In our current clime, it is the author’s view that there are significant commercial opportunities for the film industry to begin to partner and work closely with banks, insurance companies and other financial institutions to underwrite and guarantee high budget film productions. The introduction of completion bonds and other similar products/services for mid to high budget independent films, will make it easier for producers to secure production investment from financiers.
When investors are able to mitigate their risks (by finding ways of guaranteeing that producers complete their movies) they will be much more likely to part with their cash, and this is crucial in an environment where trust is a scarce commodity. Such guarantees can also prove to be a lucrative source of income for financial institutions seeking ways of tapping into the entertainment sector (without having to directly invest), especially given that on average of 50+ movies for theatrical release are produced each year; and this number is growing annually.
For such a structure to work, a major component is for producers to secure distribution agreements for movies before they are produced/completed. This is crucial in order for a reduction in the perception of risk associated with movie projects.
Risk Mitigation
The bond fee itself is negotiable — typically ranging between three and five per cent (three and five per cent) of the production budget depending on the risks as assessed by the completion guarantor. For these reasons, completion bonds are typically only used for mid- to high-budget independent film projects. Thus, for example, an intended movie production (in the form of a script that a producer has committed to producing) that has a well known director at the helm, an experienced assistant director and other below-the-line contributors, and a famous/popular lead cast makes for an attractive project which is deemed ‘bondable’. An intended movie with the said ingredients (and preferably with a MDG) will be assessed as being significantly less risky than a movie without same and thus would be attractive to guarantee subject to regular reporting obligations being fulfilled.
A completion guarantor will require a regular (usually daily) flow of production paperwork — for example, production reports, cash flow and cost reports etc.
Conclusion
The foregoing is a merely an overview of the concept of completion bonds and traditionally how they are employed in the movie industry. For the stated partnerships to truly work Film producers and financial institutions will have to negotiate mutually agreeable terms in any such bond agreements wherein producers do not feel the fees for such facilities are beyond their budgets and guarantors do not feel unnecessarily exposed to any attendant risks.
Opportunities abound for the Nigerian cinematic film sub-sector to increase its contribution to the overall entertainment industry by making bigger, more daring, and spectacular movies that will draw a larger proportion of our nation’s huge population to the growing number of cinema screens. Stakeholders must particularly focus their strategies on partnering with financial institutions to ensure that the film sector, which is the driving force behind the major growth seen in the entertainment sector and economy as a whole, picks up the slack from the flattening straight-to-dvd market.
Olumide Mustapha, (Esq.) is a Media, Entertainment, Technology and Sports Attorney and Senior Partner, Technolawgical Partners
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