Getting an independent film financed in New York requires fancy footwork: a bit of private equity here, some soft money in the form of foreign presales over there, tax credits on the back end, grants and individual investors to wrap things up nicely. Hedge funds? Those are for the West Coast big guns.
At least, they used to be. Hollywood’s hedge fund mania finally has trickled down to New York’s indie film community, with some early successes. But hedge fund managers aren’t making it easy to open that new financial vein.
“The arrival of hedge funds is absolutely simmering down to the indie film scene,” Endgame Entertainment CEO Jim Stern says. “Endgame has hedge fund money in the company, and we do exclusively independent films that are independently financed. To the extent that companies like ours are successful, it will continue.”
But the factors that lure hedge fund managers to indie productions are not necessarily those that attract them to bigger-budget films. Atop the list are often a producer’s track record and an attractive slate.
“Slate is everything,” says John Penotti, co-founder of GreeneStreet Films, whose current slate — including Robert Altman’s Picturehouse release “A Prairie Home Companion” — is backed by a Louis Bacon-managed hedge fund and other private equity. “There are investors that understand portfolio financing and want you to prove you have the ability to handle a revenue-generating slate.”
Another factor tends to be the marketable elements in each film’s package, such as having a big-name director or star attached. But the biggest challenge facing the indie producer who aims to attract professional moneymen remains ensuring that movies will make it to the theater in the first place.
“Lots of movies get made and get no distribution at all, and most hedge funds take the approach that they want to invest in a portfolio of movies,” says Stephen Scharf, a partner at the entertainment law firm O’Melveny & Myers. “They want to know that they’ve got up to bat enough to have the chance to hit a home run.”
It’s a matter of averages, according to Dorothy Palmer of Dorothy Palmer Talent Agency, whose Web site includes a pop-up advertisement that serves as a call to investors. “All you need is just one hit, and (for) the other three or four that didn’t quite make it, you get a tax write-off,” she says.
Adds Charlie Corwin, whose Original Media shingle produced 2005’s “The Squid and the Whale” and ThinkFilm’s recently released “Half Nelson”: “Long-term survival requires assured distribution. A hedge fund can invest in a film or slate of films that never sees the light of day, and that’s not what is going to bring the returns.”
Hedge fund interest in indie films is at least partially connected to the sluggish economy and the slowing of real estate as a useful investment tool, but a good part also has to do with the somewhat loose definition of “independent.” Rogue Pictures, the genre label of Universal-owned Focus Features, signed a nonexclusive co-financing deal this year with hedge fund-backed Intrepid Pictures — but is that significantly different from producers who strike out on their own to raise cash? The growth, some say, is more in the former than the latter.
“If an ‘independent’ is a guy that makes his own movie, that’s one thing, but there’s a whole second layer now under the studios that’s a viable, growing business,” says Deborah Del Prete, founder of Odd Lot Entertainment, which recently began shooting Warner Independent Pictures’ planned 2007 release “The Girls’ Guide to Hunting and Fishing” in New York.
Del Prete and partner Gigi Pritzker still rely on private equity and presales to finance their movies, which usually have budgets of $10 million-$25 million, but acknowledge that the film-financing business has become so professionally managed that Wall Street is starting to see the upside of investing in indie projects.
“Hedge funds are doing different transactions with distributors and different producers and becoming much more prevalent,” says Carolyn Hunt, a partner at the entertainment law firm Loeb & Loeb. “Depending on what sorts of deals they put together, (the trend) could or could not be temporary. The pictures we’ve seen hedge funds going into have been smart deals.”
But some low-budget indie producers remain cautious.
“The reality is that if the hedge fund brokers are getting their fees, they go home happy,” says Seth Carmichael, director of acquisitions and development at Goldcrest Films and co-producer of 2004’s “Brother to Brother.” “But if the money doesn’t come back, the clients aren’t going to keep going back to their brokers and saying, ‘I’m in for the next round.'”