David Bloom is a Deadline contributor.
Crowdfunding websites such as Kickstarter and Indiegogo so far have been only moderately useful for most independent filmmakers trying to finance their next movie, but that could change significantly under the federal JOBS Act passed earlier this year, said members of a panel at the Digital Hollywood conference, which wraps today in Marina del Rey.
Under previous rules, crowdsourcing sites couldn’t offer equity stakes to contributors. Instead they receive modest tokens of appreciation such as T-shirts or tickets to screenings — in other words, they get nothing more than the satisfaction of helping a movie get started. The new law will allow intermediaries such as crowdsourcing sites to sell members modest equity stakes in films, up to $10,000 or 10% of each user’s income. The project must set a fundraising goal and if it doesn’t raise at least 60% of that, no money would change hands. “There are many more opportunities to come and we’re just seeing the start of this,” said Keri Putnam, executive director of the Sundance Institute, which has raised $3 million on behalf of 85 films through Kickstarter. The SEC is currently establishing regulations under the new law.
Previously, films such as Primer have used Kickstarter funds to get made and find an audience. Writer-director David Fincher recently raised $100,000 in 26 hours on one of the sites to finance creation of his next script, though panelists suggested Fincher’s fundraising was more a marketing ploy to engage his fans in his next project. “What we found with crowdfunding is that it’s a great catalyzer” of fans, said Putnam. “Once you’ve got your audience there, they become great ambassadors for you. We’ve found that the size of a Kickstarter audience can actually affect what a movie might do” at the box office.
The sites have become media darlings even as traditional film financing by banks has largely disappeared, replaced by a complicated mix of tax breaks, rights presales, equity stakes by rich individuals and interim loans against revenue projections. “Bankers aren’t involved in making films anymore, and I’m happy about that because of the mentality,” said producer Cassian Elwes, a veteran indie film rep formerly based at WME. “On any given movie there are multiple investors. What I’m trying to do is construct deals so that on paper, on paper, you’re ahead of the game before you start shooting the movie.”
Under the existing legal structure, “Kickstarter people don’t get an equity stake,” said producer Christian Halsey Solomon, whose film credits include American Psycho and Legionnaire. “That limits the number of projects that can get funded. I don’t believe Kickstarter is the solution to the problem. People are only going to give you the money if they think you need it. The typical action film with Dolph Lundgren in it is not going to get money from Kickstarter.”
Creators have in a few cases raised millions of dollars from crowdfunding sites, though most bring in far less. Creators must post a fairly detailed description of their project, set a fundraising goal and then meet it within 30 days. If the goal isn’t met, no money changes hands. Crucially under the new law, these small-time investors don’t need to be “accredited,” regulatory speak for wealthy people with minimum annual income or assets who can afford knowledgable investment advice.
Skeptics are worried the changes will open the way to fraud, and then a reactive clampdown that kills off the opportunity for legitimate filmmakers. “I’m more skeptical of the equity markets, and the lack of regulation,” said David Travers, a partner in private equity fund Rustic Canyon Partners, which has invested in the Machinima YouTube original-content channel. A legislative reaction to flaws in the legislation ”may come in early 2013, after the first big ripoff happens.”
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