Crowdfunding for Film

By Jon M. Garon
Gallagher, Callahan & Gartrell, PC

Using the technique known as “crowdfunding,” a producer can pre-sell credits in the film or other goods and services in an effort to pre-finance the production. Crowdfunding is just one of the many ways in which producers of motion pictures can utilize the tools of social media to connect with their curatorial audience and build opportunity to succeed in the increasingly challenging media environment. Whether they use blogging, Twitter accounts, dedicated websites, or Derivative New Media Production vignettes of any other combination of media and technology, the goal is to build an audience for their production who will pay to see the movie and encourage their friends to do the same.

For example, the website buyacredit.com was created to support three young British filmmakers, Adrian Bliss, Benjamin Robbins and Toby Stubbs. The filmmakers are approximately ten percent of the way to their goal of £1 million with a reported £100,000 ($149,000 U.S.) from more than 10,000 donors. According to the report, others have also had some success with crowdfunding their projects:

Franny Armstrong, a documentary director, raised £450,000 for ‘‘The Age of Stupid,’’ a recently released film on global warming, through gifts from hundreds of donors. Casey Walker, a Canadian director, has been raising money for a romantic comedy called ‘‘Free for All … but You,’’ selling individual frames from the film for $10 each, via the Internet.

Crowdfunding works by selling something directly to the public. In the case of buyacredit.com, the item sold is the purchaser’s name in the end credits. That’s it: £1 buys you your name on the list. The purchaser is not an investor in the movie. For very low budget projects, crowdfunding can replace the much more technically challenging sale of securities to fund the production company.

The more traditional method of publicly funding a motion picture would require a public offering, complete with the requisite filing by the seller of the securities with the Securities and Exchange Commission, usually through a securities broker. Even if the securities are units in a limited liability company, the seller will be required to draft a private placement memorandum to provide extensive information regarding the seller and its key executives, the use of the funds, and the financial risks associated with project. The purchasers are then entitled to an ownership interest in the seller – in an amount explained in the securities filing and the prospectus provided to every buyer. Selling film company securities or other company stock can be done directly over the Internet, but such a public sale results in a public offering of the stock and a full registration of the securities with the SEC and the states in which the securities are sold or risk liability.

If the buyacredit.com project is ninety percent short and the sale of corporate securities is too difficult, an aspiring filmmaker or musician should avoid offering profits and instead pre-sell goods. The crowdfunding concept can be expanded by growing the list of products available to the curatorial audience supporting the project. Instead of merely offering a special thanks credit, the audience member should be sold a DVD, contingent on the completion of the project, of course. For $50, a supporter receives a credit in the film and an advance copy of DVD prior to its general release. Depending on the nature of the project, filmmakers could also consider adding a copy of the screenplay or production tee-shirts into the package (necessarily at a higher cost). Only 20,000 purchasers are needed for a $50 purchase to get the $1 million needed to produce the film. Add ticket sales at advance screenings and the income can really make a difference.

To make the participatory aspect of the project even more interesting, producers using crowdfunding to finance their films could offer both a rough cut and a final cut of the film to their supporters. Each copy of the rough cut should be watermarked to help discourage unauthorized distribution on peer-to-peer or other Internet sites. The embedded identification number would allow the supporter to respond to the rough cut by answering a survey and encouraging submission of the crowdfunder’s own suggestions for changes prior to the lock of the picture. In this manner, the crowdfunding completes the circle; connecting the curatorial audience member supporters directly with the funding of the content, feedback during the creation of the content, recognition in credits of the content, ownership of the finished product, and ownership of memorabilia (in the form of tee-shirts or mugs, etc.) promoting the content. Premium crowdfunding utilizes the social media and ties the audience support directly to the goals of the artist. Premium crowdfunding represents affinity marketing at its best.

This is part of a series of book excerpts from Independent Filmmaking, The Law & Business Guide for Financing, Shooting & Distributing Independent & Digital Films designed as an introduction to the many legal issues involved in the filmmaking process.