Anyone following the news these days is well aware that US investors are taking a beating. While some analysts talk of "picking up bargains in an oversold market" most investors seem to be looking quietly for a way to get their money out of the hands of banks and investment houses and into businesses they have some real control over. Money invested in a company's stock today can turn into executive parachutes tomorrow. What started as problem in mortgage-backed securities is swiftly turning into a serious deflationary spiral. States, like investors, are well aware that businesses are facing very hard times. Store closures, plant closures, layoffs, falling wages all translate in falling tax revenues and very angry voters. Which is why states are now working overtime to bring jobs and outside investment directly to their constituents.
Almost all fifty states offer incentives to film producers because film is a relatively clean industry that creates high paying, technically skilled jobs. Its the kind of industry than can come into a state quickly, and it can stay for a very long time. Because it is mostly a service-based business, film generates good tax revenues. Film also beats opening a coal mine or building automobile plant when it comes to dealing with activist citizens who do not want to live next to either.
As an example, New Mexico's film loan investment program has turned the state into a Mecca for producers and their investors. New Mexico offers an interest free loan of up to $15,000,000 for up to three years in return for a share in a film's profits. Investors who invest in a New Mexico production may receive a portion of gross profits just for providing collateral for the loan. Someone with $5 million in property can elect to use it as collateral for a film and in return receive money before, during and after production. The investor gets to keep his property and the revenues it generates and still receives a return. That's a pretty attractive deal for property owners who now have a rather non-liquid asset on their hands.
What happens if the film goes south? The collateral provider has to finish paying off the loan which will have been partially paid for by any revenues the film has generated. And if the film hasn't generated any revenues? Well, that's why its good to have a state as your investment partner.
New Mexico and Michigan vett films extensively prior to making the loans, and their contracts make "Hollywood-style" accounting impossible. So a project they choose to fund has a very, very good chance of covering its production costs and generating a profit. The shortfall, if there is a shortfall, is very, very unlikely to be the kind of absolute "crash and burn" one sometimes sees in film investment. The state, like investors, expects to get a return on its investment, so it works very hard to insure a film they fund is produced by competent professional filmmakers with a track record of success.
Loans are not the only upside to film as an investment. New Mexico and Michigan offer substantial rebates on production undertaken in their states. In New Mexico you get up to 25% of the money spent on production back in the form of a rebate when the production is complete. In Michigan its 40%.
Film loans are the first of what will be many state-based "incentives" designed to bring investors into collaboration with business owners and governments to make rational, trackable, accountable investments. New Mexico and Michigan have two very aggressive film incentive programs, while states like Hawaii have technology incubators which work along similarly profitable lines.
Some experts, like George Soros, have compared the financial crisis the nation is facing to the market in 1928. The difference is that today's investor can invest in projects nationwide, and states are willing and able to facilitate that process. As bad as this market is, and as unattractive as it is about to become, investors will still be able to find financially profitable projects in the months and years to come.
Nancy Fulton is a writer, publisher and filmmaker. You can find more about her work by visiting http://www.nobetterfriendmovie.com and [http://www.bluestatefilms.com]
