailer for my film to a handful of people, and it was extremely well received-- but of course no one really cared because I don't have a completed film! I wouldn't go again without a finished film, and even then I wouldn't go unless I had a plan to sell it directly to the buyers and bypass the distribs.

Do your films have distribution in Canada? Titles on the rental shelves that I'd recognize? You can check out my work at www.rankinsbog.com.

Thanks for the good conversation.