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International film companies incur lots of expenses as they shoot their videos. Without reliable financial support, they would be unable to remain operational. In this case, wise decisions are needed when making decisions on where to source funds. The reason for this consideration is that some modes of financing are riskier than others. For example, debt financing can attract colossal interest rates that can cause problems if films do not fetch the anticipated money. However, this approach has helped many companies because they retain ownership of their firms while settling the debts. Governments also play essential roles of offering grants to film corporations. Without any refunds expected, governments have enabled many companies to provide employment opportunities for residents in certain places. Tax incentives also bolster the film firm’s activities by lowering their business costs. Slate financing and contributions are other vital alternatives that companies can rely on to address their financial needs. Key words: film, tax incentives, operations, grants, debt financing.
Film production can be termed as the process of making videos for extensive theatrical exhibitions. On a global spectrum, filmmaking is a fast growing venture that generates enormous amounts of revenue. The industry is quite costly since the process of producing a movie is quite lengthy. Expensive equipment and a large task force are required to create satisfactory content. Therefore, sourcing adequate finances for international film production stands out as a big challenge. However, several programs that help film companies in tackling their productions’ financial needs. Some of the film financing mechanisms entail state grants, incentives and shelters, hedge funds, and contributions from investors.
Numerous governments run programs that are aimed at subsidizing film production costs. The costs involved are so high that many companies cannot survive on their own. Around the globe, different governments undertake this initiative to make film production a venture that can accommodate many companies and individuals. This practice is common in the UK and U.S., where the film industry is well-established to the extent of operating internationally (Morawetz, Hardy, Haslam, and Randle 2007, p. 421). In the U.S. states such as Ohio, Louisiana, Georgia, and Oklahoma provide tax credits or subsidy if sections of a film are filmed within the state. Therefore, state governments have not been left behind in promoting the film industry’s growth. Governments avail these subsidies to attract creative individuals to their territories. This approach ends up stimulating employment since locals have to participate (Cones 2013). Government funds are provided for the films to advertise the locations they are shot at to the international audience. The best aspect of government grants is that no financial returns are expected. Thus, it helps film companies to establish themselves without incurring vast debts.
Film companies are also financed through tax incentives. Many Canadian provinces and U.S. states offer between 15 % and 70 % cash, or tax incentives for production costs, labor, or bona fide services for film expenditures (Cones 2008). Soft money incentives are usually realized once theatrical or interactive productions are done, and employees are paid. Another requirement is that the actors, crew, and cast may have to reside in the state or province during the filmmaking. Film companies should be ready to use the services of local institutions such as banks, sound stages, insurance companies, and hotels (Morawetz, Hardy, Haslam, and Randle 2007, p. 421). The tax incentives help filmmakers in reducing the costs they could have incurred without state government intervention. The reduced costs assist companies in attaining their production goals without incurring lots of debts.
Film firms have the option of solving their financial needs using debt financing. This concept depicts borrowing money without giving up ownership. This statement implies that money lenders do not get stakes in the company. The only thing they can claim is a refund, which ought to be submitted at a specified date that is agreed upon by both parties. This form of financing is usually strict, and the involved companies have to pay interest (Morawetz, Hardy, Haslam, and Randle 2007, p. 425). If film companies do not have enough money, they can borrow from financial institutions to facilitate their operations. This ideology helps them to remain operational, rather than failing to work because of inadequate resources (Cones 2013). As the money borrowers, film companies should be ready to use their profits to refund the lenders the principal loan amount plus the accrued interest. Raising debt capital is beneficial because it is less complicated compared to the other sources of cash. During the borrowing process, film companies use some of their assets as collateral for the loan. If a company is unable to settle the debt, the lender is entitled to take over the collateral to compensate its loss. By doing so, the company remains functional in the industry. The only challenge is that massive debts can be challenging to pay if the subject films do not attract considerable profits. Therefore, this approach can end up barring many companies from achieving growth and development. One critical element of debt financing is that film producers can borrow, depending on their financial needs (Cones 2008). Flexibility is usually high because one considers the amount they need and the expected interest. Therefore, the critical decisions are made by the borrower to acquire debts that can be managed with ease.
Financing films through slates can be termed as the use of hedge funds. This method involves wealthy individuals putting their money into a slate of numerous films that a studio can produce for a couple of years. This ideology mitigates risks, while at the same time, allowing conglomerates to channel their money to other activities. The elimination of business threats enables many companies to achieve their operational goals. Risk elimination is possible because money is directed to several productions, instead of only one movie. There is also less interference from investors because the program is long-term (Cones 2013). Slate financing is also beneficial because it frees up studio equity towards big franchises.
The other unique strategy that is used to finance film production is the use of investors’ funds. This technique is not only hard, but also complex because of the imminent risks. The funds are invested by people who are not afraid of adding risks to their investment portfolios. The other objective is to achieve a higher net worth after the film companies make profits from their tasks. When several investors, come together, they get the chance of raising enough money that can promote film companies’ tasks (Morawetz, Hardy, Haslam, and Randle 2007, p. 430). The only challenge that is likely to occur is the inadequate number of wealthy individuals whose finances can uphold international filmmakers. Locating investors who are willing to direct their money to filmmaking is usually a robust process. However, well-established companies do not have lots of problems compared to the upcoming ones (Cones 2008). The bottom line is that investors can make it possible for film companies to carry out their productions free from financial inadequacies.
International filmmakers are faced with the issue of coming up with the right sources of money to address their financial needs. There exist various strategies that can be applied to keep their jobs running. Governments play essential roles by giving out grants that are not subject to refunds. Both state and national governments offer tax incentives that propel film companies by reducing the high costs associated with their operations. Debt and slate financing are other approaches that enable global film productions to avert financial complications. Investors also stand a better position in directing their wealth to film companies in pursuit of huge profits. The combination of all these programs keeps film companies active and profitable in the industry.
Cones, J. W. 2013. Dictionary of film finance and distribution a guide for independent filmmakers. New York, Algora Publishing.
Cones, J. W. 2008. 43 ways to finance your feature film: a comprehensive analysis of film finance. Carbondale, Southern Illinois University Press.
Morawetz, N., Hardy, J., Haslam, C. and Randle, K., 2007. Finance, policy and industrial dynamics—the rise of co‐productions in the film industry. Industry and Innovation, 14(4): 421-443.
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