Searching for Sugar Man: Changes to available finance
November 6, 2018
The increase of foreign language, internationally oriented productions applying state subsidies has led to the local film institutions to consider their involvement in supporting them. There seems to be a shift in the attitudes within the local institutions, especially Danish, to demand a more significant local cultural presence in the films they grant support for. Claus Ladegaard, the CEO of the Danish Film Institution explains that moving forward, the institute will only support English language titles if the project is culturally connected to Denmark, or if the film has very high artistic value; for example, the institute will continue to support the works of Lars von Trier and Nicolas Winding Refn.
On the other hand, in Finland, the Foundation remains open to support foreign language films and justifies the decision by promoting the local industry and local production companies, as well as allowing the intellectual property rights to stay in Finland.
‘For us, the foreign language films are in the same position. Along with local films and art house titles, we also need to be able to support these bigger international projects, because internationalisation is part of our strategy. We want the Finnish production companies to succeed abroad.
Head of Production and Development
Finnish Film Foundation
Perhaps, the difference in attitudes derive from the different status of each industry; the Danish and Swedish film industries have boosted successful film exports for decades, whereas the Finnish industry remains smaller in size as well as less known internationally. Hence, supporting the more commercial efforts of Finnish production companies is more justifiable to ‘catch up’ with the Nordic neighbours.
As an alternative source of financing, also private investors are entering the Nordic market, which a decade ago would have been a rarity. The prospects of international distribution and the success of Nordic crime content has encouraged both private equity investors and senior financiers to the field. One of those companies is IPR.VC, a venture capital investor, which is currently raising capital to double its €20M fund and move to pan-European financing. So far, the company has funded 14 media projects, mainly of Finnish origin, but with international potential, including Tom of Finland (Karukoski, 2017) and The Guardian Angel (Halonen, 2018). In an interview in August 2018, Timo Argillander, the Managing Partner and co-founder of IPR.VC explains the business model as follows:
Our comfort zone is films within a €3-10M budget range. Films in that level tend to include a good amount of soft monies, resulting in a favourable recoupment schedule. In addition to our position in the waterfall, we always take a backend profit share. Our model is based on roughly every 10th investment being a more significant success with larger backend profits.
We are looking for projects that have an international theme; we are not interested in the local comedies. Secondly, we want to ensure that the producers are seriously committed to aiming high. Majority of producers just want to get a film into production, but we try to get to know the producers to ensure they really want to succeed and also for them to understand that we require that.
Regarding the status of the market, Argillander is optimistic:
Our outlook is that there is no reason why Finnish originated content could not be something big and international. There has not been many yet, but I don’t see a reason why there could not be in the future.
The Nordic countries have also recently entered the incentive race by introducing tax rebates. In 2016 Norway introduced a 25% tax rebate followed by Finland, in 2017 (Danish Film Institute, 2018). The Finnish tax rebate application criteria include a demand for 10% foreign investment in the project as well as a minimum budget of €2,5M (Business Finland, 2018). In Norway, the minimum foreign investment is 30% and minimum budget 25M Norwegian krones equalling roughly €2,5M (Norwegian Film Institute, 2018). This combination of factors inherently excludes the average local language films from applying and positions the rebate for commercial, internationally oriented projects.
Regional film funds are also essential financiers in Sweden, Norway and Denmark. They vary in nature, providing either investments or support against regional spend. Some of them, including Film i Väst in Sweden and The Copenhagen Film Fund in Denmark prioritise investing in internationally oriented films, potentially providing a needed source of finance to compensate the declining support from the institutions (Film i Väst, 2018) (Copenhagen Film Fund, 2018).
Some producers are even entirely moving away from the local subsidies. Regarding the international projects of SF Studios, including a US remake of A Man Called Ove, starring Tom Hanks, Fredrik Wikström Nicastro points out that these films will no longer be financed by the local subsidy systems but with a combination of pre-sales, tax credit, equity and debt. Additionally, the international films ‘will not be relying on the box office from Sweden but rather on the film performing in the US, UK, Germany, France and elsewhere’ (Wikström Nicastro, 2018).
Of course, these projects need to be very commercial and have big actors in order to get made. There are other Nordic producers who are producing in the English language, but most of them are doing it the way we did Borg vs McEnroe but that is not our strategy moving forward.
Fredrik Wikström Nicastro
This international financing model, of course, requires the production company to heavily invest in development and is not a real alternative for the majority of the smaller and mid-sized companies in the region. However, if SF Studios’ strategy turns out to be successful, it can perhaps aspire other companies to do the same. This way the subsidy systems could focus on supporting those companies that have not yet achieved the level of economic sustainability needed to attract private investments with the idea of, eventually nurturing some of the companies out of the subsidy system. An independent research report from Olsberg SPI titled Building sustainable film businesses suggests that local screen agencies consider a new activity; the creation of an advisory function that on a very selective basis would work with film businesses with real potential in leading them to strategies for sustainability and ultimately to sources to private funding (Olsberg, 2012).
If successful, then perhaps in the future, alongside the subsidy led local language market, the region could also support a non-subsidised internationally oriented section of the industry similar to that of the traditional US/UK independent market.
*This blog post is part of a larger research project titled: Searching for Sugarman - How, why and to what effect are Nordic producer turning to English language to obtain growth and sustainability for their business.
*For full bibliography as well as an outline of research methods and interviews, please refer to the first post in the series - which can be found here.