Indie Film Investments

Trying to compare Little Miss Sunshine to The Blair Witch Project or Clerks to The Passion of the Christ might seem like an all but futile endeavor. But …

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Trying to compare Little Miss Sunshine to The Blair Witch Project or Clerks to The Passion of the Christ might seem like an all but futile endeavor. But there is one thing that all four of these films have in common: They are independent films, commonly known as indie films. Films such as these present a unique opportunity for investors to get involved with a creative project and see their names up on the big screen.

An indie film is produced independently from major Hollywood studios. Because of their distance from Hollywood, indie films are often seen as more artsy or edgy than major studio productions. They are shown around the world at festivals such as the Sundance Film Festival in Utah or the Cannes Film Festival in France. Particularly buzz-worthy projects are sometimes purchased by major studios for distribution. Indie films are funded with the producers’ own money, through loans, or with the help of private investors.

![filekey=|1609| align=|left| caption=|Investors do not necessarily have creative input despite contributing money| alt=|A movie set during filming|]There are several ways investors can find films in which to invest. If contacted directly, most producers will be happy to discuss projects they have in the works. Investors could find producers through independent production company websites or make a connection in person by attending a film festival and striking up a conversation. Film trade journals such as Variety can also provide valuable information. These publications often contain lists of projects, and films listed as “in production” could still be in need of investors. Websites that focus on film investment—such as FilmInvestorsNetwork.com or MoviePartners.com—can help investors select investment opportunities.
 
Most indie film investments are structured as limited partnerships or limited liability companies, according to Eufemmé Films. Investors are only responsible for the amount of money they decide to invest, and are not accountable for other debts or obligations. Investors are typically repaid their initial investment before anyone else receives anything from the project.
 
After the investors have recouped and received their premium, a revenue-sharing mechanism is activated,” according to Eufemmé Films. These agreements can vary from project to project. For example, the upcoming film Crawdaddy, produced by SKS Entertainment, offers two investment packages from which investors can choose. In one package, the investors’ initial investment is not returned right away, but they receive a higher percentage of all income generated by the film. Another option is that the initial investment is repaid immediately but the investor receives a significantly lower percentage of the film’s net income. The first option, which is riskier, has the potential for greater returns overall, while the second option offers a quicker recovery of funds with a lower chance of profit.
 
But just because investors are contributing money, that does not necessarily mean they have influence over the creative side of the filmmaking process.
 
“Meddling in the production process is frowned upon by most,” Michael Donovan, president of Rushing Wind Pictures in Seattle, said. “[But] investors should expect updates and news as the various stages are completed with the film.” Investors should not invest thinking they will have creative input, but for the thrill of being part of the filmmaking process.
 
The cost of producing indie films varies widely depending on the project, anywhere from a few thousand dollars to $20 million or more.
 
“In Hollywood terms, a low budget film is anything under $10 million,” Donovan said. Little Miss Sunshine’s budget was $8 million, while The Blair Witch Project cost a mere $60,000 to produce. At the other end of the spectrum, Mel Gibson’s The Passion of the Christ boasted a budget of $30 million.
 
Returns on these projects can be all across the map. Although exact returns on investment are unknown for the aforementioned films, the worldwide gross net income can give a rough idea of range. Little Miss Sunshine grossed $100,320,452 worldwide, The Blair Witch Project grossed $248,639,099 and The Passion of the Christ grossed $611,899,420. Budget and income statistics are from BoxOfficeMojo.com.
 
Investors need to conduct proper due diligence on a film investment just as they would for any other investment. Take the time to research producers and production companies and see what films they have produced in the past and how they did. This can give an idea of the direction future projects could take. 

![filekey=|1608| align=|right| caption=|As with any investment, due diligence and patience is required| alt=|A row of theatre seats|]“Investors can protect themselves by looking closely at projects, making sure the filmmakers are qualified, finding out who the filmmakers want to pursue actor-wise and seeing who they have that can start knocking on doors of distributors and/or producer’s [representatives],” Donovan said.

Something many investors may not realize is that there are tax benefits in place for film production costs. According to Section 181 of the Internal Revenue Code, investors can deduct 100 percent of funds invested in “qualified” films. A “qualified” film has a budget below $15 million, with a minimum of 75 percent of the budget going towards qualified compensation—compensation for services performed in the U.S. by actors, producers, directors or other production staff. This tax benefit expires Jan. 1, 2009. Many states offer their own film investment tax incentives, so investors should do some research in their area to learn what other benefits may apply.

Film investment should not be looked at as a way to make a quick buck. It’s for investors looking to put their money into a fun and creative project. Film investment can provide an experience like no other, but investors should be sure never to invest more than they can afford to lose.

Those who provide funds for a film’s production will have their names listed in the credits, typically as a producer. Investors can also attend premiers and potentially brush shoulders with some of the performing world’s finest. While it is always possible that one’s investment will turn out to be a money-making hit, the main appeal of film investments is the opportunity to be involved in something unique.

"Money is one thing, but the idea of being involved in a film—being in and around something that’s so creative and energizing—can be just as big a motivation," Donovan said. "[Investors can] leave a legacy…seeing their name appear in the credits for many years to come." 

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