In the United States, the value is typically based on a forecast of revenues (generally 10 years for films and 20 years for television shows), beginning with theatrical release, and including DVD sales, and release to cable broadcast television networks both domestic and international and inflight airline licensing.
In the past, risk mitigation was based on pre-sales, box office projections and ownership of negative rights.
Along with strong ancillary markets in DVD, cable television, and other electronic media such as SVOD, or streaming video on demand), investors were shown that picture subsidies (tax incentives and credits), and pre-sales (discountable-contract finance) from foreign distributors, could help to mitigate potential losses.
As production costs have risen, however, potential financiers have become increasingly insistent upon higher degrees of certainty as to whether they will actually have their investment repaid, and assurances regarding what return they will earn.
Citigroup attempted to wrap the Beverly-1-Sony slate with a property and casualty insurance wrapper (from the formerly bankrupt Ambac Assurance, Corp.).
After these "uninsured" slate financing arrangements (SFA) failed to return even the original principal to investors, the market has sought solutions.
Traditionally, banks like JP Morgan have an entertainment division that uses proprietary risk mitigation regression analysis to see if future film revenues can meet an exceedance probability (where in the ultimate revenues allow the loan to break even), but this is calculated guesswork, and has caused all of the major national banks to lose millions in bad loans.
An alternative to such loss protection was developed by Geneva Media Holdings, LLC (originally as risk mitigation for affluent individuals and "direct investors" under U.S. tax incentive IRC 181).
For many movie investors in the past, the theatrical box office was the primary place to gain a PV return on their investment.
VaultML has developed technologies usually seen in high-frequency trading to predict box office success and investor risk using artificial intelligence.
Kavanaugh has attempted to use data from major studios like Sony and NBC/Universal to build a complex Monte Carlo system to determine movie failure rates prior to production.
This system claims to quantify 800 creative elements of billion dollar grossing movies to determine what audiences are most interested in.
For instance, until it was abolished in March 2011, in the United Kingdom the UK Film Council provided National Lottery funding to producers, as long as certain conditions were met.
[12] Some U.S. states and Canadian provinces have between 15% and 70% tax or cash incentives for labor, production costs or services on bona fide film/television/PC game expenditures.
Finally, additional incentives (another 5% to 25% on top of the already generous soft money), may be offered for off-season, low-income area, or family entertainment projects shot in places of economic impoverishment or during poor weather condition months in a hurricane-prone state or Arctic province.
A number of countries have introduced legislation that has the effect of generating enhanced tax deductions for producers or owners of films.
[citation needed] These are commonly referred to Sale & Leaseback deals; they were discontinued in March 2007, though those initiated prior to Dec. 31, 2006 were grandfathered in.
[19] In order to gain the “marquee names” essential for drawing in an international audience, distributors and sale agents will often make casting suggestions.
[citation needed] Splitting the roles of studios and networks necessitated a means for financing television series appropriate to the varied risks and rewards inherent in the separation.
A studio has ownership of the production, but as license fees are handed out in exchange to air a show, the phrase deficit financing comes into play as costs were not being met and paid.
Because of this, production companies produced original shows at a loss, hoping that they would eventually be run by syndication and make their money back.
)[citation needed] Gap/supergap lending is a very risky form of capital investment and accordingly the fees and interest charged reflect that level of risk.
[25] The idea for slate financing came from "multifilm credit lines" that banks and investment firms created for studios in the late 1990s.
There were three main advantages to this strategy: risk mitigation (since funds covered a pool of movies rather than one film), less interference from investors, and freeing up studio equity towards "big-budget franchises" for which they do not have trouble fundraising.
For example, if a private equity source is found (individuals with capital or a private wealth management firm representing personal funds), the investor pays for the film or TV production, and in return receives an equal amount of capital in tax-incentives, pre-sales, and state tax credits, thereby making the investment and recoup a wash.
[citation needed] One of the hardest types of film financing pieces to obtain is private investor funds.
[30][31][32] Crowdfunded films include Iron Sky, Kung Fury, Veronica Mars, Code 8, Star Trek: Renegades, Manthan and Anomalisa.