Biracy & Crowdfunding—Peril or Paradise?

While researching possible avenues of funding for a feature film, I've heard about crowdfunding over the years. Crowdfunding is fundraising from a large group of small donations instead of a small group of large donations. Several companies do crowdfunding now, and a few specialize for filmmaking. Here is an excellent collection of short videos of the top 15 crowdfunding companies in their own words.

I was recently contacted by David Geertz from The Biracy Project (@biracy) in my role as moderator for the Infinite Distribution Panel to help generate questions for a Biracy video Q&A. The panel had several great questions and Geertz personally responded to them. It was so helpful, Geertz said, that they might even do it on a weekly basis.


Crowdfunding has obvious advantages over traditional film financing, chiefly among them that filmmakers are able to find and connect directly with their fans even before they roll film. Whenever others are invited to come on board to have a say in which direction the ship is heading, it bestows ownership to them... which in turn sparks the sort of emotional investment to a project that advertisers salivate over. People who join crowdfunding projects want to see that project succeed—they have a natural incentive to participate in and promote their project. Anyone who understands the power of networks realizes that as the size of a network grows, its reach and influence increases geometrically. Crowdfunding locks in your funding and your audience at the same time. You can't really ask for a better scenario.

The question is—is it legal?

NOTHING BUT BLUE SKY
I'm not addressing the question of whether crowdfunding should be legal—I already feel strongly that it ought to be. Fans want to invest in films like buying stock in the stock market, and reap the same benefits as multimillion dollar film financiers, so why shouldn't fans be allowed that option? Unfortunately, America has a formidable legal obstacle—state laws called blue sky laws which "regulate the offering and sale of securities to protect the public from fraud." These laws were designed to protect unsophisticated investors from scam artists trying to swindle grandma out of her life's savings. For crowdfunding, the law seems not to fit anymore, but that's irrelevant—if the SEC decides you're violating their regulations, then it really doesn't matter how outdated the laws are. Are you able and willing to afford a proper legal defense to keep yourself out of orange overalls?

So the central issue to consider is whether crowdfunding is, in its current incarnation, legal under today's laws. If I join a crowdfunding operation, could I be involved in a class action lawsuit one day and/or criminal charges? Are all current crowdfunding operations simply a ticking time bomb? Whenever a new business model first emerges, existing legal codes often don't understand how to interpret legal code to accommodate the shifting market. Is this the case for crowdfunding?

THE CAUSE FOR CONCERN
I posed those questions to Biracy's Geertz on Twitter and I feel he answered them to my satisfaction. Before you see Geertz's reply, you ought to have a proper context of my own concerns because these kinds of articles made me extremely paranoid about crowdfunding. From Mark Litwak's site:

Question: We have a project and are interested in soliciting investors without violating SEC rules. What can we say that's legal but still gets the point across, and what is illegal?

Answer: The most important thing to say is that you are not making an offer. You are simply having a preliminary discussion with people. In order to take money from investors, you need to either register your company with the SEC, which costs a considerable sum, or fall into one of the limited offering exemptions. A major restriction on these limited offerings exemptions is that you cannot do any public solicitations like mass mailings and cold-callings. And you'll be limited to thirty-five unaccredited investors. An accredited investor is essentially a wealthy, sophisticated investor. Everyone else is an unaccredited investor. If you can live with those restrictions, the cost of complying with securities laws is considerably less but still significant. If you violate the securities laws, you can be subject to civil and criminal penalties. Link.

Another article:

In general, under the Securities Act of 1933, entrepreneurs who seek to sell stock in a business should register the securities with the Securities Exchange Commission plus comply with other often complex federal and state regulations. While this may seem daunting to a startup company like yours, the SEC provides some exceptions. One of the ways to bypass some regulatory requirements is by soliciting wealthy accredited investors, also known as "qualified investors."

Regulation D of the 1933 Securities Exchange Act defines accredited investors as individuals who have a net worth of $1 million or income of at least $200,000 in the two years prior to investment. For couples, the prior income requirement is $300,000. The SEC notes that income requirements are met only if there is a reasonable expectation that income levels will be maintained in the future.

Accredited investors can also include banks, insurance companies, small business investment companies and corporations, charitable organizations or partnerships with assets exceeding $5 million.

The thinking behind the financial means test is the presumption that wealthy investors are sophisticated about the risks associated with privately-held company investments and can "afford" to lose the entire investment.

Granted, families of more modest means invest in startup restaurants, retail establishments and service companies all the time without meeting accredited investor tests. They can without attracting regulatory attention because companies are generally permitted to raise money from up to 35 non-accredited investors, plus an unlimited number of accredited investors. Still the SEC does require that companies reject non-accredited investors who are not financially sophisticated and understand the risks associated with the investment. Link.

...and another article:

If a small contribution obtained via crowdfunding is actually an equity investment or even a loan, then crowdfunding companies may soon run afoul of securities laws. I forget the details but if you raise money from over a certain number of investors, you start being subject to all sorts of securities laws that are a pain.

If you ask me, those laws should be completely recrafted to allow crowdfunding and kick it into high gear. To me, crowdfunding is fuel for human capital and great projects that is currently untapped but has enormous potential to change the world as we know it. I'm sure there are some advocated at the SEC, the SBA, the Federal Reserve but, no doubt, bureaucracy is frustrating the heck out of them right now. Hopefully, we'll figure out how to tap into the power of crowdfunding soon.

The thing is, it does have to be regulated. I mean crowdfunding scams will be huge, once crowdfunding grows in popularity. When there's money involved, scammers will come.

There also needs to be some liquidity to crowdfunding shares. If people are going to make microinvestments, they will want to be able to profit from their investment. It will be a great day when a firm that raised $100,000 from 20,000 $5 investors sells out for a few million and everybody gets a tidy, albeit little, return on their investment. Link.

And a super recent article from Boing Boing:

Donors can get a little something in return through these sites if the projects they fund come to fruition, like a signed copy of a book that's produced (Kickstarter), or reimbursement in credit if a news organization buys the story (Spot.Us). But what if a crowdfunding site could offer donors a piece of the action, not just some thank-you goodies? That's what I would want, and I don't think I'm alone. I want investors for my schemes, not patrons, and if people support me to do something that flies, it would only please me to give them a cut.

But then I started talking about the scheme with lawyers, including Boingboing counsel Rob Rader, who has been extremely helpful. The legal terminology for my notion, it turns out, is "patronage-plus ex ante crowdfunding," at least in a recent article by Tim Kappel in the Loyola of Los Angeles Entertainment Law Review The short answer is, such a site would probably be illegal under U.S. federal securities law. "Securities" are defined as any investment whose return is dependent upon the effort of others. It's a one paragraph definition, very broad, hard to get around, and there's no de minimis dollar cutoff below which the regulations stop. A lemonade stand venture could be subject to SEC regulation.

Securities regulations don't apply if the investors are genuinely active in the day-to-day management of the venture-- but it isn't enough to just give them access to a project wiki and consider their suggestions; you must demonstrate that they are all critical to the venture's success. So much for that loophole.

Another possibility is the SEC's "Private Placement Exemption" under Regulation D, which allows unregulated investments if the number of investors is limited. Specifically, you can sell shares to at most 35 regular individuals (and an unlimited number of accredited investors, i.e. various institutions, plus people who have a net worth exceeding $1 million, an annual income over $200K, or a personal trust exceeding $5 million).

But Regulation D also prohibits any "general solicitation or general advertising" to let people know about the venture. The only published announcements of such investments are the cryptic "tombstone ads" that you sometimes see in the print versions of the Wall Street Journal or New York Times business section. These ads, which AFAIK have never been published online-only (although this might be possible) must be very limited in their disclosure. It might be OK to say "Paul Spinrad offers shares in a graphic novel based on the life of Elliot Smith" but that's about it. The announcement can't include anything that makes Kickstarter and Spot.Us so fun to browse through-- no details of the project, no wish lists, no video clips of people saying, "I'm so excited about this project-- it's got great indie film potential-- all I need is 4 months time and a round-trip ticket to Portland!"Link.

If you aren't a little nervous by now, then you have a heart of stone. Violating SEC regulations is serious business and could land you a princely fine and/or time in jail.

BIRACY: "IT'S NOT AN INVESTMENT"
Geertz provided two Q&A videos and kicks it off by saying clearly that Biracy is not an investment, and thus should not be confused with a security—money given to Biracy is a donation, a membership fee, and a pre-ordering of a product. There is no financial remuneration as you would receive with an equity investment, be it stocks, company shares, or real estate. Thus, you don't fund films like multimillion film financiers for a jackpot if the film is a hit... instead, you get something called Kaps, a virtual currency. This is the key distinction—you don't get real money in return for your donation, just benefits with the company, like store credit. You can, however, earn money from commissions by referring others to Biracy, like a multilevel marketing company. It's clever.

If Biracy proves itself to be a sustainable crowdfunding model, then its founders will soon launch SoKap.com to let other producers benefit from Biracy's model. As I understand it, the only danger in violating SEC regulations is to the company, not its donors, so I think I'll invest in donate to Biracy today. However, were I to use Sokap as a Producer, I'd feel obliged to run all this through my own lawyer before committing any resources to it. Why? Because you never really know how governments react to radical new business models. Once crowdfunding begins to become popular, all it takes is one egregious crowdfunding scandal to push the SEC towards clamping down on "risky new businesses using securities law loopholes to rip off unsuspecting victims". Then it all turns into a make or break acid test on how clear the law is about crowdfunding. Bunch of hooey if you ask me, but it wouldn't surprise me in the slightest. If I were a crowdfunding company, I'd probably approach other crowdfunding companies and pool our resources to get a lobbyist in Washington to update SEC blue sky laws so crowdfunding isn't just legal, but actually fulfills the promise of film investing—to make real money on films like multimillion dollar film financiers... but on a micro level.

Here are Biracy's two Q&A videos by David Geertz:
Q&A: Is it an investment? Part 1
Q&A: Is it an investment? Part 2

Business Plans

If you're wondering why my blackout as of late, it's because I've been incredibly busy. I'm keeping most of the details hush-hush for now, but broadly speaking, my work has involved:

• developing a feature screenplay for production early next year
  
• developing another feature script for production after that
  
• writing 15 loglines, then two synopses for an WGA-affiliated agent (they loved one of the synopses, so now I have another script to write)
  
• laying the groundwork for a million dollar company, including writing a 30 page business plan, carefully selecting a company name, and navigating the complexities of who does what and how much everyone gets for their work
  
• editing a fundraising mini-documentary
  
• finishing the editing of my last short, My Shortest Apposition (Sorry, Ana! I promise it will get done!)

I must admit, business plans are a strange beast. They're like paintings in that each one is unique and its effectiveness depends how much effort you put into it. You could spend months aggregating research and still not come close to being finished.

Last night, as I was educating myself on business plans, one thought in particular hit me like a bullet: my god, I'm studying for a final exam. To wit, when I hand in my business plan to an investor, if I "pass" the exam, they give me money.

The difference, of course, is that the date of this final exam is a time of my choosing so I get as much time as I need to prepare my final essay.

George Lucas on Charlie Rose

One of the best hours I ever spent watching TV. Lucas has a lot of insight to impart about the nature and traditions of cinema, among other things. The part I most remember about this interview was Lucas talking about fresco painting vs. oil painting (around 28 minutes). A must watch:

On Writers & Strikes—Mining gold?

In Jonathan Tasini's article, Greed Is Good: How Big Media Wants To Steal From Its Workers, he makes a point that rings true, even if not backed up by cold hard facts:

While the media titans like Murdoch and Iger run around crying poverty, out of one side of their mouths, and an inability to pay writers, they run to Wall Street, investors and media analysts and speak a different tone: they claim, individually, that their company is on the leading edge of new media and can be counted on to continue to capitalize on the explosion in new media uses...and, therefore, the Street, investors and analysts should have great faith in their leadership...and value their stocks accordingly. They sell advertising based on flogging their companies as the leaders in the business. So, in one place they cry "uncertainty"—when it comes to paying writers their fair share—and in another forum they cry, "we are future-looking geniuses cashing in on the Internet gold." Link.

I'd really like to see are the balance sheets of all the Big Media companies. If they're really keeping 99.7% of the the pie, where in the hell is it going? Into an ING savings account to weather this uncertain future they keeping talking about? Into the pockets of the CEOs? (Quoting a Forbes article, Tasini reveals the average 2006 annual income of CEOs at Time Warner, Disney, CBS, and New Corp. is $20 million. That's average.)

So which is it, AMPTP? Are you mining gold or not? I have yet to hear the AMPTP's side of the story. Somebody please help me out here.

On Writers & Strikes: Richard Cox reply

Over on Myspace, fellow novelist Richard Cox posted this response to last night's blog about the WGA strike. I had a lengthy reply I'd prefer to not get lost in the Myspace ether, so I'm reposting here for posterity.

Richard's reply:

Even after reading your blog I'm not sure I understand the situation well enough to comment.

However, as a novelist, I don't incur any risk when selling my novel to a publisher. The publisher shells out the money to print the book and market it (although in my case, they didn't shell out much for marketing, haha.)

And yet I am still paid for each book sold, assuming I earn out my advance.

It boggles my mind that you could write a brilliant screenplay or teleplay and be paid a flat fee no matter how well it performed.

From my uneducated position, writing suffers when you treat it as a commodity. I realize producers believe they can take any high-concept piece of junk screenplay and, with the right actors and director, turn it into a moneymaker.

But why don't they learn from the lessons of really awesome movies that are well written that become juggernauts? Why do they accept mediocrity?

And then there is the whole argument of how a brilliant screenplay becomes a lump of generic mashed potatoes after studio people muck it up with test screening results. In trying to minimize risk, they ruin the chance to make a mint. And the original writer probably doesn't want to claim those mashed potatoes, anyway.

Posted by Richard on Thursday, November 01, 2007 at 8:00 AM

And my reply:

I did gloss over a few points to make the issues more palatable, but the gist is there. Perhaps the most important point I did not make is that there isn't One True Way to offer financial remuneration from producers to writers—there is only precedent, and precedent is always rooted in historical and cultural contexts. In Europe or Asia, they may treat this issue in an entirely different way. Nevertheless, all that is really moot: what matter is what has been done in the past and how the present deals on the table relate to past precedent.

In the past, writers have been offered what's called "scale", or a salaried pay, which is agreed upon three years advance in a document called the Schedule of Minimums (which you can find online here). Much like an advance for novelists, it has to be done this way because what happens if the final product, for whatever reason, does not get produced? At least the creator's time has been appropriately reimbursed. Writers do get residuals from DVD sales (see the car/idea analogy above), but writers feel like they got screwed 20 years ago on that deal. Internet residuals are on the table and they're not making the same mistake twice.

However, producers paying scale mean they're shouldering the cost and that means financial risk until the product makes money. For novels, there is relatively low cost incurred compared to films because a publisher can issue multiple prints to gauge market interest whereas only one film or set of TV episodes is "published" at once. Movie producers have a lot at risk, financially speaking, and when money comes into the picture, people tend to get gunshy. (The solution here is obvious: make all writers producers by forcing them to invest their own money up front. That would change their toon pretty bloody quickly!)

Novels are also a low collaboration medium, compared to movies. As Orson Welles said, "A poet needs a pen, an artist, a brush, and a filmmaker—an army." So the payout structure for films calls for a lot of employees to make the product, whereas with a novel, you need three people: the novelist, the publisher, and the printer; in some cases, the novelist is even the publisher, too. It would be pretty cheeky for a publisher to pay a novelist $100,000 for a novel and then make $10,000,000 without any kind of royalties since the novelist is the TOTAL creator of his medium. Comparatively, a screenwriter is just a blueprint maker, since actors, directors, and even producers can add their 2 cents along the serpentine path to the movie theatre. Should the actors, directors and producers then receive a residual based on their input? It's a slippery slope.

The answer to your question about why producers don't learn from the lessons of well-written films is simple: it's about money. Producers want to make hits, so their initial intent is to make the next American Beauty, but along the way, producers (or more accurately, producers' employees) have second-thoughts—what if the script I'm gunning for doesn't do well?—and thus the truly original writing self-selects out. In this respect, literary writers will always hold a trump card over screenwriters. If a novelist or journalist fails, they wipe egg off their face, but if a screenwriter fails, their producer's very career is at stake.

Thanks for posting! It's good to have another writer's perspective. I neglected to mention that the National Writers Union (nwu.org) recently supported the WGA strike; they are a "United nationwide local of the United Auto Workers representing (at this point) about 2000 freelance journalists, book authors, PR writers, etc."

On Writers & Strikes

After living in France, I really hate strikes. French workers seem like they'll strike if you look at them funny. Going on strike always felt like a form of blackmail, yet it can be an effective, and legal, tool to get things done. You can't talk from a position of power if you don't have a loaded gun readily visible... and the willpower to use it, even as a last resort after every attempt at amicable resolution has failed.

The Writers' Guild (WGA) is on the brink of a massive strike, so of course, I've got mixed feelings about it: if this strike goes ahead as planned, and continues until January, TV programs will start to get pushed around. After that, movies at the theatre will become affected. Basically, it's equal opportunity nastiness for everyone involved.

There's an old story about two children fighting over who should get the last slice of pizza. A parent overhears the argument and suggests they share the slice. But whoever cuts it, someone is probably going to get a larger slice... so the parent suggests that the first child cuts the pizza, and the second child selects which slice the first one gets. The result: both slices are exactly the same size.

This is the essence of any equitable negotiation—if each side can place themselves in the shoes of their adversary and design a solution preferable to their adversary, but solution which also seems fair for themselves, then the pizza has been cut exactly down the middle.

Thus, I've been following the WGA's conflicts with the AMPTP with great interest. Is one side asking for more of a pizza slice than the other? From what I've read, I don't think so, but then I haven't read what the AMPTP is saying about the negotiations. Obviously, as a writer, I'm biased towards the WGA's point of view, but if the WGA is only asking for what's fair and reasonable, why haven't they already gotten it? The AMPTP aren't villains with curly mustaches—they're people like anyone else and people always act to forward their own interests. Unfortunately, that approach doesn't always forward everyone else's interests. Why isn't the AMPTP agreeing to the WGA's demands?

I read this a half hour ago, from the WGA's Contract Captain Laeta Kalogridis:

I like the industry I work in. I have great respect for the men and women on both sides of the table—people I work with, and the people I work for. I get crazy with it, we all do, but at the end of the day I get to do what I love, and I’m grateful for that.

I’m also a working mother of two young boys, and the sole breadwinner for our family. I take my financial responsibilities very seriously, because they are serious.

This means, obviously, that I don’t want a strike.

But I also don’t want a terrible deal.

And for the last 27 years, here’s what’s happened to us as writers: slowly but steadily, we’ve lost, or had gutted, our rights on every new platform. VHS, DVD’s, cable, reality.

Now, for the first time in more than a quarter-century, we are refusing to back off of a new platform. We want to share in the new media and internet revenues that we are already helping create. They don’t want to share with us. It’s about that simple. Link.

I spoke to Hans about this a while back and he offered this insight on how a producer sees things: say you've spent 50% on overhead and you've promised 30% to residuals, and you keep 20% for yourself. What happens if your overhead rises to 70% or 80%? You go out of business. Obviously, producers want to make money in entertainment, but more importantly, they want to stay around long enough to do it. Residuals for a producer equal money out the door and that means less financial stability. I can't say I disagree with that perspective.

It got me thinking about the structure of financial remuneration in general. If you're a business owner, you put in sweat equity and your financial backers put in financial equity. You invest time, they invest money. Whatever profits are left over are usually split down the middle. But if your business requires employees, do they split that profit with you, too? After all, they worked for it as well. Right?

No. Employees are work-for-hires, and as such are given a static fee in exchange for their time. They work 40 hours per week, they go home, you pay them X amount, and they don't share the profits with you. But you work 100+ hours per week to make the business a success and split the profits of your hard work with your investors. It's like slicing that pizza.

The question is, are writers work-for-hire employees or business owners? They're acting as if they're business owners, but they're taking a salary check like work-for-hire employees.

Now, finally, we're at the core issue of this new world of distributing digital entertainment: ownership vs. licensing. If I bought a car from you, I would own the car and could do whatever I want with it and you can't say squat. Instead of a car, though, I'm buying your time, and when your time is up, you go home and you don't get to tell me what I do with the product you helped me create—that's the structure of a work-for-hire arrangement.

With licensing, everything changes. You retain ownership, but I control the car. I can't destroy the car without being accountable to you, but you can't tell me where I can and can't drive the car. Most importantly, if I make money with my new car, you are entitled to share in a small amount of those profits, otherwise known as residuals.

The clash of ideals is intrinsic when selling art. Is it still art after you sell it? Is art a commodity if you never sell it? Writers are artists, but the rules of commerce insist a price tag is put on their intellectual creations as if their property were a car.

So is the car bought outright? Or is it licensed?

Hollywood doesn't want business partners to split their profits... they want work-for-hires, even if a long tradition exists of offering back end points ("monkey points") on projects so bad that the producer can't get a proper budget to pay writers as work-for-hires. The movie business isn't like other businesses. How many other professions offer their employees back end points?

Furthermore, the car analogy breaks down when looking at the question of scale. For example, I can only buy a car from you once and sell it once, but I can buy an idea from you once—for $1—and then sell that idea a million times for a penny. If I sell it a million times and I own the idea, am I legally obligated to offer you a residual payment? I might be ethically obligated, but legally? Of course I wouldn't be legally obligated—because you had no obligation to sell me the idea at the price I was asking. But you did. And once you did, it became my idea, not yours.

And there's the issue.

The WGA is arguing (among other things) to be paid residuals for the reuse of their content... even though writers are work-for-hire employees. As Mark Kemp always used to say, "Perhaps I don't understand—you want to share the rewards, but you don't want to shoulder any of the risk? Can you please tell me how that's fair?"

Writers have the trump card, though. Their position is pretty reasonable: if a film they write makes no money, writers get paid no residuals. Yet if the film is wildly successful, writers should get a small slice of that pizza. They don't want the whole slice, but they would like something. This structure doesn't bankrupt producers, and it provides writers incentive to create wildly successful projects. Everyone wins.

Even so, producers will still grab whatever they can get, and they have a powerful reach. Case in point, Terry Rossio talks about his experience with Disney, and after reading this, it's really hard not to see the AMPTP as greedy zombies drinking the blood of newborn babies:

We are told, regarding royalties, that Disney's position on merchandising is that the characters, items, ships, locations, etc., are not described in enough detail in the screenplay in order to be considered anything other than generic. This allows them to sell a Jack Sparrow figure, dressed like the character from the movie, with scenes we created referenced on the packaging, and when you press a button Jack actually speaks six different lines of dialogue straight from the film—but that's really just a 'generic' pirate, and so you pay the writers nothing. (The way the legal definitions work, only the 'look' of the item matters, not what is spoken, and payments are made on the spoken words only if they are part of the separated rights agreement, such as a live performance.) My flight of fancy would be to manufacture the exact same figure saying the same lines and watch how fast Disney would sue for copyright infringement. Somehow they are able to hold the contradictory positions that the same figure that is indeed unique enough to be protected via copyright is somehow also not quite unique enough to qualify for merchandising payments to the writers.

To date, the WGA has a 90% strike authorization vote, and the Teamsters have decided to informally stand with the WGA (the Teamsters can't order their drivers not to cross picket lines, but their union can't punish anyone for individually deciding to cross the line). SAG has also voiced support for the WGA. That's bad news for the AMPTP.

I hate strikes, but in this case, it seems like the writers make a very good case, and AMPTP really hasn't been listening. Even if the AMPTP is right about the specifics of these negotiations, too many writers have been taken advantage of for way too long. Payback's going to hurt. Can you hear the world's smallest violins?

Further reading about the WGA, the AMPTP, and other entertainment news:
The Artful Writer
United Hollywood
Deadline Hollywood Daily

My Shortest Apposition, Part 2

This is a continuation of Friday's post, My Shortest Apposition, Part 1.

The film we'll be shooting is called My Shortest Apposition, a delightfully unmarketable title—were I shooting something with more mass appeal, like a feature where I had to guarantee my investor would make back his money, my title would be a little more accessible, not something that makes you go, huh?

An apposition is an interjected dependent phrase qualifying a larger statement, e.g., my car's engine, newly replaced, is sounding odd; or, Ross Pruden, a blogger who often pops up on Google searches, also directs movies.

SPOILER ALERT—this paragraph is in white text to protect those who'd rather wait until the project is finished; select it to read. In the case of this film, the title is a play on words—the entire film is one really long run-on sentence, a never-ending apposition; it is fact, my longest apposition... But the film leads up to my 6 month old daughter, who is actually my shortest apposition, an interjected dependent who qualifies everything in my life. (See "Inspirations" below to understand where this idea originated.)

Back to my problem. How do I integrate 16mm film format with miniDV?

The solution came from looking at the script, which is simply me listing things I'm certain of, things that make me cry, and thinks I love. So why not shoot all the MOS insert shots in film? My narration, then, would be entirely in miniDV and all the inserts would be 16mm. The leaves us with no problems with miniDV & synch sound, and we can shoot all the 16mm we want without worrying about the 16mm camera's noise. Grafting some of the new Digital Intermediate techniques, we'd telecine all the 16mm footage into miniDV and edit the movie on Final Cut Pro... with no intention of ever burning a copy back onto film as a true DI workflow dictates. We would be turning our weakness into a strength by integrating our format differences into a cool narrative motif... and learning a lot about both formats along the way.

Another reason I like shooting a short film is to become fluent in every aspect of filmmaking. I shot my 3 minute miniDV Metronome this way and learned about 1,001 lessons in the process. Consequently, whenever I produce/direct a film, no matter its length, budget, or number of crew, I like to produce it as if I have a million dollars in the bank. That means doing rehearsals, scouting locations, hammering down schedules for cast & crew, drawing up a detailed budget, negotiating the scheduling of shots (typically done with physical production strips, but also now done with Movie Magic Scheduling or Gorilla, or even Excel if you need to go on the cheap), creating and issuing call sheets (including directions), working out shot lists, doing storyboards, deciding costumes, preparing make-up... essentially, I like to treat a short film as if it were a Hollywood production. There are several advantages to this approach, but two big ones stand out:

1. You learn each aspect of filmmaking when working with the small toys so that you're ready and confident when you're working with the bigger toys.


2. How you present yourself to others says a lot about you. If you dress like a student, people treat you like a student, but if you dress like a pro, people treat you like a pro. (Furthermore, if you dress like a pro, your mind switches gears and you also start to think and act like a pro.) This is as true about filmmakers as it is for screenwriters. As John August says, "screenplays are read by people, not cameras." Don't write with grammar and spelling mistakes. And don't make films without call sheets!

Hans is flying in Saturday morning and back to L.A. on Sunday evening. Currently, we're firming up the shot list and storyboards and troubleshooting the really technical shots all this week. As they say in the biz, preparation prevents piss poor performance. With any luck, we'll have a film we're proud enough to submit to festivals.

INSPIRATIONS
The inspiration for this short comes from a bunch of places. I've put stuff that would spoil the film in white text; select it to read.

First, this brilliant short film from the makers of Delicatessen:


Another inspiration was a French short film called Routine. While I've never been able to find it on DVD, it's true genius: the entire film consists of lighting fast closeups of things we do every day: alarm gets turned off, peeing in the toilet, toilet is flushed, coffee gets ground, shower is started, soap is lathered, body is dried, coffee is poured, door locked, engine starts, etc. The whole day is covered and each day of the week follows it, except that the cuts are quicker for each day until Friday's cuts are a blur. Saturday slows down, and ends with a romantic visit from someone out of town. When Sunday's alarm clock goes off, the female visitor lazily turns it off and the film ends. Great film.

And then my dad read this quote to me years ago and I transcribed it because I loved it so much:

Haldeman-Julius, a man of Rabelaisian appetites, once replied to a priest when asked what he got out of life: "I told him I found life worth living because I enjoyed good music, fine pictures, great books, beautiful thoughts of truth and freedom, sane living, warm showers each morning, pleasant home life, charming people, lively talk, exchange of ideas, plays of sharp wit and worldly humor, beautiful women, tall glasses of orange juice, fresh trout, black bread smeared with home-made butter, crisp bacon, roast duck, thick steaks, lofty poetry, plays, magnificent orchestras, letters dictated by my grandchild, newly plowed land, dogs that eat well and then sleep quietly near the fireplace, oak and walnut logs that burn for hours and make the house smell sweet, milk that was grass five hours before, the long yawn that says it's time to turn in."
—The World of Haldeman Julius, Selected Writings of Emanuel Haldeman-Julius. Compiled by Albert Mordell. New York: Twayne Publishers, 1960.

Finally, a throw-away comment from Tom Clancy's Patriot Games. Jack Ryan is being pressed to make a judgement call that could result in an American covert action to neutralize terrorists. Admiral Greer asks him, "Tell me one thing you're certain of, Jack." And Ryan responds: "My daughter's love."

Later this week, I'll post a few pages of the script, its budget, call sheets, shooting location map, shot list, and storyboards. I always find it entertaining to follow an active case study, so hopefully others are out there just like me... like Stefano, Tyler, Ray, Meaghan, Rob, Susan -- you guys are the reason I keep writing!

My Shortest Apposition, Part 1

If you want to spend more time with your friends, do a project with them. —Josh Mehler

I've been quiet about this next film project I'm working on because there hasn't really been a need to talk about it, but I'm in the final stages of preparation for a short I'm directing a week from today. My old friend Hans, a highly talented still photographer, was finding himself spending an alarmingly disproportionate amount of time listening to DVD director commentaries. Finally, earlier this year, he emailed me with this singular resolute sentence: "Dude, we've got to make a film together."

Of all the people I know, Hans is certainly the most meticulous and I know he'd take the studying of, and the craft of, cinematography very seriously. Naturally, I was stoked he wanted to shoot something for real. The plan is one day to do features, and hopefully many of them.

Instead of horsing around with random shooting experiments, we decided to do a short film and learn about each stage of the filmmaking process. I strongly believe in the power of experiential learning: you can read a million books, take hundreds of lectures, even do correspondence clsses, whatever—in the end, the only way to gather and retain life lessons is to go out and make actual mistakes. Some schools embrace this philosophy by offering hands-on experience before you make expensive mistakes in the real world, but too often schools teach children to avoid making mistakes. Thus, Hans and I decided to use an experimental short film to make a bunch of mistakes and not feel too guilty about them. (NB: Depending on the goal of a short film, i.e., whether it's a souped up home movie vs. striving to win an Academy Award or some other prestigious award, I have firm opinions about how much money should be invested on short films.)

Initially, we were going to do this whole short in miniDV to let our hair down and really experiment, but then Hans bought a 16mm camera and we starting thinking of ways to experiment shooting with film, too. The problem is, film is expensive. It's expensive to develop, it's expensive to transfer to a digital format, and—if you go that route—it's expensive to transfer an edited digital version back onto film. Plus, adding sound into the equation is another financial headache. Video is an infinitely better medium to get your feet wet in filmmaking without completely jumping in. Nevertheless, Hans and I were moving in the direction of shooting a feature on celluloid, so why not learn sooner rather than later?

Great! I thought. This short will look beautiful if we shoot it on film. After all, shooting a film with celluloid is how Vin Deisel made his superb breakthrough short Multi-Facial (which Steven Spielberg saw and instantly hired him for Saving Private Ryan). But shooting in film would also skyrocket our budget... could we combine the financial advantages of video with the sublime beauty of film? More importantly, how could we shoot in 16mm without blowing so much money that we'd start to get gunshy? If our goal were to be experimental, we couldn't constantly be worried about burning film; it would kill any desire to embrace our mistakes and thus stifle our ability to learn.

As many of you know, I'm a huge fan of integration—if something doesn't belong in the story, it's gratuitous. If the bulk of your film is shot in video, you don't just shoot film because you can. It's weird and distracting and isn't true to the nature of weaving a compelling narrative spell. If you put something in, it needs to serve a purpose.

My next thought: shooting in film is expensive. That's its weakness. Film is also troublesome when doing synch sound, especially since the 16mm camera Hans bought was quite noisy. So if we shot anything in 16mm, it would have to be MOS (silent), or the camera would have to be so far away that the mic wouldn't pick any of the noisy reel clatter. How could we turn this weakness into a strength? And how could we integrate these two formats seamlessly?

Tune in tomorrow to find out...

Monkey Points

When Frank Capra was asked what made his films so appealing, he described his famous "Capra Touch", highlighting his choice of lighting, his great actors, and all manner of things... everything, in short, except the script. The next day, Capra received a script in the mail from a writer he'd recently worked with. Capra eagerly opened the script to find all 120 pages were totally blank. On the front page, the writer had scrawled: "Put the Capra Touch on this!"—Richard Walter, Screenwriting: The Art, Craft, and Business of Writing for Film and Television

Today I learned a new filmmaking term: "monkey points". This is odd because, having worked in low budget filmmaking for so long, you'd think I'd have heard about it sooner. I read it in the opening speech by John Bowman at the WGA's salary negotiations:

What other business but ours has the accounting term, "monkey points?"

What the hell?, I asked myself.

And here's what Wikipedia said:

In the motion picture industry, the term monkey points refers to the practice of many low budget production companies offering talent, such as actor or writer, a percentage of a film's profits, as opposed to a percentage of the film's gross, or a fixed salary. In this case, 'monkey' is intended to be derogatory. This term was coined by Eddie Murphy, who also stated that only a fool would accept net points in their contracts; always insist on gross points. Since such projects usually never make any money—at least on paper—the talent who accepts a percentage of the project's profits usually never makes any money. This is due to the infamous Hollywood accounting, where a studio manages to list every conceivable expense associated with running a studio as an expense of the film in question—eating up any gross profits. Writers and other lesser persons often get stuck with monkey points. Being a gross player, someone with enough clout to be given gross points, is not common in Hollywood.

I've been offered, and have taken, net points on films, and they rarely pay (although that's mainly because the films didn't make money, not because of the Hollywood accounting system). Usually, net points are used to convince you that the car you're driving is actually a beautiful painting, even though all evidence points to the contrary.

The fact that this term even exists is a sign for how creative financing can often be to get films made... and how foolish people are to accept this kind of lottery ticket salary. Writers are often stiffed in this process, especially when it concerns residuals. For example, of all secondary markets like broadcasting movies on TV, pay-per-view, and home video, the residual formulas dictate that writers are supposed to collect 1.2% of what the companies make, which the companies didn't want to pay, so in 1985, the companies decided to apply that 1.2% formula to only 20% of what they made. After two strikes by the WGA, the policy currently rests at the much-hated 1.5%–1.8% of 20% of what companies make on VHS and DVD.

So let's ask ourselves: if a screenplay is well written and the movie does well, doesn't the writer deserve a fair amount of that movie's residuals? Sure, producers and investors and actors all deserve a slice of the residuals pie as well, but without good writing, what is there to produce? What is there to invest in? What is there to act?

Nowhere was this salary divide clearer than when the new Battlestar Galactica produced webisodes to bridge the story from season 2 to season 3 and build buzz for its season 3 premiere:

The Webisodes themselves have caused a conflict between NBC and those involved in their development, relating to the royalties that the developers should receive. NBC Universal, the major studio behind the reimagined series, refused to pay or credit the webisode writers on the grounds that the webisodes were promotional materials. In response, Ronald D. Moore said he would no longer release any webisodes. NBC Universal then took control of the webisodes and filed an unfair labor practices suit against the Writers Guild of America. The Guild told Moore and other NBC Universal television show producers to halt production of any further webisodes until a deal over residuals had been reached.

Every three years, the Writer's Guild of America (WGA), and the Alliance of Motion Picture and Television Producers (AMPTP), meet to hammer out how much professional writers get paid, and for what kind of work (treatments, rewrites, polishes, etc.). The finished document is called a Schedule of Minimums, as in minimum payments writers are to receive. With the rising popularity of streaming media, the issue of residuals is again a key negotiating point because nobody knows how the revenue stream for online digital entertainment will play out.

This opening speech by John Bowman on behalf of the WGA's Negotiating Committee perfectly articulates the issues writers face in modern-day Hollywood (my highlights are in boldface):

There is a real disconnect between what the [production] companies are reporting to Wall Street and what they’re saying to the talent community. Investors are hearing about the changing landscape in entertainment and exciting new markets to exploit. In contrast, the AMPTP communicates nothing but problems to the Writers Guild. Problems like—and this was mentioned by AMPTP at a recent press conference—ad skipping, even though NBC Universal had just announced a one billion dollar DVR deal. And while WGA member revenues have not kept pace with industry growth—we are a line item that is definitely under control—the companies balk at giving us a fair and reasonable share of the industry’s success.

I don’t think anyone in this room is arguing about the right of writers, actors, and directors to residuals. As collective authors of a work, we are entitled to a portion of the revenue generated by that work. But you have publicly stated that you no longer want to pay us residuals on shows that are not in profit. Here’s why that is untenable: Writers are a cost of doing business. They have no say in production, marketing, on advertising and publicity, directors, casting, the decision to spend tens of millions of dollars advertising, etc. They can’t be expected to be paid from profits when they have no say in the costs which affect those profits. Profits are under the control of CEOs and their executive staffs.

Intellectual property has rights, just as physical property does. Management has no problem paying the person who made the DVD box before a film turns a profit; they shouldn’t have any problem paying the artists who created the intellectual experience that came in that box either. To claim that intellectual property has lesser rights than physical property is a dangerous argument for anyone in our business to make. You are making the same argument to us that digital pirates make to you.

According to Hollywood accounting, The Simpsons is not in profits. How can we trust that kind of bookkeeping? What other business but ours has the accounting term, “monkey points?”

Residuals from shows not in “profit help” support a writing middle class, and keep writers in the business until they finally create that one great thing. Do away with residuals, and you do away with late-blooming careers like Marc Cherry and David Chase - they couldn’t afford to stay in the business. Your proposal transfers money from developing, promising writers, actors, and directors who need them the most to established pros who need them the least. It’s bad for the business.

This article has been a summary of two excellent pieces from The Artful Writer:
John Bowman - First Shot Fired
The Average Writer's Non-Biased Guide To The Upcoming WGA Negotiations

Mmmm... Oreos. Don't you want one?

When actors spontaneously start talking about Oreos, or when films linger a little too long on a flying jet—long enough to make you wonder why they're showing it at all—that's product placement. Movies have used product placement for years as a financing tool, but now networks have graduated from product placement to product integration.

Product integration is when the product plays a more prominent role in the storyline, perhaps even a crucial one. Advertising has always had a love to hate relationship with entertainment, and Tivo has tipped the scales in the favor of the consumer. Thus, to hopscotch the consumers' trigger-happy DVR skip button, networks are now including prominent product placement in their series. And, in some cases, adding those products into the storyline.

With new developments come new complications. Consider the following ethical minefields:

• Advertisers pay networks to have writers insert a mini-ad within the story, and actors act out the scenes—so both writers and actors are now getting paid to do two jobs instead of just one: dramatic acting and commercial work. Theoretically, that should mean two separate paychecks, but the networks are divvying out only one. The Writers Guild and the Screen Actors Guild aren't real happy about that.


• What if a writer or actor disagrees in principle with product integration, or disagrees in practice about a specific instance where integrating the product makes the story suffer and breaks the story's emotional connection with the viewer? For a true entertainer, there can be no greater sin than this.


• What if a writer or actor simply refuses to do any product integration? Should networks be able to fire them with just cause? If not, do writers and actors have a right to refuse any product integration practices? Or would the networks effectively bully everyone into doing it for fear advertisers might yank their funding?


• How ethical is it to insinuate these informal ads into programs without informing the viewer about it? If you see an full page newspaper ad, but its layout is similar to a newspaper article, they slap a "PAID ADVERTISEMENT" label on it, so why shouldn't the networks do something similar? (And the answer is obvious: they would alienate their viewers.)


• Finally, what if I bought the DVD boxed set of the series (perhaps years after the show has aired)? Will the original advertisers of the "commercials" in the storyline—captured for time immemorial on DVD—continue to pay the networks any residuals? And if so, shouldn't the actors and writers get residuals, too?

Entertainment and how it's marketed is changing, but integrating products into storylines is a massively bad idea except if the story needs it, or improves because of it. How different would The Gods Must Be Crazy be if the pilot had thrown something other than a Coke bottle into the African dessert? If it serves the story, use it, but don't force it—viewers are smart and they can sense a con. Which is what this is—a con. Advertisers are conning the public into thinking our primetime heros spontaneously mention a product even though it's a deceptively embedded commercial. For advertisers, this is a new low. For networks, I don't know a better definition of "sell out" than that.

What about the flip side? If I'm a network exec and I have a choice to let my series go off the air, or compromise some of my ivory tower ideals... Star Trek: Voyager fans will recall that—two years on the air and suffering rock bottom ratings—Jeri Ryan's Seven of Nine character single-handedly resuscitated that series for another five years. Is that selling out? Well, maybe. But Ryan's smokin bod got viewers watching the program and she wasn't selling any products (apart from her own "brand"). Nothing wrong with grabbing a customer's attention with something flashy so you can do your spiel.

In fact, entire networks have tried to use product placement as their sole revenue stream: the failed Digital Entertainment Network was an online channel to exclusively fund their shows with product placement, with a clever twist: viewers were invited to shop on the website for any items appearing on the network's shows. Want that sweater the character's wearing? Why, here's a link to buy it! Thus, product placement was part of the appeal for watching entertainment on that site. Nothing wrong with that.

Here's Phil Rosenthal, the co-creator of Everybody Loves Raymond, testifying to a House Subcommittee about the perils of product integration:

Would you produce it?

If anyone has a good idea for film financing, please tell me.
—John Sayles, Thinking in Pictures: The Making of the Movie Matewan

Recently, I overheard an aspiring filmmaker and executive producer talking. The filmmaker asked the financier: "I'm making a short film. What kind of short do you think I could get financial backing for?" I wanted to pause the conversation, pull the filmmaker aside, and get him to ask himself the same question... as if he were a producer: would he produce his own short?

Financing is and always has been the most painful issue filmmakers face. The problem with filmmakers is that they're filmmakers, not producers. Everything would become clearer if they could only take off their filmmaker hat and put on their producer hat because producers want to invest in films that will make them money. Sure, film is art, with varying degrees of beauty (and beautiful people), but when the crew is wrapped, the game is still about how much money the financiers are going to make from their joint venture. Art or not, film is also commerce.

Oddly, filmmaking is similar to real estate: instead of buying a house for $100,000 and selling it for $500,000 after two years of equity appreciation, you're creating $500,000 of equity with only $100,000. And, just like real estate, you make money when you buy a product at a low enough price. Films like The Devil's Own (1997) with Harrison Ford, Brad Pitt, and director Alan J. Pakula—three of the hottest talent and crew (at the time) and an exhorbitant $90 million budget to prove it—are doomed before they ever leave the starting gate. Buy low, sell high. [Ray reminded me that films are also unlike real estate because they depreciate in value. While true, a filmmaker's library, if worthy enough, can eventually be sold for gobs of cash. Just ask Roger Corman who sold his 400-film library to Disney.]

The magic formula for financing films is the rule of four: a film should only cost a fourth of what it's expected to make in gross profits. Unfortunately, that could mean a Come To Jesus meeting which filmmakers don't want to hear. But that's the reality of it—if a film is only going to make $400,000, then that film's budget can't exceed $100,000. Is it even possible to make a film for $100,000? A good film? Even a great film? Of course, some successful films have been made on less, but they are by far the exception to the rule, mainly because their total costs soar after a major production company picks them up and massages them up to spec. Robert Rodriquez loves touting that he made El Mariachi for only $7,000, but if you include the costs of post-production sound, distribution, and advertising, the total bill probably exceeded $500,000.

Back to my eavesdropped conversation—what kind of short do you think an aspiring filmmaker could get financial backing for?

From a producer's point of view, the answer should now become obvious: except for some generous patron of the arts, filmmakers wouldn't likely get any financial backing because short films don't make money. There's no market for shorts... so why would anyone want to put money into them? (Unless you're going for the Academy Award for Best Short... but if you do that, all bets are off.)

At the heart of this financing conundrum is risk assessment. If I wanted to grow my money, I'd invest in stocks, real estate, or I'd build a business. While producing a film is similar to real estate, investing in films is similar to the stock market. You can't win on every stock you buy, but if you diversify your risk enough, you'll cover your ass by releasing Kevin Smith's tanker Jersey Girl with Ed Sanchez's runaway hit The Blair Witch Project.

From a producer's eyes:

1. Short films cost less... but aren't marketable, and are a higher risk investment than investing in a feature.


2. Feature films without named talent cost less... but aren't as marketable as features with named talent, so they're a higher risk investment.


3. Low budget feature films cost less, but their usual low quality makes them unmarketable, and thus riskier.

Strange as it sounds, if you want to produce really low budget films by cutting costs on actors, sound, editing, post-production, etc., then—in the eyes of a producer—you're actually decreasing your chances of getting financing.

Producers understand money, which breeds this singular truth: if you can convince a producer your film will make them $50 million, you can easily ask for $10 million to make that film. Of course, $10 million sounds like a ginormous budget to an aspiring filmmaker, but to a producer, that pile of gold assures them they're doing everything possible to protect their $50 million jackpot. New filmmakers operate under a false ceiling about how little their film is actually worth, but a film's ability to turn a profit, not its budget, is all that really matters to a producer. Budget is an afterthought, like a pricey insurance policy, which buys them peace of mind.

Thus, quite simply, the barriers to getting film financing are:

1. Find a money-making film idea


2. Convince producers it's a money-making film idea


3. Make money with that film idea

At San Francisco's Classically Independent Film Festival, I asked Kevin Smith, "What advice would you give aspiring filmmakers?" After thinking for a moment, he said, "Make sure you have a killer script. That's your secret weapon."

Great stories yearn to be retold... and that means money to any film producer. So ask yourself, if you were a producer, would you produce your own film?