Behind the Deal: "Soft Money" Film Financing

French producer Philippe Carcassone, whose 40-plus feature films include "L'Homme Du Train" and "Read My Lips," was among the presenters at a film-financing seminar presented by the Entertainment Prac

French producer Philippe Carcassone, whose 40-plus feature films include "L'Homme Du Train" and "Read My Lips," was among the presenters at a film-financing seminar presented by the Entertainment Practice Group of Thelen Reid & Priest on Nov. 2 in New York.

New rules for "soft money" financing -- i.e., incentives offered by governments -- in France, Great Britain, Australia, Germany and other territories were explained to an audience of about 80, many on their way to the American Film Market in Santa Monica, Calif.

The French provide a good support system for film production, Carcassone said, which "allows the industry to go on regardless of bad years." For example, a portion of each movie ticket sold goes to a fund made available to certain qualifying French productions. Compared to U.S. and U.K. financing structures, the various subsidies, donations and advances on receipts that producers can access for qualified productions can mean a 5%-10% savings globally on a film budget.

Carcassone recommends that producers who seek investment from French producers should realize that France is the most director-driven market on the planet, so attaching a recognizable director is a top priority. Also, a finance plan should include potential financing from multiple sources because "even the French majors (UCG, Gaumont, Pathé) rarely commit to more than half of a film budget."

Unlike France, Great Britain does not provide strong financial incentives for film production, said Keith Evans, co-founding director of Baker Street Media Finance in London. British producers often look for international partners to finance films. His company, which he referred to as a "film finance production partnership," has completed more than 25 feature films since 1998, including "Saving Grace" and "Bloody Sunday."

Australia provides a "range of incentives and financing opportunities [that are] more generous, more accessible and compare more favorably with other locations than ever before," said Jane Corden, CEO of Moneypenny Film Accounting Services in Cape Town, South Africa.

She reported that the incentives include a growing infrastructure of physical and human resources, a low-cost environment to reduce budgets, political commitment to provide tax-assisted financing tools to attract foreign productions, state-based subsidies and lending opportunities. There are also tax shelter programs (and international co-production treaty arrangements that allow co-financing deals to take advantage of the tax provisions) and a new cash-back tax incentive program.

Recent feature films produced in Australia include "Moulin Rouge," "The Quiet American" and the three "Matrix" films.

In Germany, private film investment funds have become the primary vehicle for financing productions in recent years, said Andreas Pense, a partner at the law firm of Unverzagt-von Have in Hamburg.

In March 1999, the German legislature passed a tax law that put "an end to structures exclusively designed to generate losses for write-off purposes," Pense explained. As a result, media funds began investing in a "series of pictures that are cross-collateralized against each other," rather than in a single picture.

Films co-produced by German and foreign companies make it more difficult -- and risky -- for German investors to receive the maximum tax benefit under the country's law, Pense said. However, such co-productions can be structured for a fund to work with a foreign production partner, and in some cases qualifying the production to receive public funding in the home country of the foreign co-producer, thereby encouraging the German investor's involvement.

The Entertainment Practice Group includes attorneys Michael Elkin, Ezra Doner, Carole Handler, Thomas Lane, H. Joseph Mello and William Patry.