By: Jon Gosier, FilmHedge
The movie industry has gone through a tremendous transformation in the last few years — streaming giants, artificial intelligence, and the rise of independent films have changed the game substantially. But we’re entering a new era that is in many ways the inverse of Hollywood’s ‘golden age’?
Balkanization
In the Golden Age (1927–1969; according to Wikipedia), studios managed every aspect of production in-house. They were both the banks and the bosses to producers and visionary filmmakers. Everything, from the financing, the production crew, the cast and crew (most signed to exclusive deals with the studios), were all in-house — vertically integrated.
This vertical integration allowed for the consistent production of high-quality content. Today, we’re seeing something different — the rise of independent film financiers who are disaggregating the vertically integrated models of old in favor of distributed services. What does that mean?
When producing a Film or TV series independently, disaggregation means the financing and resources that the producer needs in order to get that film finished and released aren’t provided by the same company.
A film producer may have many stakeholders involved: one might handle financing tax credits, another might be an equity investor, companies like FilmHedge (or its partners) might provide the senior debt, and the studio being used for filming might offer some in-kind rental hours as their investment. On top of that, you have other groups who provide payroll servicing, insurance, casting, management, catering, production service et cetera, et cetera.
It’s the balkanization of ‘production’ that has allowed for unprecedented amounts of collaboration, innovation and creativity less subject to the opinions of a concentrated group of executives at a single studio. More disparate businesses handle more of the various production and production finance needs which ultimately gives a producer more choice on how they want to work.
The Gilded Age
What does this mean for investors? New opportunities to reexamine film and television financing as a lucrative and scalable asset class (like our own mediahedge.com).
Modern film financing models work because of groups who aren’t focused on the whims of studio execs (or the whims of creators for that matter). Instead they focus on the trade, the deals to be delivered and transactions to be completed.
Mark Twain coined the phrase ‘ the Gilded Age’ to describe ‘the period of immense economic change, great conflict between the old ways and brand new systems, and huge fortunes were made and lost’. Essentially a time in the world where things shifted from the Reconstruction era to the Progressive era, where Industrialization laid waste to agrarian empires. Similar to how new financial models, new technologies, and new distribution models have gutted the old ‘golden’ models of Hollywood.
Like Twain’s gilded age, this too is an era of change where financial structuring, generative content, data, artificial intelligence, social media and so much more are all helping to redefine ‘content’ while also fueling a lot of tension between old ways, where huge fortunes are being made and lost!
Trade and Trade Alike
Modern film finance is essentially a trade finance business.
Films are the inventory, the producer is the supplier or manufacturer, Film/TV distributors are the buyers, and the streaming platforms, theatres and stores are all the point of sale for consumers. Much like the trade finance industry, companies like FilmHedge provide the working capital to suppliers which allow them to close deals with the buyers who ultimately pay us back.
Assets need to be created so they can be sold or licensed to the groups who will distribute them (ex. Netflix, Amazon, Paramount etc.); States (like Georgia with its 30% tax incentive) and Countries (like Canada) need to generate revenue by offering tax incentives to producers who then spend aggressively in their State or Country working on their productions; Sales Agents have customers in markets around the world who are starving for original content. These are all relationships, between buyer and seller, where a trade financier shines.
This is also a relatively new model for the entertainment industry. Traditionally, people who put money into Film/TV productions were just betting on audiences to show up and purchase tickets and, now, stream at home. If a production was popular, it made money. If it wasn’t, everyone lost money. In trade finance, an order has been placed before the product has been shipped or delivered. No one has to speculate on a trade finance deal because you know the purchase price and terms before production begins. This is how a significant amount of modern cinema financing happens as well.
This is very much how groups like FilmHedge work. We act as a bridge in the relationship between suppliers and buyers. By cash flowing the the suppliers (producer), we solve their problems as well as mitigating buyer’s risk (the distributors who no longer have to finance productions).
At FilmHedge, our mission is to help this buyer/supplier (distributor/producer) relationship to flow more seamlessly and to provide a new financial operating system (our suite of products and services) for Hollywood producers.
We don’t use tech, automation, financial engineering, or artificial intelligence to change the way producers and creatives work. We use it all to change the way money flows through one the world’s most fun and beloved industries. In short, at FilmHedge, we enable producers by unlocking the money they need to do what they do best…produce.
| “We enable producers by unlocking the money they need… to produce.” ~ FilmHedge
There’s more demand for quality, original content than ever before. Amazon, Netflix, Apple, and more will each spend billions (sometimes double digit billions) acquiring independently produced film and TV productions next year and the years after, as they have for the previous years.
We believe the combination of financial and technological solutions will help grow this industry and truly make this new golden age…this gilded age…shine.
