Film and Entertainment Industry Financing
The way in which we consume media and entertainment has dramatically changed over the past decade. New platforms have created both challenges and opportunities for traditional forms of entertainment. So in regards to the film industry, television and home streaming have become its biggest competitors. Audiences are no longer rushing to the movies as they once did, but are now enjoying content from the confines of their homes, computer screens, or their cell phones on the go. The Millennials are shaping the market; as they spend increasing amounts of time streaming content than going out to see a movie or watching it on television, the streaming services continue to grow. Part of this shift also has to do with consumers being more interested in shorter forms of content such as YouTube or videos found on social media platforms. Additionally, the current industry is also favoring mixing practical effects with CGI, a diverse cast and narrative, increased social commentary, smaller budgets films being produced specially for online services such as Netflix and Amazon, and handheld shots are all helping to shape the future of the entertainment industry.
One of the most recognizable streaming services Netflix went from reaching seven million U.S. subscribers to 93 million people worldwide. And its ability to break into well-established industries; growing from video rentals to television and now film has proven to be a platform to be modeled after. Thus, with the success of Netflix, the current television and film industry has been forced to make radical changes in their practices. Some of the influences that we see on Netflix that has helped to create a shift in the entertainment industry is its willingness to stray away from the status quo and put out content that reflects cultural awareness. Such as with their highly successful show Stranger Things; Netflix took a risk on relatively unknown directors and an original script. Alternatively, with the just as famous Orange Is the New Black, where they help to bring awareness of the disproportionate effects on communities of color in the prison system allowing for a critical perspective on the criminal justice system. In doing so, platforms like Netflix have opened up doors for stories not told often enough.
Nevertheless, though entertainment is progressing and changing with every year, the industry is still infusing old techniques with the new. Up until recently, CGI looked to be replacing practical effects—little did we know that they would be making a comeback with blockbuster motion pictures. One of the most anticipated films of 2015, Star Wars: The Force Awakens and other significant movies like Mad Max: Fury Road, decided to use CGI along with practical effects, and the most surprising considering the film was highly stylized—Christopher Nolan’s Inception. Though the technical side of film is not the only area where we see change; an increase in movies with a strong social and political commentary is also rising. Not only in film but across several media, including news outlets, satirical comedy shows, social media and more, with the film industry being no exception. Hence, critically acclaimed films, TV, and blockbuster hits have displayed relevant social issues such as race relations seen within the film Loving, which focuses on an interracial couple or highlighting political unrest in favorite shows like American Horror Story. Also, the best picture winner at last year’s Oscars Moonlight focused on and addressed LGBTQ and race issues. Subsequently what follows is an increase in diversity in film. More and more females are being casted as the lead in typically male roles as we can see in the 2016 Ghostbusters remake which casted all woman in the titular roles that was historically dominated by male actors.
So with all the emerging progress that’s happening within the entertainment industry with diversity and the types of stories told, and the way audiences are wanting to experience content, the indie film sector has also contributed to making handheld shots, also known as found footage, a creative technique used today. Handheld footage can be seen primarily in Horror films and indie films to create an almost disoriented feeling for the audience. The shot also helps to evoke eerie feelings that would typically be found in thrillers. Films that have utilized the iconic handheld camera work are present in Cloverfield, Paranormal Activity, and Chronicle. Therefore, this trend has made it possible for films to feel more real, too, the characters and the worlds they are inhabiting. Moreover, with an ever-changing industry, these trends all represent a part of what is in demand and what should be taken into consideration entering into the business of entertainment.
Types of Entertainment Industry Loans
There are quite a few reasons a film or entertainment company should seek financing to help pay for a project or regular operations. Much of the time such projects are funded with equity investments, but there are debt financing options available to cover expenses — including purchasing equipment, making payroll, paying vendors, marketing and advertising along with other uses. Below we’ll take a look at some of the debt financing options available.
SBA Loans
SBA Loans are a form of traditional financing offered by large banks, small banks and credit unions utilizing the Small Business Administration’s government enhancement. This enhancement provides protections for SBA lenders by guaranteeing to cover the majority of the costs the lender incurs should the entertainment industry borrower default on their business loan. By reducing the risk posed to the lender, the governments goal is to increase lending approvals to small businesses.
| Rates | 5-8% |
|---|---|
| Terms | 3-25 years |
| Funding Amounts | $50,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Bank Loans
This is a standard business loan with a term that ranges from 1-25 years depending upon use. Common uses for a bank term loan are acquisitions, real estate purchases, real estate financing, debt consolidation, working capital, inventory financing and upgrades. While its not easy to get approved for an entertainment industry bank loan, if you are able to get approved you will be getting the lowest-rate commercial financing available.
| Rates | 5-10% |
|---|---|
| Terms | 1-30 years |
| Funding Amounts | $50,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Line of Credit
This is a form of preapproved financing that allows businesses to access capital without having to go through another underwriting process. A major benefit of a line of credit if the business won’t have to pay interest on funds that aren’t drawn and used. A line of credit may be unsecured (meaning credit-driven) but most lenders will decide the facility rates and terms based upon a company’s accounts receivables as well as other items on the entertain company’s balance sheet.
| Rates | 5-8% |
|---|---|
| Terms | 3-25 years |
| Funding Amounts | $50,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Equipment Leasing
Rather than purchasing equipment outright, an option could be to simply lease your entertainment industry’s business equipment. As technology changes, equipment can quickly become outdated. Rather than obtaining financing to purchase your equipment outright, an option could be to simply lease your entertainment industry’s equipment for a period of time, and then be left with the option to renew the lease or purchase the equipment outright in a buy-out.
| Rates | 8-15% |
|---|---|
| Terms | 1-10 years |
| Funding Amounts | $5,000-$5,000,000 |
| Collateral | Required |
| Fees | Medium costs |
Sale of Future Receivables
Selling your entertainment company’s future receivables is a way to obtain fast capital without lots of underwriting and documentation disclosures. Often called a business cash advance or MCA, the process of obtaining this type of funding involves selling your company’s future bank deposits to a funding company in exchange for an immediate lump-sum payment. Once the entertainment company is funded, the repayment process will begin with daily remittances from the company’s main operating account through Automated Clearing House until the balance is repaid.
| Factor rates | 1.10 – 1.50 |
|---|---|
| Terms | 3-24 months |
| Funding Amounts | $5,000-$2,000,000 |
| Collateral | Not required |
| Fees | High costs |
Summary
As mentioned before, most funding for entertainment and film industry projects and endeavors are capitalized using equity financing. But that doesn’t mean there aren’t debt financing solutions out there for your entertainment business. As you can see there are both conventional and alternative lending options for companies in need of working capital. If you are an entertainment company seeking financing, and need help understanding all the options, please reach-out to one of our funding specialists, and we’ll help you navigate the process.
