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The New Realities of Financing Film Productions

By Michael I. Rudell and Neil J. Rosini

Reduced sales of DVDs and increased piracy of filmed entertainment are affecting the profits of studios and other financiers of motion pictures. To lessen this impact, changes are being made in deal terms offered to creative talent ' such as actors and creative producers ' and new relationships are emerging among such talent, financiers and distributors of theatrical motion pictures.

Although the U.S. motion picture business is one of cycles, some patterns have remained constant over the past several decades, during which studios accounted for the bulk of production and marketing budgets. Last year, the combined production and marketing costs of an average studio film exceeded $100 million. For the most part, only studios could afford to finance sums that large, counting on global revenues from theatrical exhibition, DVD sales, and pay, cable and free television to generate profits. The studios in turn received liberal lines of credit from banks and offset risk (albeit while limiting their upside) by partnering, for individual films or slates of films, with domestic and foreign film investment companies, hedge funds and other sources of financing.

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