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in Filmmaking
on May 4, 2008

Over at his CinemaTech blog, Scott Kirsner writes about the new Seattle-based IndieShares, which is another one of those “democratize the process” companies that has sprung up around some aspect of the film business. Democracy, of course, is (mostly) good. Filmmaker‘s mission statement even includes the goal of democratizing the production process for beginning filmmakers. And last week I interviewed Lance Weiler and learned more about his From Here to Awesome festival (which I’ve concluded is a really cool and good thing, and I’m not just saying that because I know Lance and he’s a writer for the magazine), and he also talked about how FHTA is all about democratizing the process of marketing and distribution.

The new IndieShares aims to democratize another aspect of filmmaking: the investor experience. It joins a number of new ventures using the social networking and educational functions of the internet to bring production dollars to filmmakers. But whereas other companies, like IndieGoGo, make their pitch in more holistic terms, promoting their sites as places for filmmakers and investors to discover each other and make movies around shared interests, IndieShares seems primarily about pitching the thrill of the idea of feature-film investing to a mainstream audience.

From the site:

…the independent film revolution is about connecting audiences with movies by more than just buying a ticket. It’s about making you a part of the experience. After all, why spend $10 on a ticket when you can own a piece of the action for the same price?

And from the site’s FAQ, here’s the answer to “Why should I invest in a film project?”

Because you’ll get to be an integral part of the production process as an executive producer. Not only will you get to see the film come together firsthand, but you’ll also have exclusive access to interactive content such as clips from the shoot, chat sessions with the talent, and bragging rights to your friends. Again, please be aware that there is no guarantee that you will make a return on your investment and there is a risk that you may lose some or all of your investment depending on the success of the individual film. Please review the “Risk Factors” section in the applicable offering statement.

Whenever I’ve raised private equity for a film project, I’ve done it the traditional way via a private placement memorandum and subscription agreement given to accredited investors only. (Accredited investors are often individuals with over $1 million in net worth.) And I’ve also tried to find as few investors as possible. The fewer people, the easier it is to deal with them and to satisfy their desires to really participate in the process.

IndieShares is taking the opposite approach. You don’t have to be an accredited investor (that’s the democratization part), and shares are priced at only $10. You can buy anywhere from one to 250 shares, meaning that a $5 million film has to have anywhere from 500,000 to 2,000 investors. (I’m not a tax and investment expert, but I’m sure that some of these numbers have to do with securities requirements. I also notice that, at present, the site can only accept investors from 17 states.)

Significantly, as the FAQ responsibly notes, that “integral part of the production process” doesn’t include the most standard of investor perks, a ticket to the premiere. (In fact, one of the site’s arguments for having so many people contribute to the financing of a film is that investment scheme this will naturally enlarge the paying audience for each produced movie.)

To its credit, the site is clear-eyed about the profit potential of an independent film investment. They repeatedly tell people that they could lose all their money. Still by primarily selling the investor experience and then by diluting down that experience so much (no set visits!), I don’t think IndieShares is doing independent film any favors. Let’s face it, most one-time-only indie film investors lose their money, and what benefit they do gain from the experience comes from either being closer to the production process than will be possible via the IndieShares model or by enabling a worthy project that they themselves also feel passionately about.

So far, the three pitches on the IndieShares site don’t seem so impressive. Furthermore, the site tells you virtually nothing about the writer/directors (I’m assuming the writers are directing, although it’s not really clear), nor anything about who the collaborators on the project (d.p., editor, etc.) might be. (There is info about the IndieShares principals. Founder Jay Schwatz has done business development for companies like Nike; CFO George Brumder was a v.p. of finance at Washington Mutual. There’s also a small advisory board that includes producer and director Eugene Mazzola, whose company will apparently produce the first selected script.)

How were these initial three films selected? Through a “proprietary Indiescore process” that ensures that only “quality scripts enter the production process.” And what goes into that IndieScore? They won’t tell you — that, they say, is “their secret sauce.” In other words (and the way I read it), you cede the development process to a small group of executives and their vaguely technocratic process, and then the resulting three projects are uploaded on the site in the form of script summaries and video pitches for you to vote on. The winner then gets fast-tracked into a $5 million production that’s bonded with a professional crew and you get to see streamed dailies and participate in web chats with the talent.

But here’s what’s staggering — at least in the initial stage, you can’t read the scripts! I searched around the site for a link to the screenplays and found none. Anybody knows that screenplay writing is 10% concept, 90% execution. The idea that you are being pitched an investment for a film that you can’t read the screenplay for is unfathomable to me. (I must be missing something here. This statement from the site — “Does he drive off a cliff? Does she get the guy? You tell us—it’s Your Movie” — implies that there is some kind of development process that must kick in at a later date. I wonder how many reshoots these films are budgeted for…)

Online film investment is a really tricky area, and I commend IndieShares for trying to dot all the i’s and cross the t’s when it comes to their paperwork. Schwartz has a post in CinemaTech’s comments thread where he goes into a bit more detail about how the company is complying with SEC regulations. Although here again is something weird. The biggest variable in independent film — distribution — is barely addressed on the site. The company simply says it will try to secure distribution for the finished films What if it fails? From the FAQ:

The film’s management has a legal obligation to the preferred shareholders to secure the best sales or distribution deal. In the event that a film cannot be sold or distributed, management has the right to purchase the film from the preferred shareholders at fair market value. This ensures that the sales effort does not go on indefinitely.

Potential investors, I got news for you — the “fair market value” of a film that, like the majority of independent films produced, is rejected by all distributors could be zero.

Finally, though, my beef with IndieShares revolves not around business issues but around what I see as its simplistic promotion of concepts like “democracy,” “It’s Your Movie,” and even “independent film” as a means of building a company around movies that don’t appear to have strong artistic identities. What independent film needs now is not another technocratic financing model, contest, or gimmick-y come-on (does anybody even remember any of the Project: Greenlight films?), but rather ways to build communities linking passionate creators with energized audiences based on shared values and specific interests. That and a saner distribution model that finds ways to cost-effectively place these films in front of these viewers. I don’t see IndieShares doing any of this.

But then again, maybe I’m not the target audience. Here’s a comment from a respondent to the company’s blog: “I like this idea. I could get used to telling people I’m in ‘The Biz.'”

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