Film Production Financing and Co-production

Posted on Oct 15, 2024 in Economy

Requirements for Participation in Spanish and European Co-production

These requirements relate to co-bipartite and multipartite financial participation.

Spanish Co-productions

  • Financial co-production: The financial contribution may be between 10% and 25%.
  • Co-bipartite: Each co-producer may provide between 20% and 80%.
  • Multipartite: No contribution will be less than 10% nor more than 70%.

European Co-productions

  • Bipartite: Minimum contribution is 10%, maximum is 70%.
  • Multipartite: Allows for more than two parties, including up to 30% participation from a non-EU signatory.
  • National financial co-production: Each share will be between 10% and 25% of the production cost.

Central Rights

Companies acquire emission rights of films for distribution, both domestically and internationally. Contractual relations with producers can follow two formulas:

Trading A Priori

This less common formula grants display rights before production begins. Payment systems include:

  • European Formula: Payment is deferred until receipt of the standard copy.
  • American Formula: Full payment is made before receiving the standard copy, secured by an insurance policy.

Trading Post

This is the most common formula, where rights are purchased after film completion. Competition from large American productions can depress sale prices.

Sponsorship vs. Patronage

Sponsorship is a commercial agreement where a firm covers event costs in exchange for brand visibility. Patronage is selfless financial support for cultural or sporting activities.

Key Differences

  1. Scope: Sponsorship is sales-oriented; patronage is focused on cultural/artistic endeavors.
  2. Intervention: Sponsorship seeks profitability; patronage is disinterested.
  3. Timeframe: Sponsorship has a short-term impact; patronage has longer-lasting effects.
  4. Strategy: Sponsorship is part of a business valuation strategy; patronage is a corporate social responsibility strategy.
  5. Motivation: Sponsorship aims to sell; patronage aims to support cultural functions.

Despite these differences, both aim to raise the company’s profile.

Elements of Sponsorship

  1. Notoriety: Building brand reputation through association with the event. Disadvantages include audience saturation and potential product rejection.
  2. Strengthen Brand Image: Creating a positive association between the event and the product/company. Requires consistency between event characteristics and desired brand image.
  3. Credibility: Similar to brand image, but focuses on the selection criteria for the sponsored event.

Forms of Sponsorship

  • By Nature: Material, professional, technological, and financial.
  • By Mode: Partner of creation or diffusion.

Direct Financing

Film financing can be achieved through:

  • Company capital
  • Associated capital from another producer
  • Public and private appropriations

Indirect Financing

Indirect financing can be achieved through:

  1. Capitalization: Investment from the film’s team.
  2. Profit Sharing: Similar to capitalization, but profits are distributed only after production costs are covered.
  3. Deferred Payments: Delaying payments to suppliers (up to 6 months) or lump-sum contracts (up to 1 year).
  4. Advance Sales: Distributors provide upfront funds, either guaranteed (sunk) or non-guaranteed (repayable).

Atypical Financing

  • Tax Shelter: Tax breaks (15-20%) for companies investing in national film industries.
  • Grants: Public funding from national and regional bodies (e.g., ICAA).

Types of Grants

  • Early Aid: For production, distribution, new filmmakers, experimental films, and preservation.
  • Depreciation Aid: Awarded after theatrical release, for producers needing assistance.

The ICAA considers the cost recognized (justified expenses) when determining the producer’s investment, which is the basis for aid amounts.

Regional Aid

Regional commissions consider factors like project quality, producer location, and cultural relevance when awarding aid.

Co-production Formulas

  • Own Production: Using the company’s own resources (at least 50%).
  • Production by Others: Purchasing a completed product from an external company.
  • Exchange: Trading programs between TV companies.
  • Co-production: Sharing resources and capital with other companies. Offers economic, cultural, and artistic benefits, including access to European cinema funds.

Types of Co-productions

  • By Companies Involved: Bipartite, tripartite, or multipartite.
  • By Capital Contribution: Minority, equal, or majority.
  • Associated Co-production: A common form in Spain, involving a contract between companies for resource sharing.

Types of Co-producers

  • Co-producer: Actively involved in the creation and development.
  • Financial Co-producer: Primarily contributes financially.