The UK’s private film funds are becoming increasingly important to cash-strapped independent producers. But are investors interested?

The UK’s private film financiers are a resilient breed. On the eve of Cannes and in the face of ­formidable global financial challenges, they are busy hatching a slew of new funds and ­initiatives.

“Relative to other sectors, film doesn’t feel as risky as it did”

Ivan Mactaggard, BMS

Private equity money is in short supply and there are few remaining ways in which individuals can invest in film and use tax to mitigate their downside. Still, UK financiers such as Prescience Film Finance, Future Films and Goldcrest are adjusting to changing times. Some even see an upside. In downturns, so popular wisdom has it, people still go to see films. The box office is on the rise, year on year, in both the US and the UK. This is the message financiers are trying to drum into potential investors.

$60-100 Reported size of Future Films’ pan-European media structure

$50m Value of the new Aegis Film Fund

50% Amount of the budget available from BMS Finance

20% Amount of the budget avalaible from Goldcrest

15% Typical fee charged by a fund

“Film isn’t recession-proof but it hasn’t been hit nearly as hard as other sectors,” notes Ivan Mactaggart, director of film and media funds at boutique investment manager BMS Finance, which has helped run the Limelight VCT Fund. 

“Whereas beforehand in a company like ours, which invests across lots of ­sectors, film was the risky one and everything else was comparatively safe, everything else just got riskier. Relative to other sectors, film doesn’t feel as risky as it did.”


Latest fund launches

Last month, Prescience Film Finance announced its new $50m Aegis Fund which will offer short- to medium-term loans and debt, including discounting of government tax credits and pre-sales contracts, basic gap funding and secured bridge financing.

One increasingly prominent player is Goldcrest Film Finance. Its most recent fund is an EIS structure called Goldcrest Film Production LLP. This aims to support British films budgeted from $4.5m (£3m) to $10.5m (£7m). Its advisory board includes ex-PolyGram boss Michael Kuhn and leading producers Graham Broadbent and David Parfitt. The fund will provide 20% of a film’s budget and through its relationships with Goldcrest Independent and sister company Goldcrest Post Production, there are further financing and sales opportunities for the projects it backs.

“I am very excited by the British industry at the moment,” says Adam Kulick, partner at Goldcrest Film Finance LLP. “We’re coming off some fantastic successes that were ratified at the Oscars. Sterling is weaker than it used to be, which will encourage more films to shoot here. What we’re aiming to do is help harness the deep talent pool we have in this country.”

Prescience’s co-founder Paul Brett believes investors are looking for opportunities. He argues there has been a correction in the UK film industry. “It shouldn’t be easy to put together a film. You should only do one when you know there is a market for it, who that market is and how it is going to be distributed around the world.”

Brett contends the UK film financing landscape is healthier than in the tax-driven boom years of the late 1990s and early 2000s. In those days of Section 48 and 42 tax relief and Gaap financing, there were hundreds of millions of pounds flowing through the UK film industry and scores of films being made. The UK government complained about the loss in tax revenue and the industry lamented the quality of many of the films made. 

Now it is a different story. Although
figures are hard to come by — after all this is a sector that does not want to attract the attention of HM Revenue and Customs — the money being raised today is far short of the previous hundreds of millions.

But even if the sector has contracted, UK producers, desperate to cash-flow the UK film tax credit and to find equity investment, remain dependent on private financiers — when they can find them. “Financiers are a vital element of British funding,” says producer Stephen Woolley of Number 9 Films, who worked recently with Aramid Entertainment Fund on Sounds Like Teen Spirit and with Premiere and Limelight on Perrier’s Bounty. “They have become as essential as the UK Film Council, BBC Films and Film4.”

“The [financier] money is not cheap but we’re not in a market where we have much choice,” says producer Paul Raphael of Starfield Productions, who has worked with Baker Street on Anita And Me. “Our options are more limited than ever.”

Ingenious Media was a leading player in the boom years and remains an important financier today, but on a smaller scale. “Film is still very much part of our business albeit we have diversified a lot over the past couple of years,” says James Clayton, COO of Ingenious Media. “We never wanted to be overly reliant on film. We are a media investment business and [film] sits well alongside other sectors of the media: TV, music, video games, live entertainment and so on.”

Most of Ingenious’ activity in film revolves around raising money from the corporate institutional market for investment in US studio films. (It has backed titles such as Alien Vs Predator, Die Hard 4 and X-Men: The Last Stand.)

Ingenious also still “bespokes” opportunities for high-net-worth individuals who want to invest in independent film on a case-by-case basis. “It’s a relatively small part of our overall business and it’s probably no more than five films a year,” says Clayton. One of Ingenious’ main connections with UK film is through sales company Protagonist, which it co-owns with Film4 and UK distributor Vertigo Films.

Meanwhile, BMS Finance (BMS) has announced that following the success of the Limelight VCT film tax credit fund, it will operate its own film fund under the BMS brand. The aim is to focus on larger, “more overtly commercial” projects. BMS’s film department, headed by Ivan Mactaggart, will now focus on funding commercial UK and international films with budgets of $3m-$15m (£2m-£10m), providing gap, pre-sale and tax credit financing totalling up to 50% of budget.

Since September 2007, BMS and Limelight VCT have worked together under the Limelight brand to finance 15 films, among them UK titles Adulthood, Moon and Perrier’s Bounty. Limelight VCT founder Michael Henry intends to continue to offer UK tax credit funding to lower budget British films under the Limelight brand.

Piling into the mainstream

UKfilm financiers will be prominent in Cannes. Some, at least, will  still be doing business from those big yachts in the Cannes harbour. Future Films’ Stephen Margolis claims it is actually a cost-efficient way to attend the market. “The boot is now on the other foot,” he says. “Financiers are now in the  buyers’ market, not the sellers’ market. They will be able to pick and choose the projects they want.”

The evidence is those projects are mainstream, commercial titles. Financiers’ appetite for director-driven, arthouse style material is diminishing. David M Thompson, one of the producers on Andrea Arnold’s $4.5m Cannes Competition title Fish Tank, which was backed by Limelight, suggests if the film was to be made now, it would have to be on a lower budget.

“There is clearly less appetite for serious drama and more for comedy and anything upbeat,” Thompson suggests. “To get money out of people for serious, issue-based drama is harder and harder.”

Film finance initiatives: EIS funds

Smaller players continue to set up Enterprise Initiative Scheme (EIS) funds, and lend against the UK film tax credit. The downside is that EIS companies are capped at $3m (£2m) per individual company. Investors can be wary of them — there are few examples of EIS-funded films that have made their investors money  — but their appeal is growing.

The 50% tax rate for high earners introduced by the UK government last month is also making the EIS look more attractive. As Martin Churchill, editor of the Tax Efficient Review, puts it: “If you as an investor get $100 from an EIS, it’s actually tax-free. You’d have had to earn $150 at 50% tax rate to earn the $100. This will increase the attraction of the product for high-net-worth individuals.”

Producer-financier Matador recently successfully closed Cinema 5, its latest EIS scheme. “The funds we run have always been very investor-friendly as  well as producer-friendly,” says Matador’s managing director Nigel Thomas. “We’ve found there is still an appetite among investors to get involved.”

Film finance initiatives: sole trader schemes

Despite the UK government’s repeated clampdowns on film financing initiatives that exploit tax loopholes, certain financiers are still using sole trader schemes where investors are actively involved in production, working at least 10 hours a week on film-related activities.

Opinion is divided as to how viable such schemes will prove in the long term, not least because they are likely to be intensely scrutinised by the government and require a high net worth individual with a tax loss to offset who can be available to work genuinely on a film for a certain number of hours a week. (One small but important question
is whether the sole trader will get on with the producers.)

Jason Garrett, head of legal at Premiere Pictures (previously Great British Films), says 2008-9 was a bumper year for Premiere’s sole trader scheme, Sovereign. “There is still strong demand for such product,” says Garrett.

Films Premiere has supported include Ian Fitzgibbon’s Perrier’s Bounty, starring Cillian Murphy and Jim Broadbent.