Law Office
of
JOHN W. CONES
11734 Wilshire Blvd., C-505
Los Angeles, California 90025
310/477-6842
jwc6774@adelphia.net
MEMORANDUM
TO: TO WHOM IT MAY CONCERN
FROM: JOHN W. CONES
RE: THE PRODUCER’S BUSINESS HANDBOOK
DATE: FEBRUARY 1, 2006
A friend recently provided me with a copy of the above-entitled book and
asked me what I thought about it. After reviewing the book, the following
comments are provided. I do believe that some parts of the book (and the
business model described) have value. On the other hand, I’m disappointed
that the authors, their associated consulting firm (“EBG”) and publishers
did not more effectively use or incorporate the suggestions of a broader
group of peer reviewers before this book was published, since the book, as
written, could prove to be embarrassing to the authors, EBG and the
publisher. In any case, the following comments generally fall into the
category of “criticism” or could be described as “the problems I have with
the book”. In my opinion, the independent film community deserves better
information (or at least to be exposed to alternative viewpoints). In any
case, these comments could lead to improved future versions of the book.
Best wishes,
John Cones
1. No Biographies and No Bibliography–The first thing I looked for when you
gave me the book was information regarding the backgrounds of the authors.
Unfortunately, although a skimpy bit of very general biographical
information appears in the text of the introduction on page xv, there are no
actual biographies, thus readers cannot make informed judgments about the
credentials of the authors. This is a glaring omission. The same is true of
the missing bibliography. Even though some of the information presented in
the book is supported by references to a few sources, the authors do not
provide a bibliography of sources, additional sources or further references
even though there are many books and articles about various aspects of the
film industry that could have been included. This could serve as a hint that
the book is somewhat deceptive in that even though it purports to be
supported by research, the authors do not want readers to be know the actual
sources for their information (if there are sources) or, even worse,
possible sources of conflicting information.
2. Misleading Title–The book is not really a “Producer’s Business Handbook”.
That title is much too broad for this book which only advocates a single
method of film finance and uses inaccurate information in the process. The
book may be more accurately described as an advocacy/propaganda piece
offered on behalf of the authors’ consulting firm, entertainment lenders and
the major studio/distributors, using exaggeration and false statements in
support of their arguments on behalf of a narrowly focused method of
developing and producing feature films, a method which, in all fairness, is
only available for use by a limited segment of the independent film
community (see below) at any given time.
3. Exaggeration–As an example of the exaggeration seen throughout the book,
on page ix of the Introduction, the authors make a claim that is not
supported by any facts and is not supportable by facts. The statement is
that a group of independent film companies use the “unique business
disciplines” described in their book and that these so-called disciplines
enable “them to finance every picture they develop, distribute every picture
they produce, assure each picture’s profitability, retain creative autonomy,
and enjoy the lion’s share of the back end profits”. Two paragraphs later,
the authors describe these independent production companies as “100 percent
successful Indies”. Not even the major studios can honestly make these same
statements. In fact, the major studio/distributors have often said just the
opposite (e.g., that only a small percentage of their films are commercially
successful and that their winners must pay for their losers). That’s what
their executives have often stated in court, while under oath. Why should
anyone believe that a group of independent film companies can accomplish
what the majors can’t?
In addition, the burden of proving the truthfulness of a statement made
(particularly one that serves as the underlying assumption for the book) is
on the authors. Unfortunately, these authors made no attempt to demonstrate
the truthfulness of the core statement that serves as the basis for their
book and film finance method. In order to demonstrate the truth of the
statements made, the authors would have to provide the entire list of
companies by name, provide a list of all of the films each of these
companies produced in a significant period of time (let’s say 10 years),
name the distributors for each of these films and demonstrate that they have
access to the financial results for each film, something which neither the
authors nor anyone else can demonstrate. Statements that cannot be supported
by facts should not be made unless they are identified as “speculation” or
“conjecture”. In this case, the authors would have been better served by
toning down their rhetoric, for example, by not trying to tell readers how
many of these production companies exist, by not even naming them, by not
saying that every film they develop is financed, but maybe most or some high
percentage (which is identified as an approximation, since no one has the
actual numbers), that most (or some high estimated percentage of these films
are distributed) and that most, (or some high estimated number) are also
profitable. Consultants do not need to mislead independent producers to get
their business (and their money). Consultants do need to gain the trust of
the independent community, and this kind of exaggeration tends to make the
consultant/authors less credible.
This kind of unnecessary exaggeration is particularly unfortunate because
some of the methods described in the book do have value and could reasonably
be pursued in a modified form and implemented by a limited segment of the
independent film community. These authors, however, seem to be trying too
hard to sell their sophisticated and complex plan (and their own consulting
expertise) to all independent producers, while in the process making
numerous statements throughout the book that not only distract from their
credibility, but also invites the kind of criticism found in this
memorandum. Additional comments regarding more of such statements follow.
4. Distributors Always Right–In effect, what these authors are saying is
that if independent producers consult in advance with distributors and only
produce the films the distributors tend to want (with changes suggested by
these distributors, in some cases) that the producers will always produce
commercially successful films, as if distributors are always right. Such a
position is absurd. Hollywood history is filled with stories of stubborn
producers who persisted in getting their films on the screen even though
distributor after distributor turned them down.
5. Theft of Ideas–No where in this book, do the authors caution independent
producers about the potential problem of theft of ideas. On the other hand,
a significant segment of the filmmaking community believe (with good reason)
that theft of ideas in Hollywood and in the film business generally is quite
rampant and that there are no adequate remedies to protect against it. What
is the likelihood that if a producer shares a script, treatment, outline or
synopsis with ten to fifteen distributors around the world, that one or more
of them (or their staff) won’t steal ideas from that material and use them
in other movies they are already producing or just produce the movie
themselves. Distributors or their subsidiaries are often in a much better
position to produce movies or arrange to have movies produced than
independent producers. The independent producer is not likely to know that
the theft of ideas has occurred until two to three years later when the film
comes out, and the very expensive litigation remedy (if pursued) is likely
to take another six to seven years to get to trial. It is also likely that
the distributor’s executives will not get on the stand and tell the truth
regarding the important access issue, and that the judge will so narrowly
construe the applicable law that the chances of winning such a lawsuit are
slim. And, even if the producer wins, collecting on the judgment against a
distributor will also be difficult and litigious producers pretty much have
to abandon their careers anyway, because distributors are not generally
willing to do business with such a producer in the future (i.e., they can’t
eat lunch or get a job in this town anymore). But, these consultant/authors
don’t even mention these potential problems for independent producers using
their business model. That appears to be another of the many rather glaring
omissions for this book. Not telling the whole truth is risky.
6. How Many Authors–Two paragraphs later on the same page, reference is made
to one author John Lee and in the next paragraph, reference is made to “The
author”. Somehow, the publisher, editors and both authors overlooked the
fact that this edition was apparently written by two authors, not a single
author. Such carelessness is distracting to many readers and may raise
questions about the ability of these authors to implement a sophisticated
business model for financing feature films in light of the fact that they
can’t accurately report the number of authors of their own book.
7. Business Model–In that same 2nd to the last paragraph on page ix of the
Introduction, the statement is made that the authors are laying “out a
business model that has a 100 percent chance of recouping an investor’s
money before a single frame of film is shot. What’s more, the creative team
– those folks actually responsible for making the film – can retain a larger
share of the profits from their labors.” Again, these authors must be
challenged to demonstrate that these rather wild and irresponsible
statements are true, otherwise, they amount to just so much “puffery” or
worse, actual fraud (see discussion of fraud below). After all, these
authors and their associated consulting firm are encouraging readers to pay
consulting fees based on information that is questionable.
8. Fraud–Fraud is intentional deception resulting in injury to another. If
consultant/authors of a book make statements that are not true, fail to make
important statements that should have been made to provide a more fair and
complete presentation of the topic being covered (material omissions) and/or
make their statements in a manner that is misleading or deceptive, all
partly for the purpose of convincing independent producers to pay these
consultant/authors significant sums of money for services and a business
model that eventually results in failure, would that not fit the definition
of fraud? Is there also liability for the publisher? In either case, the
publisher should recall these books and have the text carefully reviewed by
an attorney for purposes of toning down much of the exaggeration and
intentional deception. It could still be a good book and still serve the
obvious purpose of attracting consulting business for the authors. But, a
book like this is different from advertising for a movie where a certain
amount of spin, flowery language and puffery is accepted.
9. Unsupported Statements–In the Introduction on page xi (first paragraph)
the statement is made that “ . . . fewer than two dozen independent
production organizations operate solid, consistently profitable companies.”
Again, unfortunately, the entire list of such companies is never provided,
thus no one can check the accuracy of the statement. Further (as noted
above), the authors do not provide enough information to demonstrate the
truth of this statement. On page 10, only six of these companies are named.
On page 11 two more are apparently named. On the other hand, the statement
that a number of independent companies are “consistently profitable” is far
different than the earlier statement that each of their films are profitable
(see page ix). The former is a safer statement. The latter is highly
suspect. Some of these companies may go in and out of business over time,
but the authors do not provide a complete list so no one can check. Some of
the films produced by some of these companies may have been commercial
failures, but again, the authors’ statements cannot be confirmed.
10. Major Confusion--On page 4, the authors list nine so-called “major
distributors”. It might be less confusing to refrain from using the term
“major” if just discussing distributors and instead talk in terms of
distributor market share for a given recent year. After all, the term “major
studio” has traditionally been associated with only 7 such vertically
integrated entities (and their development, production and distribution
divisions were all included). Even the MPAA’s own website still refers to
seven majors as does the Independent Film and Television Alliance. On the
other hand, since MGM/UA has been purchased by Sony, that only leaves six
so-called “majors”. Further, Miramax and New Line have also been purchased
by major studios, thus they are not stand alone major studios or
distributors. Finally, DreamWorks has generally not been considered a
full-service distributor (at least not long enough to be considered a major
studio/distributor), but rather a significant production company that often
relies heavily on one or more majors for the distribution of its films. In any
case, DreamWorks has also recently been purchased by Paramount, thus can no
longer be consider a major.
On page 11 the authors use the phrase “major studios”, thus in addition to
the number of entities, there is a lack of consistency with respect to the
terminology applied to these important companies. On page 19 the authors
refer to “nine major distributor/studios”. I’d suggest reversing the order
and using the phrase “major studio/distributors” since the distribution
activity follows the studio activity, and then use that phrase consistently
throughout. Then on page 69 the authors claim there are “10 major studios”
(at bottom of page). It appears that these authors do not know how many
major studios there are, how to fairly define a major studio or how to
consistently refer to them. These are inconsistencies the publisher’s
editors should also have noted.
11. High Cost of Media–The statement on page 6 (5th paragraph) that “ . . .
the cost of media alone is typically $20 to $35 million . . .” should be
clarified to indicate the level of production budgets being discussed in
this statement and by this book. Clearly, most of what is stated in this
book does not apply to low budget and ultra-low budget independent
productions and that fact should be more clearly stated early on without
denigrating the efforts of those filmmakers who choose to produce such
films. If these authors want to vigorously advocate a specific form of film
finance and use language that belittles other forms of film finance and
those who work in those areas, they better be ready to deal with the
criticism.
12. Speaking for all Distributors–The statement on page 10 (2nd complete
paragraph) that “Distributors . . . are loath to receive calls from those
with completed pictures to be screened . . .” is written as if it applies to
all distributors across the board which is an overly broad representation
unless the authors have conducted a comprehensive survey of all
distributors. Presumably, these authors did not conduct such a survey since
no such disclosure is made. Thus, the statement on its face is not true and
should be modified to make it more reasonable (e.g., most distributors, many
distributors or the distribution executives working for most of the more
important distributors, etc.). On the other hand, the authors do not make
any assertions regarding whether these same distributors may also be just as
“loath” to receive calls from independent producers who want to talk about
prospective film projects that they may or may not produce in the future
(part of the recommended business model). By this omission, the authors are
leading their readers to believe that distributors have an unlimited
capacity for taking such phone calls and are willing to take as much time as
necessary to review the projects of all independent producers regardless of
their backgrounds. In all fairness, the authors ought to point out that
distributors have limited staffs, their staffs have limited time and like
any other organization, they will set priorities and that reviewing scripts
from unknown producers or consulting with these same producers may or may
not be a high priority for these distributors. These authors also should be
honest enough to point out that family, friend, social, religious and/or
cultural connections may also play a role in determining who has access to
these distributors at any given time (i.e., the so-called Hollywood insider
community). This represents another glaring omission.13. Profitable for Whom–On page 11 in the fourth complete paragraph the
statement is made that “ . . . their pictures are generally profitable (more
than 80 percent) . . .” It is not clear from this statement whether the
pictures are generally profitable for the distributors or the production
companies. Pictures that are profitable for distributors are not always
profitable for the production companies. Nor is it clear how anyone without
access to all sets of books kept by all of these entities could know this
fact and therefore make such a statement with certainty. Further, this
statement appears to contradict the earlier statement that each picture’s
profitability was assured (see Item #3 above). In other words, the former is
saying 100% of their pictures are profitable, but the latter is only saying
80% of their pictures are profitable. It can’t be both.
14. Proof or Prove (Typo?)–On page 11 in the fifth complete paragraph the
phrase “do not proof out” is used, when it appears that “do not prove out”
might have been intended.
15. Management of Securities–On page 15 in the first paragraph the phrase
“management of securities” is used. This phrase is so vague as to be
meaningless. It is also a tipoff that these authors are not familiar with
securities terminology. It would be more appropriate to say these
individuals may consult with respect to the creation, offer and sale of
securities, in addition to compliance with the federal and state securities
laws. Another statement is then made in the same paragraph that the “roles
of these participants are explained fully” in later chapters, but that is an
overstatement since their roles are not “explained fully” nor are their
roles explained accurately (see below).
16. Inadequate Analysis–At the beginning of chapter 2 on page 19, the
authors provide an inadequate analysis of the so-called “traditional
relationship categories” between studios and independent producers. Instead
of just three (in-house studio production, negative pickup and distribution
agreement), the more accurate analysis includes five such categories: (1)
in-house studio production/distribution, (2)
production-financing/distribution deal, (3) negative pickup and other forms
of 3rd party production lending, (4) the pure acquisition deal and (5) the
rent-a-distributor deal (see “The Feature Film Distribution Deal” for a more
complete explanation). This inadequate analysis is repeated on page 22.
17. Studio Integrity–The statement on page 21 that “producers may be
confident that the studio . . . will deliver an honest, complete, and timely
accounting for each picture” is so out of touch with reality that it raises
questions about the credibility of the entire book (although again, much of
the book has value). The published statements of several of the prominent
profit participation auditors, the people in the best position to know,
directly contradicts this author statement (see “337 Business Practices of
the Major Studio/Distributors” and “The Feature Film Distribution Deal”).
The authors go on to state that “Producer and talent participant comments
implying accounting dishonesty by the majors are clearly undeserved
slander.” Again, this statement is contradicted by the judge’s opinion in
the Buchwald v. Paramount case (among others) and sounds like the uninformed
dribble of someone closely related to a studio executive. I wonder if this
would be considered fraudulent if these authors used such statements to
convince a producer to hire them as consultants, got paid a lot of money and
then it turns out the producers do not get a fair accounting from a major
studio/distributor? This is the kind of statement that no one can make with
certainty, after all, in this instance, the authors are speaking on behalf
of all of the major studio/distributors and their relationships with all
producers for all time. To know and state that such relationships are always
honest is an impossibility and an absurdity, and in stark contrast to a huge
segment of the literature of this industry. Such statements ought to be
taken out of the book. They only tend to show extreme author bias.
18. Points–The term “points” as used on page 23 is being misused. The term
only refers to a net profits participation. This term is not used in the
industry to refer to a gross profits participation as the authors have used
it.
19. Completion Bonds–On page 24 the statement is made that an “insurance
company” provides the bank a guarantee (referred to as a completion
guarantee or completion bond)”. Completion bonds are not a form of insurance
and are not provided by insurance companies, although an insurance company
may be the owner of a completion bond company. The completion bond is a
surety or a form of guarantee. It is provided by a surety company or a
completion bond company or a guarantor. This entire section should be
revised to accurately reflect these facts.
20. Commonly Applied–The so-called “commonly applied percentage of 50
percent” as stated on page 28 (3rd complete paragraph) is misleading and
dangerous when it comes to financial projections. The actual share of box
office gross to be paid to the distributor as film rentals may vary from 25%
to 65% depending on the film, its performance and the formula negotiated by
the two parties (subsequently modified by the distributor/exhibitor
settlement). The average for any given year may be as low as 42.3%. Thus,
any producer preparing financial projections and assuming that the
distributor gets 50% of the box office gross may significantly overstate
expected revenues (again, see “The Feature Film Distribution Deal”).
21. Distribution Expenses–The statement on page 28 (2nd paragraph from
bottom) that “With a $50 million gross box office, the typical picture is
eight figures away from even recouping its distribution expenses” without
discussing why this is the case omits an important part of the discussion.
Such omissions are consistent with the pro-studio bias of this book, which
again
detracts from its credibility. In addition, the statement also assumes that
the only films worth considering are those released by the major studios.
22. Negative Pickup–On page 30 (last paragraph) the statement is made that
“Typically, the negative pick-up producer performs all or some of the
international sales independent of the North American releasing studio . .
.” Once again, this presentation omits the possibility that the producer may
obtain a worldwide negative pickup (i.e., only one distributor), or even a
split rights deal with a domestic negative pickup paired with an
international negative pickup (i.e., only two distributors). The authors
overlook these possibilities however and only discuss pairing a domestic
negative pickup with the possibility of foreign pre-sales (by individual
territory). No statistics are provided to support whether this is more or
less typical. Where are the industry studies that demonstrate that most
negative pickups are spilt rights deals as opposed to worldwide negative
pickups? If that information exists, it should be included. If it doesn’t
exist, then the authors should not claim that something is typical when it
may not be.
23. Studio Share–On page 32 under the heading “Studio Share” the statement
is made that the studio shares in the producer’s net. That’s not correct.
The major studio/distributor will deduct its distribution fee based on its
gross receipts, then deduct its inflated distribution expenses, then deduct
its participation in the film’s net profits (if any) and then remit the
balance of the film’s net profits to the other participants (presumably most
of which goes to the producer). The studio’s share does not go to the
producer and then back to the studio. Nor is it accurate to refer to the
film’s net profits as the producer’s net. The studio shares in the film’s
net profits not the producer’s net.
24. Renegade Pictures–Calling independent pictures “renegade pictures” is
offensive to any self-respecting independent producer and counter-productive
for the authors who seek consulting opportunities with these same
independent producers. The major studio/distributors have no more right to
make films than independent producers. In addition, the major
studio/distributors were once independent producers themselves. This choice
of language makes it even more clear that the authors are so biased in favor
of the major studio/distributors that they cannot think clearly about this
industry and cannot be counted on to provide a fair presentation of
information. All references to “renegade pictures” should be deleted in
future editions of this book.
25. Pickup–On page 33, reference is made (in the fourth paragraph from the
bottom) to independent producers offering a completed picture to a studio
for “pickup”. Since this book and the industry already uses the term
“negative pickup” to describe a transaction in which the production costs of
a motion picture are loaned by a bank (effectively using one or more
distribution agreements as collateral), it is confusing to use a similar
term “pickup” to describe a completely different transaction (i.e., the
acquisition of distribution rights to an independently produced and
completed film by a distributor). The better practice is to use the term
“acquisition” to describe this latter transaction.
26. Equity Financiers–On page 35 in the last paragraph the statement is made
that “For prospective equity financers (no such word; probably meant
“financiers”), a studio and/or television network relationship is mandatory,
as most independent pictures that are produced are never distributed and
consequently receive no income.” Such overly expansive statements discourage
investors from investing in independent productions that do not have this
so-called mandatory studio or network TV attachment. Once again, the
authors’ bias toward studios arises without revealing that the system so
aggressively advocated by the authors sometimes results in bad movies that
distributors do not support in the marketplace, thus investors in such
movies don’t get their money back, or that major studio/distributors often
inflate their distribution expenses and investors again have less chance of
getting their money back. The presentation is thus so biased as to be
dishonest. Also read Chris Anderson’s article “The Long Tail” which differs
somewhat from the above noted statement that “most independent pictures that
are produced are never distributed and consequently receive no income” (see
http://www.wired.com/wired/archive/12.10/tail.html – “The Long Tail” by
Chris Anderson). Just because an independently produced feature film does
not get a theatrical release does not mean it won’t earn any income.
27. International Regulations–At the top of page 38, the authors’ claim that
foreign government import regulations of media are being relaxed. However,
191 member states of the UN’s cultural body (UNESCO) recently voted to
protect their film businesses against creeping globalization (i.e, Hollywood
films – see Variety, October 20, 2005). This does not sound like a
relaxation but a further tightening of import regulations.
28. Further Omissions–Also on page 38 only three reasons are provided in
support of the “popularity” of U.S. films. The authors overlook the
possibility that some of the “337 Business Practices of the Major
Studio/Distributors” may also have something to do with what films are
available to be seen and why foreign countries work so hard to protect their
own films from the anti-competitive practices of Hollywood.
29. Copyright Protection–At the bottom of page 40, the authors just assume
that import restrictions are being relaxed and that copyright protection
will be enhanced without providing any pro and con discussion of the
likelihood of that happening in any given country. It may not happen, so
wouldn’t it be better to be honest in such a presentation?
30. Biased Movies–On page 43 (2nd paragraph from the bottom) the statement
is made that “The American entertainment community substantially feeds the
hearts, minds, and civilizations of the world”. On the other hand, much of
that entertainment is culturally biased not only from a U.S. perspective,
but from the perspective of a single sub-culture within the U.S. and this is
precisely why many of the film industries and governments of other countries
deeply resent the dominance of Hollywood films in their marketplace (see
“Patterns of Bias in Motion Picture Content”), and why they will continue to
place restrictions on the number of U.S. film shown in their countries.
31. Literary Property Acquisition–On page 44 (2nd paragraph) the authors’
suggest that the earliest phases of the producer’s development plan be
implemented even before the acquisition of literary property rights. This
suggestion needs to be balanced with the further caution that not too much
time, effort or money ought to be expended on any project unless the
producer can at least obtain an option to those rights for a nominal sum. It
would be foolish to expend much time, money and effort working on the
development of a film project the rights of which are no longer available
once the producer has determined it’s a worthwhile project. Once again,
there seems to be little effort here in helping producers to understand the
advantages and disadvantages of each proposed course of action. The authors’
efforts to persuade (i.e., advocate a specific approach) appear to have
overwhelmed their ability to be fair-minded.
32. Fully Funded–Later on the same page (44–2nd paragraph from the bottom)
the authors go on to suggest that the producer demonstrate that the
development costs are already fully funded. Again, why would anyone invest
in a development deal for a project whose underlying rights have not at
least been tied up with an option?
33. Unbinding Letter of Intent–At the bottom of page 44, reference is made
to an “unbinding letter of intent”. This is redundant in that in the context
of Hollywood, even though letters of
intent could theoretically be drafted to be binding, there is no known
instance of a credit-worthy distributor ever signing such a document.
34. International Markets–The authors’ suggestion on page 46 (fifth complete
paragraph) that producers meet with distributors during the two annual
international markets is an expensive suggestion. Thus, some discussion
should be added as to the costs involved and the producer reminded that a
line item ought to be included in the producer’s development budget to cover
such expenses. There are also several articles available that discuss in
more detail what producers do at such gatherings, thus those articles ought
to be cited here. In the alternative, the authors ought to flesh out this
idea so that the readers will know that there are other options besides just
hiring the author/consultants to go with them to these markets.
35. Bank Financing–On page 46 (3rd paragraph from the bottom) the authors’
continue their aggressive advocacy in favor of lender financing for
production funds. The authors’ should be mindful of the fact that thousands
of independent producers in any given year will not be able to get a bank
loan for their films for a variety of reasons. Thus, making the statement
that “Producers should principally use bank financing. . .” is another
indication of the authors’ narrow and rather self-serving point of view
regarding film finance. There are a lot of different ways to finance the
production costs of a feature film, and each has its own set of advantages
and disadvantages. To the extent that the authors do not acknowledge this
fact, they are being dishonest with their readers. In effect, these authors
only present one form of film finance and only discuss its advantages, not
the disadvantages, thus their presentation is hopelessly and shamelessly
biased.
36. Overly Broad Statement–On page 67 in the first paragraph the statement
is made that “With the exception of public offerings, producers should
receive most, if not all of their production financing from banks”. However,
neither the authors of this book, nor any other producer has yet
demonstrated that public offerings are a reliable source of funding for
independently produced movies. Further, such overly broad statements exclude
a significant portion of the independent producer community since they have
no access to bank financing, do not choose to finance their films in this
manner, banks can’t finance every producer’s film, some really bad films
have been financed through banks and so forth. In effect, these authors are
saying that if a producer does not use bank financing for production costs,
the producer should not produce his or her film. That’s pretty arrogant.
37. Gap Financing–On page 75 the authors offer a brief discussion of gap
financing without disclosing that the availability of gap financing may be
severely diminished at any given time depending on the marketplace. These
authors present gap financing as if it is a customary bank practice, when it
is more accurate to point out that the availability of gap financing
fluctuates from time to time and from bank to bank.
38. Completion Guarantors–Starting on page 77, the authors, once again,
repeatedly refer to completion guarantors (completion bond companies) as
“insurers” and also refer to the completion bond as “completion insurance”.
Once again, both references are wrong. A completion bond is not insurance.
It is a surety or a guarantee. That’s different from insurance. Thus, the
completion bond companies are not insurers, they are guarantors (or just
completion
bond companies). This chapter should be revised to eliminate all references
equating insurance with completion bonds. It reflects a lack of
understanding on the part of the authors.
39. Completion Bond Transaction–On page 79, the authors contend that “There
are three participating parties (in completion bond transactions): the
insurer (wrong), the bank, and the producer”. Actually, there are four
parties: the producer, the distributor, the bank and the completion bond
company. A producer cannot generally get a bank loan for film production
without the distribution agreement and the bank won’t provide the loan
without the completion bond. Thus, the distributor is the fourth essential
party to the transaction.
40. More Overly Broad Statements–On page 81, in the Chapter Postscript, the
authors have once again made one of those overly broad statements (i.e.,
“Completion guarantors are essential participants for producers in the
production of their pictures.”) That really depends. Completion guarantors
are required by the banks for bank financing, but there are thousands of
motion pictures produced every year without bank financing and without
completion bonds, so this statement ought to be modified to reflect that
reality. Again, these authors are dismissive of the efforts of independent
producers who do not choose to use the advocated method of film finance.
41. Attorney Nonsense–On page 84, in the 2nd paragraph, the authors (in
talking about relationships with attorneys) state that: “ . . . producers
have an instant sociability (and consequently more direct access) with their
firms’ substantive clients” meaning that once a producer hires an
entertainment attorney, that alone will provide the producer with access to
the attorney’s other clients. That’s pure rubbish! That may be the kind of
puffery some entertainment attorneys use in trying to get clients, but in
practice it doesn’t work. Most clients of attorneys do not want to be
hearing from the other clients of the attorney, at least without special
permission granted on a case by case basis. Thus, there is no such “instant
sociability”.
42. Coming to Trial–On page 85, the authors state that lawsuits “ . . .
eventually come to trial . . . one or two years later . . .” That needs to
be revised to as much as 5 to 6 years.
43. Fair Agreements–On page 86, under the heading “Negotiating” the authors
state that “The only good agreement is one that is fair to all parties.” On
the other hand, there is no evidence that a Hollywood-based major
studio/distributor has ever signed such an agreement. It is rather naive to
suggest that the most powerful entities in the film industry will sign
anything approaching a “fair agreement” with anyone, and even if it appears
to be fair on paper, that does not guarantee that the distributor will
fairly implement the agreement’s provisions. This part of the discussion is
hopelessly naive (see “The Feature Film Distribution Deal”).
44. Too Many Entities–On page 108, the authors seem to be suggesting that
producers create multiple entities whether they need them or not. One of the
common problems for independent producers is this advice of consultants
urging them to create entities too soon in the process and before the
producer has the resources to properly maintain such entities.
45. Incorporate is Misnomer–On page 109, the authors state that producers
should “ . . . incorporate each picture as a separate business entity.” If
you incorporate, that means you have created a corporation. The corporation
is not always the most desirable entity to utilize in developing or
producing a film. Again, these authors are victims of their own narrow
perspective and don’t even acknowledge that other approaches may be more
appropriate for the vast majority of independent producers.
46. Overly Broad Statements re Investors–On page 110, the authors state that
“Investors evaluate investment offerings primarily by each offering’s risk,
term until potential investment recoupment, investment amount, and earnings
potential.” That sounds good ( in theory) and it may be the case for a few
very business-like investors, but it is clearly not the case for all
investors, thus the authors should not write in such absolute terms.
Investors may invest because their son, daughter, niece or nephew is
producing the picture and all of the rest of the things mentioned by the
authors are irrelevant to such investors. Some investors may invest because
they sincerely believe that the story being told needs to be on the big
screen, because their investment gives them an opportunity to participate in
and learn about the film industry, because their investment gives them
access to actors, actresses and others involved in the production of the
film, or other reasons. Limiting the motives of investors to four of the
most business-like factors is too academic and out of touch with the real
world (see more extensive list of possible investor motivation below).
47. Development Partnership–On page 111, the authors refer to “the
development partnership” a statement which overlooks the possibility that a
producer may choose to use a manager-managed LLC as the investment vehicle
for the development offering. A partnership may be similar to but not the
same as a manager-managed LLC. Further, there are two different types of
partnerships: a general partnership and a limited partnership. The interests
in a general partnership are typically not considered securities unless
there are too many general partners and some of them are actually passive
investors (then it’s not really a general partnership). Interests in a
limited partnership, on the other hand, are considered securities. Other
available development vehicles include the investor financing agreement,
joint venture agreement, an initial corporation or a fictitious name company
(dba). These authors completely overlook these other possibilities and the
good reasons why they might work better for some independent producers.
48. Preset Revenues–On page 111, the authors state that the “amount of each
of these sales is preset as part of the development company offering”,
suggesting that the only way the investors in a development offering can
make money is for the development entity to effect an outright sale of its
rights to the project. In the very next paragraph, however, the authors
indicate that it might be possible in some instances for the development
group to retain a profit participation interest in the earnings of the film.
These two statements are inconsistent. Further, if this latter statement is
true, then it is not possible to “preset” the amount of revenue to be earned
by the development investors. It is possible that development investors may
be able to negotiate an ongoing profit participation in the film’s revenues,
but that is not a certainty, thus it cannot be promised at any particular
level.
49. Investment Memorandum–On page 111, in a three sentence paragraph under
the heading “Securities” the authors use the term “investment memorandum”.
Unfortunately, this is a rather generic term that could apply to both
non-securities and securities investor offerings. The preferred (or more
clear) terminology would be “investor financing agreement” when seeking to
document an investor agreement with one or two active investors (a
non-securities transaction). Such an agreement could be combined with a
business plan which performs the function of furnishing information about
the project to the investor. On the other hand, if a producer is seeking to
raise money from a group of passive investors, the term investment
memorandum is inadequate, ambiguous and/or misleading. In this latter
instance, the term securities disclosure document may be used. To be even
more specific, the term “prospectus” would be applied to describe the
securities disclosure document used in conjunction with a public/registered
offering of securities, whereas, the term “private placement offering
memorandum” (or PPM for short) would be used to describe the securities
disclosure document used in conjunction with a private/exempt offering of
securities.
50. Most Attorneys–On page 112, the authors inappropriately attempt to speak
on behalf of “most attorneys” stating that most attorneys will suggest that
producers incorporate. Again, this is simply not true! It is more likely
that most attorneys will have a discussion with the producer regarding their
needs, objectives and resources, in addition to the advantages and
disadvantages associated with each of the available forms of doing business
in a given jurisdiction, along with the costs of each before letting the
producer make an informed choice regarding this issue. A presumption by the
authors on behalf of producers that the corporation is always or even
generally the most suited entity, or whether an entity is even needed or
required, is inappropriate and demonstrates once again that this is not a
producers’ business handbook, but a one-sided and blatant attempt by
consultants to use a book to promote their business.
51. Limited Liability Companies–On page 112, the authors provide two
sentences regarding limited liability companies without even disclosing that
there are two different types of LLCs (member-managed and manager-managed).
Further, the authors only point to one advantage of the LLC over the
corporation, without noting at least a half dozen other advantages or
disadvantages of each entity that a producer should consider. Unfortunately,
this presentation is quite shallow with respect to the choice of entity
question. If the authors choose to handle such complex issues in such a
limited way, at least they should refer their readers to other good sources
for more detailed information.
52. Define the Field–On page 114, the authors make the statement that “Most
producers have multiple pictures in development and production at the same
time.” Once again, the authors need to continually remind their readers that
they are really only talking about the way their incomplete list of 20
so-called “balanced producers” supposedly work. In the broader world of the
independent producers (of which there are literally thousands), it is clear
that “most” do not have multiple pictures in development and production at
the same time. Certainly, it may be a worthwhile objective for independent
producers to work their way into a position so that they can have multiple
pictures in development and production at the same time, but there is a big
leap
from film school graduate (or other backgrounds from which producers arise)
to managing a multiple film slate with positive cash flow.
53. Development Overhead–Again on page 114, the authors make the same
mistake in stating that “development overhead typically averages $400,000
per picture”. Again, that may be true for the development budgets of that
incomplete list of 20 so-called “balanced producers” but not true for most
or all producers, or even the typical independent producer. This represents
more dismissive language that belittles the efforts of most independent
producers.
54. Inadequate Presentation–At the top of page 116, the authors state that
“In Chapter 9, the terms and company structure that best accommodate
development investors are presented”. Unfortunately, as already discussed,
the presentation in Chapter 9 is wholly inadequate. If the
authors want to provide a brief summary of information on such a topic, it
must be accurate and they should also refer readers to additional sources
for further information.
55. Not Familiar with Securities Terminology–Also near the top of page 116,
the authors state that “Producers should prepare such offerings with the
assistance and under the direction of an experienced securities attorney.”
Notwithstanding the authors’ good intentions, it would be more accurate to
suggest that producers considering any form of investor financing of either
the development or production stages of one or more films, should consult
with an experienced securities attorney as early as possible. In point of
fact, producers don’t “prepare . . . offerings”. Producers conduct
offerings. The securities attorney prepares the offering memorandum (or
other securities disclosure document) that is required to be given to each
prospective investor before they invest, and advises the producer how to
properly conduct the offering so as to remain in compliance with the federal
and state securities laws. Before non-securities attorneys such as these
authors state anything that might encourage film producers to draft their
own securities disclosure documents, the authors first should determine with
certainty whether any independent film producers have ever used a
self-drafted PPM to successfully fund an offering and whether such a
disclosure document actually complied with the federal and state securities
laws.
56. More Securities Terminology Problems–In the 2nd paragraph on page 116,
the authors mistakenly state that “There are state and federal securities
and exchange commissions (SECs)”. In truth, there is only one Securities and
Exchange Commission. The SEC is the federal agency that regulates the offer
and sale of securities pursuant to federal law. Each state has a securities
regulatory authority that regulates the offer and sale of securities
pursuant to each state’s law, but those agencies have many different names.
They are never referred to as SECs.
57. Sophisticated Investor Offering–On page 116, there is some discussion of
so-called “sophisticated investor offerings”. This is not really the way
most experienced securities attorneys refer to the federal and state
exemptions that are available to rely on for private offerings. More
typically, such offerings are referred to either as private placements,
exempt offerings or private/exempt offerings, or more specifically: Reg. D
offerings or even accredited investor offerings (the latter two are
categories of the former three, but each of the latter two may differ per
the rules). The sophisticated investor concept is just a small part of the
equation and not even that useful in selecting the offerings’ target market.
It would be more accurate to just refer to these offerings as private/exempt
offerings.
58. State Regulations–On page 116 in the 3rd paragraph from the bottom,
reference is made to “each state’s SEC regulations”. Again, this is
incorrect. States do not have “SEC regulations”. They have securities
regulations (commonly referred to as “Blue Sky Laws”). The term “SEC” is not
synonymous with “securities”. “SEC” stands for the Securities and Exchange
Commission, a federal agency. As already noted, each state’s securities
regulatory authority operates under a different name.
59. Original Investors–At the top of page 117, the authors state that
“Typically, some of the original investors want to reinvest in one or more
of the producer’s future development entities . . .” On the other hand, the
authors’ cite no study of such offerings that indicates that such a
statement is true (i.e, what is typical) and it may not be true. An author
cannot really rely on the self-serving statements of producers who have
conducted such offerings (if that’s what they are doing here) without
telling the readers that is where this information comes from. Otherwise,
the authors are taking it upon themselves to lead the readers to believe
that the statement is true, when they really have no basis for making such a
statement. To be more honest, the authors ought to state that some of the
producers they’ve interviewed for purposes of preparing this book (if that’s
the case) make such a claim, although it cannot be verified because the
transactions are, in fact, private. Or, they could say that at least in
theory, producers utilizing these methods would hope that if their investor
offerings are successful some of the investors would want to reinvest. But,
going beyond that, once again, makes these authors appear to be pretending
to know things they simply do not know and cannot demonstrate.
60. Untried Management Teams–At the bottom of the first paragraph on page
117, the authors state that “skilled investors . . . tend to shy away from
untried management teams and industries in which they are inexperienced”.
This statement would eliminate most of the producer/readers of the book, and
is tantamount to saying that most independent producers can’t do what the
authors are advocating so don’t bother. It may be more accurate to state
that many independent producers seeking investor financing for either their
development or production deals generally spread the risk amongst a large
number of passive investors who are not necessarily considered “skilled
investors” and investors who have never invested in a film offering before.
As an example, in my own work with producers seeking investor
financing, I’ve found that some of the key factors that help independent
feature film producers in finding investors relate to investor motivation.
I’ve suggested that the producer first do some brainstorming with their
associates regarding what might motivate anyone with money to invest some of
it in such a high risk venture. There may be others besides those listed
below that are unique to a specific film project, but a fairly good list of
possible investor motivation follows. Some of these descriptions of investor
motivation are closely related and may even overlap.
The Prospective Investor:
a. Is interested in supporting the filmmaker’s career (career support);
b. Is enamored with the glamor of the film industry (glamour of film
industry);
c. Feels the investment has a certain amount of “cocktail chatter” value,
that is, it’s more interesting and fun to talk about than most boring
investments (cocktail chatter value);
d. Wants to be able to spend some time on the set and rub elbows with the
cast and crew, although this needs to be carefully controlled so that it
does not get out of hand (associate);
e. Wants to use this investment as an opportunity to learn about how the
film industry works, so that he or she can get more involved in the future
(learning experience);
f. Has a son, daughter, niece or nephew who can appear as an extra in the
movie (film extras);
g. May want to appear in the movie as an actor or actress (appear in movie);
h. May (in rare and unusual circumstances) may be allowed to direct the
movie (directing);
i. May thereby get his or her script produced (screenwriter);
j. Realizes that by investing in the movie, it will help bring the movie to
a specific locale which will benefit the local economy (local economy);
k. Is very interested in one or more of the messages being communicated by
the movie (movie message) and/or
l. Is looking at the upside potential for making money on the investment
even though the investor recognizes investing in independent films is highly
risky.
In other words, it is quite unrealistic for the authors of this book to
advocate that producers conduct investor offerings for their development
funds but then tell these same producers that they are not likely to succeed
unless they are experienced (or in the alternative can bring together an
experienced management team) and look for investors among a small group of
“skilled investors” who have prior experience investing in the film
industry. The truth is that others have done some good work in this and
other areas touched on by this book, but since the authors appear to be
unwilling to cite anybody else’s work, their book is quite weak in many
areas where bona fide expertise actually exists.
61. Securities Attorney Involvement–In the 3rd paragraph on page 130, the
authors state that “If funds are raised from private investors, a securities
attorney should be involved.” This is not exactly true either. Raising funds
from private investors does not always involve the sale or offer of a
security. Involving a securities attorney in the sale of a non-security is
not really necessary, unless that securities attorney involvement is merely
to confirm that a security is not being offered. It would have been more
useful for the authors to provide some brief discussion designed to help
independent producers understand when they are likely to be selling or
offering a security – or to suggest that anytime an independent producer is
considering raising money from investors (regardless of whether they are
so-called private investors are not) the independent producer should consult
with a securities attorney to make sure they are not selling a security, or
if they are selling a security, how to comply with the federal and state
securities laws. Another alternative, for purposes of this book would be to
refer to other works already published and available to independent
producers that cover this same area with greater accuracy (e.g., see “43
Ways to Finance Your Feature Film”, by securities attorney John W. Cones –
the author of this memo).
62. Attorney Review–In the very next sentence (on page 130), the authors
state that “No securities documentation should be distributed until it has
passed an attorney’s review”. So ultimately in this book, we have the
authors urging independent producers to hire professional help and expertise
to help them implement part of the advocated business model (i.e., hire the
authors’ own consulting firm), but when it comes to hiring another
professional with bona fide expertise in a particular area that’s needed,
the authors are once again suggesting that the producers cut corners (i.e,
prepare their own securities disclosure document and merely ask the
securities attorney to review it), presumably because that will save money.
Notwithstanding the fact, that an attorney’s review of a non-attorney’s
securities disclosure document generally involves more work than the
preparation of the securities disclosure document if the attorney was hired
to do that from the start, the authors are engaging in a blatant attempt to
encourage independent producers to spend their money on hiring the authors’
own consulting firm while discouraging these same independent producers from
spending their limited funds on other professionals whose expertise may be
needed to implement certain aspects of the plan. Again, book authors and
consultants cannot reasonably expect to promote their own services while
discouraging the use of other professionals in the field and not be
criticized for that.
A better approach would be to suggest that independent producers talk to one
or more securities attorneys early, find out what it will cost to conduct
the investor-financed development offering advocated by the authors, then if
that amount is not already available, to raise the amount needed for
offering costs (including the attorney’s fees) in the form of gifts, grants
or loans from family, friends or others, then proceed with a professionally
prepared securities disclosure document knowing that the producer is also
complying with the federal and state securities laws in other respects
(i.e., limitations on the number of investors, investor suitability, notice
filings, financial projection rules, financial statements, tax discussion,
tax opinion, securities opinion, etc.) and that the producer is not selling
or offering an unregistered security, which unfortunately is a felony.
63. Business Consultant/Accountant–In the 6th paragraph on page 142, the
authors state that “The business consultant or accountant prepares:
The activity and cash flow projections as they will appear in the offering;
The notes to these projections;
The offering’s use of proceeds;
The more detailed source and use of funds analysis; and
The tax consequences.
First, of course, it is not accurate to state that “cash flow projections
(or any other disclosures for that matter). . . appear in the offering”.
They are included as part of the securities disclosure document (i.e., a
private placement offering memorandum when conducting a private/exempt
offering or the prospectus when conducting a public/registered offering). In
other words, this statement would be more accurate if it said the cash flow
projections appear in the offering disclosure document, or the securities
disclosure document, or the private placement offering memorandum. The term
“offering” is a broader term that encompasses all of the activities
associated with raising money through the sale of a security, including the
preparation and use of a securities disclosure document. The term
“offering”is not synonymous with offering memorandum or prospectus or
securities disclosure document. The securities disclosure document is merely
part of the offering.
Secondly, the above-cited information is another one of those self-serving
statements that are simply not always true. It’s just another example of the
authors building up the role of the business consultant (a role which they
also play when wearing their consulting hats). The truth is that there are
experienced and quite competent securities attorneys available to
independent film producers who can prepare a very effective and compliant
securities disclosure document including financial projections with notes,
an estimated use of proceeds, source and use of funds analysis, tax
discussion and tax opinion without the assistance of an accountant or a
business consultant. Once again, there are advantages and disadvantages to
either approach and once again, these authors fail to offer the independent
producers anything but the self-serving option. At some point, a discerning
reader may well conclude that this consistent pattern offered by these
authors rises to a certain level of deceit and dishonesty and could detract
from their credibility. That’s one of the risks these authors take.
64. Computer Disk Copies–At the bottom of the 5th paragraph on page 143, the
authors make the statement that the securities attorney will provide “hard
and computer disk copies” to the producer. Once again, this statement is
simply not true. It may be true for some attorneys, but certainly not for
all attorneys, and there are some very good reasons why no attorney should
provide the “computer disk copies” to the producer client. For example, one
of the securities attorney’s responsibilities in preparing a securities
disclosure document is to help prevent the producer from engaging in
securities fraud (i.e., disclosing material information that is not true or
misleading or failing to disclose important information). If the securities
attorney turns over the computer disks to the producer client after the
disclosure document has been finalized, the producer could go back into the
document and make changes not approved by the attorney. Such changes may not
only create liability for the producer but also may create liability for the
attorney, thus the authors’ statement regarding release of the computer
disks is irresponsible.
65. Limited Capacity–As already noted, this book is clearly an attempt to
advocate that independent producers utilize a specific business model in
developing and producing their film projects. That’s clear because the
authors have focused most of their attention on the advantages of their
business model and have spent very little time, if any, on pointing out the
disadvantages.
Let’s just look at a couple of possible bottlenecks in this advocated
system. The authors have made it very clear that implementing the business
model they advocate is very complicated, time-consuming and expensive. Thus,
it is reasonable for most independent producers to come to the conclusion
that they will need some help in implementing the plan. That’s exactly what
the authors want the producers to believe. So, as a result some of these
producers will want to hire the authors’ consulting firm to help them
implement the plan. Again, that’s exactly what the authors want the
producers to do. However, what happens if the authors’ consulting firm takes
on five or six producer clients in a given year, and other producers who
have read the book (or taken the seminar) want to hire the authors’
consulting firm? At what point does the authors’ consulting firm become
spread too thin (i.e, can no longer effectively represent the interests of a
producer client because the authors’ consulting firm has taken on too many
client producers?). Thus, there is a limit on the number of producer clients
this one consulting firm can effectively work with, but the authors have not
named other consulting firms that are available to provide the same or
similar services for producers. That may be because these authors don’t want
to tell their readers (and prospective producer clients) who their
competitors are (i.e., the goal of the authors to inform is in conflict with
the goal of the authors’ consulting firm not to help their competitors), or
there are no other consulting firms with this sort of expertise, in which
case, there will presumably be a lot of independent producers who might like
to try this business model, but who can’t get the only available help
because the authors’ consulting firm is too busy to take on any more
clients. That’s a nice problem for the authors’ consulting firm, but leaves
a lot of independent producers without available resources. Unfortunately,
the book provides no discussion about whether this scenario is more of less
likely to occur.
The same is true of the distributors. If more and more independent producers
are contacting distributors in many of the most important markets and media
seeking some level of pre-approval and input regarding their proposed film
project, many of these distributors (as noted earlier) are going to run out
of time to take phone calls, schedule meetings and handle correspondence. A
distributor, as an example, can only talk to so many producers at a film
market. And presumably, the newer, less experienced and lesser known
independent producers will not only be competing with that incomplete list
of 20 or so established production companies already using this method
(supposedly), but now these newer producers are competing with an unlimited
number of new production companies trying to do the same thing (i.e., take
up the time and attention of the distributors). Unfortunately, once again,
the authors provide no discussion of how much capacity remains in either of
these markets (the consulting firms available to work with independent
producers and/or the distributors available to work with independent
producers). Without any further information to the contrary, it is entirely
possible that with the addition of 10 more independent producers using this
system each year, both the available consulting firms and the distributors
would stop returning phone calls, quit taking meetings and refuse to
correspond with any more independent producers. But, again, there appears to
be no discussion in this book about how much capacity exists in these and
other markets involved in the system.
Further, the earliest tabulations for total domestic box office in the just
completed year of 2005 were $8.75 billion, down from $9.2 billion in 2004.
The rising trend in ticket prices help to obscure an ever steeper drop in
theatrical admissions which came in 11% lower than the previous year (1.32
billion, down from the 1.48 billion of 2004). In addition, 527 films were
released domestically in 2005, compared with 507 in 2004, meaning that
Hollywood films did less business with more films [Source: Variety.com Box
Office News, December 30, 2005]. So, at what point, does the proposed
business model become self-defeating in that the producers using this method
are producing too many films for the distributors to effectively handle? It
appears that the industry has already reached that point.
66. Self-Serving Motives–Once the reader understands what these authors are
advocating, it becomes clear that one of the most important things they are
saying is that in order to be successful, a producer must engage in an
elaborate, complicated, time-consuming and expensive plan for obtaining
input and/or approvals from all possible distributors of a prospective film
before a commitment is made to produce the film, and since most independent
producers do not have either the expertise or staff to implement such a
plan, the producer ought to hire the authors and their firm as consultants
or co-producers and pay them substantial fees without any reasonable
assurances that this significant expenditure of the producer’s or somebody
else’s funds will result in the successful production and distribution of a
film. The advocacy of such an approach is self-serving at best, involves
multiple conflicts of interests on the part of the authors and these
conflicts of interest are not adequately disclosed in the book.
67. Staff Requirements–What these authors are advocating is that film
producers function as film producers on a full-time basis and make whatever
arrangements are necessary to fund a development company with several other
full-time staff members. Presumably, most independent film producers would
like to do just that. On the other hand, it’s not easy for a producer to get
into that position, and the authors do not spend much time explaining how it
can be done. Other than being personally wealthy and willing to risk
significant sums of a producer’s personal wealth on a highly risky venture,
one of their only suggestions is for the independent producer to conduct a
development offering funded by private investors. That could work. But, it
will not work for everyone. So, the readers are left with this threshold
problem: how to get started on what can only be described as an ambitious
and risky venture. This so-called producers’ business handbook provides
little help in this area.
68. A Book by Bureaucrats–In another sense, the book appears to be the work
of studio bureaucrats. They go into so much detail in some areas that some
passages are difficult to read (i.e., it’s just so dense you want to skip
over it). The level of detail does not really appear to be needed, but
rather appears to serve the purpose of justifying the work of the authors in
their consulting capacity. In other words, part of the strategy with this
book appears to be that the authors want the readers to believe that the
business model being advocated on the one hand can and is being used by some
producers with 100% efficiency (not an assertion that can be demonstrated),
but that the method is so complicated that the vast majority of producers
seeking to implement the system will need the help of the authors who are
available to serve as paid consultants.
69. Assertions Without Evidence--Other than the repeated author assertions
that an indeterminate and incomplete list of existing production companies
use the business model advocated by these authors, what evidence do readers
have that these mostly unnamed companies actually engage in the activities
described? No such evidence is provided. Further, it is highly unlikely that
all of the named production companies (and those unnamed production
companies) actually engage in most or all of the activities described by the
authors on behalf of each of the film projects these companies choose to
develop and/or produce. That’s just not the way the film industry works.
Sometimes a producer is interested in producing a given script because it’s
an opportunity to cast his girlfriend as the star. Other times, it’s an
opportunity for a line producer to serve as a producer, or a screenwriter to
direct. These authors seem to overlook the facts, often set forth in the
literature of the film industry, that many films are produced and
distributed each year for rather arbitrary reasons -- because the people who
control the projects have the power to get them made. These authors seem to
be advocating the rather naive point of view that Hollywood is a merit
system, when the accumulated evidence appears to suggest otherwise.
70. Producer Reaction–Some producers have reacted to the plan advocated by
these authors by raising the reasonable questions: “If their plan is so
foolproof, why don’t they just develop and produce films? Why write and sell
books, give seminars for other producers and be in the consulting business?”
In all fairness, maybe that is the plan -- the books, seminars and
consulting are merely means to that end. In other words, if these authors
and their consulting firm can get enough of the right producers to hire them
as consultants or co-producers, and it works out, eventually they will stay
in producing and forget about the books, seminars and consulting. Of course,
that hasn’t happened yet, so it remains to be seen whether they will
eventually become full-time producers or continue to consult. The proof is
in the doing, so to speak.
71. Follow Their Own Advice–At the very least, these authors should have
followed their own advice. They advise producers to consult with
distributors before developing and producing a film, because presumably the
distributors have expertise that might be helpful to the producers. In that
same spirit, if the authors wanted to write a book touching on technical and
legal subjects like compliance with the federal and state securities laws or
even the choice of business entities, they should have consulted with bona
fide experts in those fields before publishing and subjecting their
unsuspecting readers to inaccurate information.
72. Insider-Controlled Hollywood–Even though there is considerable evidence
to support the view that Hollywood is an insider-controlled institution,
these authors are so biased that they fail to even mention this possibility
and the negative impact this may have on the good faith efforts of others to
break into this system. This is another glaring omission for the book.
Authors seeking to be viewed as credible in the eyes of discriminating
readers must make an effort to describe the real world as it actually
exists, not as they hope it may be. They must not completely overlook a
significant risk to those utilizing their advocated business model (i.e., an
independent producer follows the author/consultants’ advice but loses out in
getting a distribution deal because the last remaining distribution
opportunities were granted to the films produced by Hollywood insiders –
family, friends or acquaintances of those in control positions at the
studios).
73. The Bottom Line–In essence these authors are vigorously advocating a
specific business model for film producers. Unfortunately, the business
model being advocated is not suitable for thousands of first and 2nd time
filmmakers, with little or no track record and who have limited financial
resources. Even worse, these authors pretend that there are no other
alternative forms of film finance (a dishonest position to take). In other
words, the book is written as if to say: do it our way or hit the highway –
a rather arrogant attitude to say the least.
Summary–This book could have accomplished its goals of describing a specific
business model and attracting potential consulting clients for the authors
without the problems listed here. The author/publishers could have easily
added full biographies and bibliographies, made a more balanced presentation
of the facts (i.e., listed not only the advantages of various recommended
actions but also the disadvantages) and cited other useful sources of
information. The authors could also have been more forthcoming regarding the
inherent conflict of interest between their roles as authors and as
consultants. The author/publishers could also have eliminated the misleading
title, the many examples of false statements and exaggeration, the
studio-bias, the securities and completion bond mis-information, the
confusion regarding major studios, the typos and other problems by merely
demonstrating a greater willingness for the authors to reach out to others
with bona fide expertise in some of the specialized fields touched on in the
book, a greater willingness to cite other published sources of reliable
information, better peer review, more careful publisher editing and a rather
simple desire to be fair in the presentation of information. As it is this
book is so severely slanted in its perspective as to be “not credible” and
is offensive to both independent producers and other professionals who have
been working in the area of film finance for many years. Too bad!
ADDENDUM RELATING TO EBG WEBSITE:
In addition to the comments, questions and observations set forth above and
relating to The Producer’s Business Handbook the following comments,
questions and observations relate to the EBG Investors Page at the EBG
website (http://www.ebgroup.net/investors.htm):
1. Old Statistics–In the 2nd paragraph on page 1 of the EBG Investors page,
EBG cites 1999 statistics relating to private motion picture production
offerings. The 1999 statistics were the most current being cited in December
of 2005. What happened to the 2000, 2001, 2002, 2003, 2004 and 2005
statistics?
2. Made-up Statistics–On the other hand, are these real or made-up
statistics? No source for the statistics is cited. If there is a source and
it’s not cited, isn’t that plagiarism on the part of EBG to use statistics
from another source without acknowledging the source? If there is no source,
does that mean that EBG conducted its own study and developed these
statistics itself? EBG does not say. The statistics are merely presented as
facts. Are they factual? How can anyone tell?
3. Private Placements–How would anyone know whether there were actually
2,300 private placements relating to films conducted in a given year? After
all, they are private placements. Who collects those statistics? Don’t the
visitors to the EBG site deserve to know the source of the statistics
provided and whether they are authoritative?
4. More Statistics–Later in the same paragraph, EBG states that “over
10,000" of these private film offerings are “on the street annually”. Again,
where does this figure come from? Did EBG make it up? Does it come from an
authoritative source? Is it a false and misleading statistic pulled out of
thin air, that is being used to persuade EBG’s prospective consulting
clients to utilize and pay for their services? If so, is this activity not
fraudulent?
5. Development Offerings–In the third paragraph on that first Investor page
of the EBG site EBG states that “most of these offerings (referred to film
development offerings) returned their investment capital and some profits”.
Again, no source is provided for this information. Thus, the question must
be raised, is this a real and authoritative statistic or just something made
up by EBG for the purpose of persuading prospective consulting clients to
conduct investor-financed development offerings? There is nothing new about
investor-financed development offerings, and nothing inherently wrong with
them, but advocates of such offerings have a duty to utilize honest and
authoritative statistics when trying to convince independent filmmakers to
engage in such activities.
6. More Insults to Producers–In the right hand column and the 2nd paragraph
on page one of the Investors page of the EBG site, EBG states that
“Producers seeking private production financing may be excellent filmmakers,
but they clearly lack the business capacity and experience to engage the
global marketplace to exploit the abundance and advantages of bank
financing.” In effect, EBG is stating here that all independent film
producers who do not use bank financing for their film production costs are
less capable, across the board, then those who use bank financing. That is
an outrageous statement, that insults many independent producers and cannot
be supported by facts. Instead of using the hyperbole “clearly”, EBG should
have simply pointed out that one of the reasons why some independent
producers would not use bank financing is that they do not have some of the
business background needed. On the other hand, doesn’t EBG claim to have
that expertise and offer that expertise to independent producers for a fee?
Thus, why does the independent producer even need that expertise, if the
expertise is readily available through consultants for a fee? Further, why
is EBG so shortsighted that they cannot recognize that some excellent
independent producers may choose to produce an ultra-low budget motion
picture without bank financing for any number of legitimate reasons, without
being insulted by EBG which takes the indefensible position that such
independent producers must be incapable of handling more complex financing
transactions?
7. No Film Finance Method Has Only Advantages–It is absolutely dishonest for
any film finance consultant to advocate that any particular film finance
method has only advantages and no disadvantages. Unfortunately, that is
exactly what EBG does in the book authored by two of its staff members and
on its website. It is therefore the duty and obligation of all others
involved in the field of film finance, including film industry trade
reporters to step up and call attention to the false and misleading
information being disseminated by EBG and its associates to independent
producers everywhere.
o0o
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