December 5, 2019

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Film production & private financing



French cinema benefits from several national and regional subsidies but also resorts to other financial resources such as pre-sales to the distributors or TV channels, which have an investment obligation in the European film production.

Nonetheless the decrease of the TV channels annual revenues has correlatively leaded to a decrease of the amounts of their investments. Thus, French producers have to find new partners in order to finance their movie projects, as it was already the case in England or Germany. The producers may rely on financing resulting from investments made within the context of tax mechanisms, such as SOFICA or directly from private investors.


SOFICA: continuation of the measures, decrease of their efficiency


The companies for film and audiovisual industry's financing (Sofica), created in 1985, are responsible for collecting private funds for the financing of production, in return for a tax benefit. Any subscription of social shares in a sofica entitles its holder to benefit from a tax relief with major condition to keep the shares for at least 5 years. It is to be told that the ceiling is favorable:  € 18,000 with a maximum of 36% of the subscribed amount (against 10 000 for the tax loopholes). 


This mechanism is strictly delimited: the sofica are subject to an annual approval and the Ministry of Finance allocates to each of the sofica a maximum annual amount of capital raising. As an example, for the investments in 2016, the CNC has approved 11 Sofica for a global annual amount a little higher than 63 M.


The soficas allocate the sums collected by them finance the development or the production of films. The annual report of the CNC states that in 2014 the soficas participated in the financing of 147 works by entering coproduction contracts. For this period the investments reached € 34 million for an average of 7.3% of the budget of the supported films or € 330,000 per film. Such a contribution is far from insignificant for French producers. The projects receiving such investments are extremely varied and range from the 2015 Golden Palm of Cannes Film Festival, "Dheepan" to the mainstream comedy "Babysitting 2".


For a long time, the sofica’s mechanism was a major reference regarding films’ additional financing, but since recently it seems to be running out of steam. Thus, Backup media, an agency specialized in film an TV finance, recently announced that the company will not formulate any request for approval for SOFICA 2015 emphasizing in this statement on "a structurally declining performance of sofica’s investments". Such decline of the soficas encouraged the emergence of private investment strategies among which we can point out the funding to come from other tax mechanisms and those due to private equity investments.


Innovative tax mechanisms


The TEPA Act (Labor Employment and Purchasing Power) allows taxpayers subject to the wealth tax to halve their tax imposition regarding such tax within the limits of 50% of investment and up to 45 000 euros. Provided, however, that they invest in small and micro businesses that meet certain conditions. This tax mechanism covers the entire economy, including the cinema.


As a consequence the producers may benefit from the taxpayer subject to the wealth tax in order to fulfill a film financing. Didier Duverger, VP of Natixis-coficiné underlines that  « It is really more flexible than the soficas with a greater benefit ». In the same way, Franck Ladrière, PDG de Axone-Invest, states that this law « allows the private investors to directly allocate their investments to a production company, they know what they exactly finance, which project may be organized ».


He also stresses that in the context of investments in movie production "There is no need to sell a performance to the investor" but that it is possible to focus on the quality of the funded projects. Indeed the TEPA system brings together investors and producers, and makes the investment, more personal, more likely and less correlated with returns on investment.


Nethertheless if the investments made within the context of a wealth tax decrease may be directly allocated to a production or distribution company, the investors mostly chose to operate through specialized holdings or funds. As an example the fund ISF Cinéma handles a 60 millions funds, a huge sum invested by approximately 500 wealth taxpayers and notably coproduced Thomas Cailley’s movie « Les combattants » awarded in Cannes in 2014 or Mia Hansen-Løve’s movie « Un amour de jeunesse».


Benoit Quainon, producer at Les Films du Worso, points out that « Even if the collected amounts remain between 50 000 and 100 000 euros, this is not to be neglected for the production of movies requiring a 2,5 or 3 millions euros budget ». Thus his production company already collaborated with Cinefeel Prod for the production of the movie « Timbuktu ». On this project the financing fund brought 120 000 euros for a total budget of 2,4M euros, representing approximately 5% of the film financing.


However it is important to note that the French Court of audits has recently come to critically look at the TEPA mechanism, especially regarding its application to film production. The Court highlighted a lack of transparency of the mechanism and emphasized that neither the CNC nor the tax authorities " have an overview of the amounts involved or of the recipient companies ". Accordingly, the Court recommended to « exclude film and audiovisual production companies from the benefit of the tax provisions of general law to encourage private investment in the equity of SMEs. »


Nonetheless we can note that movie producers can momentarily feel reassured, as to date the recommendation was not acted upon.


Beyond the tax exemption related to the wealth tax, the Law for the Economic Initiative (Often named Dutreil or Madelin Act) established fiscal measures enabling a tax reduction of the income tax up to 18% of the invested amount with  a maximum of € 9,000 per year for a single person and € 18,000 for couples (married or civil partners with joint taxation), corresponding to ceilings of investments  of € 50 000 for a single person and €100 000 for a couple. It is understood that in order to benefit from such tax exemption the investor shall keep the shares for a minimum duration of 5 years. For an example of the application of this mechanism to the cinema industry: the production company Cinefeel prod has a dedicated section for taxpayers wishing to reduce their income tax by investing in film production.


However, it is to be noted that the committed amounts remain quite low and can only constitute additional funds for a film financing.


Development of private equity’s investments in film production


The financing of movies through private equity follows all the habits of the capital investments in unquoted companies but through investments funds especially dedicated to the cinema industry. The investors do not benefit from any tax rebate.


It is to be highlighted that the cinema is a good sector for the investors. The market is healthy, stable and is growing for years: for the past ten years its growth corresponds to an average of 4,3% per year (total amounts of french revenues). Lots of movies are profitable for the investors as they benefit of priority corridor on the revenues.


The French bank Neuflize OBC initiated the opening of private equity investments in order to finance « independant talents of French cinema ». For the first year of its initiative, the bank has launched a 25 millions euros fund. The choice of the projects and the investment of the collected sums are operated by Cinéfrance 1988, a movie production company specifically established for this purpose. Cinéfrance 1988 operates in the production of films with a budget between 4 and 8 millions euros. The average participation of Cinéfrance 1988 is 3 millions euros per film, an amount consequently higher than the investments made by the funds operating within the frame of the TEPA act.


To date, Neuflize OBC Cinéma already participated in the financing of movies as different as « Yves Saint Laurent » by Jalil Lespert, « 9 mois fermes » by Albert Dupontel, « L’affaire SK1 » by Frédéric Tellier or « Gemma Bovery » by Anne Fontaine.  


One can still note that there is a risk to resort to such private financing and that investors as coproducers or shareholders of a production company may take hold of the artistic direction of the film ...


Kira Kitsopanidou, film financing specialist, acknowledges that "the optimized management of investments made by individuals, specific to the financial operators, could lead to privilege the financing of films with a confirmed cast, calibrated to federate a wide audience", but as we have seen many « films d’auteurs » also benefit from the investments and seams to come, at least partially, undermines this hypothesis. 






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