Making sense of Maryland’s Film Finance Plans

January 28th, 2009 by Barry Caplan | Tags: none

Jay Hancock, Business Columnist for the Baltimore Sun, struggles to make sense of Maryland plans to be in the film investment biz:

Good thing for Maryland, too. Louisiana taxpayers had to pay the Benjamin Button producers $27 million, according to state officials. The sales tax from Cate Blanchett’s hotel bill and income tax paid by the key grip could not have come close to making up for that outlay.

“There’s no way you can say these things make money” for the state budget, says Greg Albrecht, chief economist for the Louisiana Legislature. Extra tax revenue generated by films, he adds, “is not going to come close to the direct payment you’re going to make. Basically, you’re just flowing money out of the public treasury into the private sector.”

I am a Baltimore native,Silicon Valley transplant, currently interested in film finance. In particular, I am interested in the different ways high risk, high reward ventures are funded between Hollywood and Silicon Valley when the products are becoming hard to distinguish from each other.
Read my complete opinion below.

The short version of that (covered in more detail elsewhere here in my blog at www.digimediafinance.com) is that the Hollywood model defines “equity” in a project as where you stand in line to grab the revenue that comes in at the retail level of the distribution channel, while in Silicon
Valley “equity” means, of course, ownership stake in the the company itself, usually with no expectations of dividends, so returns come from building a growing company that others value more over time and selling the stake.

Hancock’s column dovetails nicely with this point of view. The states, Md. included, provide investment money without acquiring *either* type of equity. They are content to settle for any manna that might fall from heaven, and as a filmmaker;/producer, who would begrudge them that?

I know filmmaking locations are competitive  In the case of Md. if they are hell-bent on investing in film (and they probably are), then I recommend they consider carefully what the goals are, and how the money is being used to actively further those goals, rather then spent with a wish and a prayer that goals are
achieved.

Probably the goals are: 1) to promote the State, 2) to create some jobs, 3) to create a feedback loop so the effort becomes self-sustaining and possibly revenue-positive.

These are fair goals, but they should be approached as a business unto  themselves. Maybe the state should not even be in this business, or in all of it, and private money should jump in.

The state should redefine what its equity expectations are. If it is not possible to get equity of any sort in a film (maybe it is, maybe it isn’t), then an effort to define the cumulative effects on the economy needs to be made. Maybe this is measured in terms of branding and promotional value, maybe in terms of people who stay in the state taking lesser jobs in order to be available for the occasional production in town, maybe it is presented as part of a modernized curriculum in the school (there is little from grade K to 12 that can’t be taught in terms of popular entertainment industries and sports industries that are popular with the kids, e.g.).

Thinking outside the box like that leads to additional uses for the money. Maybe a good chunk of it goes to emerging artists who are just starting out but show promise, but whose main distribtion channel is not via theaters but rather online. From where I sit, a partnership
between the state, and the (newly non-profit?) Senator Theater may be to create a Maryland/Baltimore channel on youtube and promoted relentlessly by the theater.

Other Baltimoreans, notably John Waters and Barry Levinson, and their local associates would likely want to get involved too when couched this way. Not as a nostalgic venture, but as a chance to nurture young talent in the emerging part of the industry and as a way to make some money as well.

Right  now, I’d say 27 million a year ain’t squat when it comes to financing the kinds of movies being made. The more productions it is spread over in a year, the less persuasive it will be as the smaller percentage of the overall budget it becomes. That means the money has
to be invested even that much more wisely other then to be placed in what is essentially a random Hollywood venture that could go anywhere, with zero equity.

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