Indie Films are Terrible Investments
Why do we keep making them under a for-profit structure?
Before I got into independent film producing, I was a PhD student working towards a doctorate in philosophy. So my training is not in “lights, camera, action,” but in how to ask annoying “why" questions about everything, including (and most especially) those things we tend to take for granted.
In the world of independent film, much is taken for granted. From “proper” screenplay formatting to job titles to on-set lingo, the way we make movies is codified through a wide range of established industry standard practices. (Note: For the purposes of this essay, I am talking primarily about scripted narrative fiction films, not documentaries.)
One of these long-standing practices is how we fund independent films. Typically, an independent film is funded, at least in part, by equity investors. Because they’re taking on risk, these investors occupy first or second position in the recoupment waterfall—i.e., if and when the film makes money, the investors get all their money back (usually with a 10-20% premium). Any subsequent profits are split 50/50 between the equity investors and any non-equity shareholders who received “points on the backend.” (This is a vast oversimplification of a very complicated legal and business morass. If you want to get into the details, here’s a helpful primer.)
As a business structure, this seems to make sense, and every feature film I’ve produced has operated within some version of this standard model. But if we zoom out for a second and look at the independent film industry as a whole, it has all the markers of an irrational investment bubble (one that just doesn’t ever seem to burst…).
Most independent films don’t make a profit, and the vast majority don’t obtain any meaningful distribution. Because of the decentralized nature of indie film, it’s hard to get an accurate count of how many are produced each year. (It’s in the thousands.) And we can quibble about whether certain “Indiewood” films—i.e., pet projects produced by Hollywood celebrities outside the studio system—ought to be included in our tally. No matter how you slice it, though, the indie film market has few winners and mostly losers.
To this day, it boggles my mind that so many people pursue independent film as a business enterprise. From where I sit, this does not look like a viable for-profit industry. At best, investing in independent film is a high-risk venture akin to cryptocurrency, speculative real estate investments, or the recent NFT frenzy. At worst, it’s a scam that leads otherwise rational people into delusional behavior.
I have several guesses as to why this continues year after year. For one thing, there’s something uniquely sexy and exciting about film. The “magic of the movies” has tremendous allure for many people, and the bright lights of Hollywood continue to attract aspiring actors, directors, and film investors alike. There are also those headline-grabbing mega sales—often out of Sundance—where an independent film sells for millions of dollars. For some, these splashy (but extremely rare) sales constitute hard evidence that they, too, can make big money doing this.
The sobering reality for most filmmakers, though, is that they will not get into Sundance. They will not sell their movie for millions of dollars. They probably won’t get a distribution deal. And even if they do, they will be paid something close to zero dollars, if not exactly zero dollars.
Alternative models
Rather than sticking our heads in the sand, we might as well accept these hard facts about independent film. We live in a “late capitalist” society where the media landscape is controlled by a handful of large, multi-national corporations. The chances that your little indie movie financed through credit cards and “doctor, dentist, lawyer” money is going to see the light of day, let alone turn a profit, are dismal.
There are some well-established models, however, where the lack of profitability is not a problem, but the norm. 501(c)(3) nonprofits regularly and intentionally engage in activities that are not revenue generating. Indeed, many of the core activities of nonprofits are provided at no cost to their constituents—e.g., food or housing provided to those in need. These activities are funded through grants, donations, and other forms of “soft money” that never need to be paid back. Under this model, success is measured in terms of impact and reach, not in terms of profit and sales.
Most filmmakers I know make movies with a similar set of goals in mind. They want their stories to be told. They want to inspire audiences. They want to spark conversations. They want to build and celebrate community. They want to make the world a better place. I have seldom, if ever, heard a filmmaker say, “I want to make my movie so I can make an investor, who I don’t even know, 10-20% richer.”
Because filmmakers and investors often have divergent goals, it often happens that they are at odds during the production of the movie. They can butt heads on everything from casting to final cut to festival premieres. And even when the relationship is more amicable, there remains an underlying tension between art and commerce. So why don’t we structure the financing of independent films to better reflect the values and goals of the people actually making the movies?
It would certainly help if federal, state, and local arts agencies funded independent film as a valued art form that contributes to and is constitutive of our national identity. In varying ways, this is how it’s done in France, Mexico, Canada, and many other countries.
While we aren’t likely to see similar public funding in the US—the largest grant you can get from the National Endowment for the Arts is $100,000, and you can only apply if you’re a nonprofit—we do have other mechanisms in place to support independent film outside the usual for-profit structures.
The Orange Story: A Case Study
In 2015, I founded Full Spectrum Features along with Jason Matsumoto to produce scripted narrative films as a nonprofit production company. One of our early successes, The Orange Story, has continued to be a model for us as we experiment and try different structures for film financing and production.
The Orange Story was a short film with a budget of approximately $450,000 (including both the production of the film and its ongoing distribution). This was entirely funded through “soft money” from the following sources:
National Park Service
Chicago Digital Media Production Fund / Voqal Foundation
Illinois Humanities
Japanese American Community Fund
American Council of Learned Societies / Mellon Foundation
Kickstarter campaign
private donations
Importantly, we did not solicit or receive a single dollar of equity investment for this project. This has had far-reaching implications, more than just the fact that we didn’t owe anyone any money. This also meant that we did not need to worry about traditional distribution. We did not need to worry about ticket sales or generating revenue of any kind. We could literally do whatever we wanted with the movie.
The Orange Story has been seen by tens of thousands of people and is actively used in classrooms across the country as a teaching tool, along with the award-winning website we created for the film. It does not have a “shelf life” like most independent films, because it exists outside the commercial marketplace, where the release date functions almost like an expiration date on a can of soup. With each passing year—we released the film in 2016—our audience for the movie actually grows as we find other creative distribution outlets and educational partners.
Much to our surprise and delight, not only were we able to secure funding to make The Orange Story, but we have been equally successful at securing funding to distribute the film. In other words, grants and donations have paid not only for production, but they also paid me and my staff to do the work of getting the movie out into the world,
This is the exact opposite of how things typically work in independent film. Usually, you get paid little to nothing to make your movie. You’re stressed out about paying back the people who funded you. And then you have to sink even more money into your film to distribute it—e.g., music licensing, E&O insurance, publicist, etc.
Under a nonprofit structure, we still have some of the same expenses. But one huge liability we do not have is the obligation to pay back investors. Instead, all of the money we secure to make our movies comes from foundations and other funders who just want to see the movies we make have an impact in the world. There is a much tighter alignment here between the reasons we make movies and what the funder wants in exchange for their money. Even arts funders and charitable foundations want an ROI. But their return on investment is about social impact, not dollars and cents.
Conclusion
To be clear, I am not of the opinion that all independent films can or should be made as not-for-profit ventures. Some indie films do have the potential to make significant money, and these really ought be structured in a way that is conducive to commercial exploitation and investor returns.
But our success with The Orange Story proves there is an alternative path, one that many indie filmmakers and producers might want to consider more seriously. When “soft money” pieces fall into place, it is an incredible feeling to be free of commercial considerations and constraints. This path requires patience, adaptability, and a heck of a lot of persistence. Of course, these attributes are no different from what is normally required of filmmakers. But when they are applied to a not-for-profit structure, the results can be liberating, if not outright transformational.
In my next post, I will go into more detail about how we developed The Orange Story to make it more attractive to granting organizations and funders. It’s not as simple as taking your standard pitch deck and sending it off to the MacArthur Foundation. Our approach involves a fundamental shift in how we think about what we’re doing. Rather than making a movie, we think of ourselves as creating a multifaceted impact campaign that involves many interconnected parts. Yes, the film is a key component of this, but it’s not the totality. It’s the center of a hub-and-spoke model: The hub may connect everything, but it’s the spokes that provide the structure.