24 Financing Content: Not an Easy Task But Essential For Indies By Robin Philip* The year 2024 has been a year of growing interest rates, inflation caused by more than one war, and uncertainties surrounding change of political power in key global economies. But for independent content producers, there is a silver lining. As global financial analysts explore new avenues of investment for their clients in the midst of these uncertainties, they seem more open to media investments than ever before. If you have a great story/idea and plan to execute it to perfection, it’s a remarkable time to be an independent producer. Historically, to complete their projects, indie producers have often relied on their personal savings or gap financing by unorganized private credit firms/money lenders. This highrisk credit usually cost between two to three percent interest per month and the term was usually very short, between six and 18 months. This put a lot of pressure on producers to finish projects and start monetizing quickly, or their costs went up exponentially in terms of interest rates and penalties. Projects stopping mid-way due to lack of funds, overshooting budgets, or creativity compromised due to funding pressures are stories that are a norm in the industry. Large studios that have built a track record with a slate of successful projects and healthy financial balance sheets get funded by NonBanking Financial Companies (NBFCs) for an interest rate between nine and 15 percent per annum for a term of three to five years depending on the risk levels. They raise about 50 to 70 percent of their project costs from such sources and rely on advanced box office collections or pre-sales to platforms to settle their remaining costs around the back end of production. This drastically reduces costs for such large studios. Independent producers, unfortunately, do not have this track record of successful content or healthy financials to attract NBFCs. More often than not, these are media founders driven by their creative willpower to bring projects to life and have limited bookkeeping and legal expertise. They’re hustlers with an intent to make it happen. However, they struggle to forecast cash-flow needs, which is one of the main reasons of shutdown for many indie projects. At times, platforms do greenlight unique projects by small independent producers, but to reduce their risk, they back-load their payouts with around 60 percent paid after content delivery. This again leaves producers to look for gap financing at exorbitantly high interest rates. Government rebate programs with an objective to support small producers or boost tourism by promoting their country within foreign content is one additional avenue of indirect financing. But the payouts are usually postcompletion, which does not help immediate production cash flow, and there are multiple entry barriers which don’t make it very accessible or a credible source for all producers. The new and reliable avenues for indie producers with good projects are: 1. Content Financing Private Equity Investment Funds (PEIF): Government licensed and regulated asset management companies in many markets have started offering media content as financial products to their HNI (High Net-worth Individuals) clients for investment options with lock-in periods of three to five years. Media was not a preferred sector in the past, but it is now amidst all the uncertainties. These media funds usually set up a team of consultants from the industry who help them find promising producers and evaluate projects. The usual approach is to keep a six to 10 percent hurdle rate per annum for the fund after recovery of the invested budget and thereafter share profit at a negotiated rate with the producer. These PEIF options are ideal for indie producers looking for funding for large budget projects. Funds usually set up a Special Purpose Vehicle (SPV) with each producer to handle financials and hold the developed Intellectual Property (IP). Producers will be expected to provide regular status updates and keep an open book for audits. 2. Co-production teams created by platforms: Most large and reputed platforms globally are either listed on stock exchanges or are well funded by private investors and are usually cash-rich. They need content to keep their platforms alive. Many of these platforms have taken the opportunity to optimize their content budgets by setting up co-production teams looking for projects to invest in with indie producers and then monetize in foreign markets by partnering with global distribution companies. The platform stands to own IP (versus just licensing content), which contributes to their valuation while revenues boost their topline income. The advantage of working with such platforms for an indie producer is that there’s less pressure of 100 percent recovery since platforms retain the rights for their own consumption in certain markets for a defined percentage of the production budget. There are also some government-backed/ owned platforms in certain markets which have created co-production models such that they invest with indie producers and also facilitate sale to their own platform. This also helps with getting government rebates for showcasing their country in the content. I would call this one of the most attractive options available to producers today. 3. Working with co-production specialist companies: A result of the two above options and the growing need for production synergies is the emergence of companies like Geophil, which specialize in facilitating global co-productions and acting as the bridge between these PEIFs/platforms/individual investors and indie production houses. They manage the financial, legal, and creative aspects to ensure all stakeholder interests are managed. These companies bring their expertise in identifying content with the best monetization potential and also work with producers to optimize budgets and schedules. They also create a robust and transparent reporting model, which provides reassurance to the co-producing funds and platforms. By leveraging their experience, they find the best distribution models globally and ensure that monetization is optimized. For indie producers working with such co-production companies, they get to focus on creating good content while the onus of managing the coproducers and the risk of monetization rests with the co-production company. Similarly for co-producers, they get to work with indie producers without the risk of financial uncertainty or structured information flow, as these co-production companies are managed by media experts. * Robin Philip is managing director of the Dubai-based Geophil, which focuses on global coproductions. Their most recent Turkish co-production drama series, Alaca, was just completed. VIDEOAGE October 2024 Business & Finance
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