An overview of the economics, financing structures and financial analysis of mid to high budgeted independent films. Presented at the 2015 Entertainment Finance Forum in Hollywood, CA.

1. FUNDAMENTALS OF
FILM FINANCE
ENTERTAINMENT FINANCE FORUM – LA
March 2015
Copyright © 2015 by Rob Ogden

2. Agenda
• Lecture on KeyTopics - 1.5hrs
• Walkthrough of F3 Financing Model - 30mins
• Hands-on Modeling Exercise - 45mins
• Q&A - 15mins
3Copyright © 2015 by Rob Ogden

3. LectureTopics
Sources of Gross Receipts
• Domestic and foreign proceeds
• Tax subsidies
The “Independent Model” of Film Finance
• Senior debt financing
• Equity financing
The ParticipationsWaterfall
• Cost recoupment and preferred return
• Forms of participations
Modeling Film Performance
• Comparable films analysis
• Ultimate returns projection
4Copyright © 2015 by Rob Ogden

4. Sources of Gross Receipts
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5. Domestic Revenue Sources
Theatrical Rentals
• Paid from exhibitors (theaters) to distributors
• Typically 40%-50% of box office receipts
HomeVideo
• Packaged media (DVD) and “electronic sell-through” (iTunes, Google Play)
Pay Per-View
• Traditional TV PPV and electronic rental (VOD)
PayTV
• License payments from pay networks (HBO, Starz) and SVOD services (Netflix, Amazon Prime)
FreeTV
• License payments from broadcast and cable networks (NBC, Fox,TNT)
Other
• Merchandising, soundtrack sales, theme parks, etc.
Copyright © 2015 by Rob Ogden 6

6. Domestic Costs
Prints & Advertising (P&A)
• Cost of television spots, print media ads, outdoor advertising
• Cost of creating and distributing physical film prints to exhibitors
• May incur P&A financing cost
HomeVideo Cost
• Cost of creating and distributing packaged media (DVD) units and digital versions
TV Cost
• Cost of creating and distributing television versions toTV networks and SVOD service providers
Domestic Residuals
• Share of non-theatrical revenues paid to guild members (SAG, DGA,WGA, IA)
Distribution Fee
• Retained by distributor and calculated as a percentage of all domestic revenues
Distributor Backend Share
• Retained by distributor and calculated as a percentage of net proceeds from
Copyright © 2015 by Rob Ogden 7

7. Sample Domestic Ultimate
Ultimate: a projection of the total revenues and costs a film will generate during its “first
cycle” (7-10 years from theatrical release)
Copyright © 2015 by Rob Ogden 8
1 DBO 64,000,000
2 Receipts
Theatrical 29,440,000
Home Video 40,960,000
PPV 10,240,000
Pay TV 10,880,000
Free TV 5,760,000
Other 320,000
Total Receipts 97,600,000
3 Costs
P&A (25,000,000)
Home Video (14,950,400)
TV (268,800)
Residuals (4,771,200)
Total Costs (44,990,400)
4 Net Receipts 52,609,600
Distribution Fee 17.5% (17,080,000)
MG Recoupment -
P&A Financing Cost 8.0% (2,000,000)
Net Remaining 33,529,600
Distributor Share 20.0% 6,705,920
5 Production Company Share 80.0% 26,823,680

8. Foreign Revenue Sources
Minimum Guarantees (“MG”)
• Key source of foreign revenue for independent films
• A license payment made by a foreign distributor upon delivery of the finished film and any related
materials (trailers, video masters, etc.)
• Deal terms typically include a cash deposit of 10%-20% at close
• “Presales” refer to minimum guarantee distribution contracts entered before or during production
of a film and can serve as the primary source of collateral for accessing senior debt financing
Foreign Overages
• Amounts due to the production company after foreign distributors have recouped their minimum
guarantee payments from net receipts in their territory
• Not a reliable source of revenue as reporting from foreign distributors can be limited and legal
remedies (audit, arbitration, etc.) are minimal given the logistics and associated costs
Copyright © 2015 by Rob Ogden 9

9. Sample Foreign Sales Sheet
TakeValue: an estimate of the minimum guarantee sale price for a foreign territory
Copyright © 2015 by Rob Ogden 10
BUDGET: 35,000,000
ESTIMATES ACTUALS
TERRITORY DISTRIBUTOR TAKE % of BUDGET MG % of BUDGET
ENGLISH SPEAKING
United Kingdom Entertainment One 3,850,000 11.0% 3,850,000 11.0%
Canada Entertainment One 2,100,000 6.0% 2,100,000 6.0%
Australia/New Zealand Village Roadshow 1,050,000 3.0% 1,050,000 3.0%
South Africa Ster Kinekor 175,000 0.5% 175,000 0.5%
Airlines Cinesky 175,000 0.5% 175,000 0.5%
TOTAL ENGLISH SPEAKING 7,350,000 21.0% 7,350,000 21.0%
EUROPE
Benelux RCV Entertainment 875,000 2.5% 875,000 2.5%
France Metropolitan 3,150,000 9.0% 3,150,000 9.0%
Germany Constantin 4,200,000 12.0% 4,200,000 12.0%
Switzerland Ascot Elite 175,000 0.5% 175,000 0.5%
Greece/Cyprus Italia Film 280,000 0.8% 280,000 0.8%
Iceland Sam Film 70,000 0.2% 70,000 0.2%
Italy MovieMax 175,000 0.5% 175,000 0.5%
Portugal Lusomundo 175,000 0.5% 175,000 0.5%
Scandinavia AB Svensk 1,050,000 3.0% 1,050,000 3.0%
Spain Telecino 1,400,000 4.0% 1,400,000 4.0%
TOTAL EUROPE 11,550,000 33.0% 11,550,000 33.0%
(Partial List)

10. Tax Subsidies
Tax Credits and Rebates
• Federal, state and municipal incentive programs which are currently active in more than half of the
US states and many foreign nations
• May require passing certain qualification tests such as: minimum spend in the territory, minimum
days in the territory, film council screen credits, “cultural tests” and others
• Value typically calculated as a percentage of “qualifying spend” made within the territory - the
definition of which varies from territory to territory
• Awarded to productions upon audit and certification of qualifying spend
• Estimated net proceeds from tax subsidies can serve as a key additional source of collateral for
accessing senior debt financing
Copyright © 2015 by Rob Ogden 11

11. The “Independent Model” of
Film Finance
Copyright © 2015 by Rob Ogden 12

12. Senior Debt Financing
Overview
• Key source of production financing for independent films available from commercial banks
specializing in “single picture” financing
• Requires a completion bond – a third party guarantee that the film will be completed and delivered
to distributors according to agreed technical (not creative) standards
• Borrowing capacity calculated as discounted collateral less deductions
Collateral Sources
• Presales Receivables - the balance of MG payments due at delivery, discounted territory-by-
territory based on the credit risk of each foreign distributor
• “Gap”Credit - calculated as a percentage of the remaining unsold foreign take values, the rate for
which is determined by the credibility of the foreign sales agent who issued the take estimates
• Tax Advance - the estimated net receivable from tax subsidies, discounted based on the credit risk
of the territory providing the subsidy
Deductions
• Sales Fees and Residuals - projected sales fees and residuals related to presales collateral
• Interest & Fee Reserve - projected interest and fees related to the Senior Loan
Copyright © 2015 by Rob Ogden 13

13. Sample Finance Plan
Equity Financing: remaining capital needed to finance the film’s Cash Budget after the Senior
Debt and Presales Deposits used in production
Copyright © 2015 by Rob Ogden 14
1 Budget
Cash Budget 35,000,000
ProdCo Overhead 2.5% 875,000
Total Negative Cost 35,875,000
2 Senior Debt
Gross Collateral
Presales 23,170,000
Unsold Foreign Take Value 1,330,000
Tax Subsidies 7,000,000
Total Gross Collateral 31,500,000
Borrowing Capacity
Presales Credit 80.0% 15,936,326
Less: Sales Fees (1,506,050)
Less: Residuals (1,042,650)
Presales Principal 13,387,626
Gap Credit 35.0% 465,500
Tax Advance 85.0% 5,950,000
Senior Commitment Amount 19,803,126
Less: Interest & Fee Reserve (1,435,727)
Net to Production 18,367,399
3 Presales Deposits 3,249,593
4 ProdCo Equity 13,383,008

14. The Participations Waterfall
Copyright © 2015 by Rob Ogden 15

15. KeyWaterfall Elements
Gross Receipts
• Domestic Receipts - total production company share of domestic proceeds and any domestic MG
(if applicable) paid by the domestic distributor
• Foreign Receipts - total minimum guarantees and overages paid by foreign distributors
“Off-the-top” Costs
• Domestic Sales Fee - fee paid on Domestic Receipts to domestic sales/packaging agent
• Foreign Sales Fee - fee paid on Foreign Receipts to foreign sales agent
• Sales Expenses - actual out-of-pocket expenses of sales agents for marketing the film
• CAM Fees - fee paid on Domestic and Foreign Receipts to the Collection Account Manager
• Foreign Residuals - share of non-theatrical Foreign Receipts paid to guild members
Production Company Recoupment Corridors
• Negative Cost Recoupment - Cash Budget net of tax subsidies, recouped first from Net Receipts
• Preferred Return - percent of Negative Cost Recoupment recouped second from Net Receipts
Net Participations
• Share of defined net profits paid to Producers, Director, Writers and Cast
Copyright © 2015 by Rob Ogden 16

16. Additional Forms of Participations
Gross Participations
• Calculated either based on “first-dollar” at-source revenues from domestic distribution (if domestic
distributor agrees) or based on Domestic and Foreign Gross Receipts actually received by
Production Company
• Typically recouped out of participant’s share of net profits
Box Office Bonuses
• Fixed dollar amounts paid to participants when domestic box office receipts reach certain
thresholds
• Allows for highly transparent contingent compensation based upon publicly available information
• Typically recouped out of participant’s share of net profits
Copyright © 2015 by Rob Ogden 17

17. Sample ParticipationsWaterfall
Copyright © 2015 by Rob Ogden 18
2 Gross Receipts
Domestic Receipts 26,823,680
Foreign Receipts 24,500,000
Total Gross Receipts 51,323,680
3 Costs
Domestic Sales Fee 5.0% (1,341,184)
Foreign Sales Fee 6.5% (1,592,500)
Sales Expenses (175,000)
CAM Fees 0.6% (318,207)
Foreign Residuals 4.5% (1,102,500)
Total Costs (4,529,391)
4 Net Receipts 46,794,289
5 Negative Cost Recoupment (28,875,000)
Net Remaining 17,919,289
6 Preferred Return 12.5% (3,609,375)
Net Remaining 14,309,914
7 Net Participations
Producer(s) 15.0% (2,146,487)
Director 10.0% (1,430,991)
Writer(s) 10.0% (1,430,991)
Cast 15.0% (2,146,487)
Total Net Participations 50.0% (7,154,957)
Net Remaining 7,154,957
8 Total Production Company Proceeds 39,639,332
Production Company Proceeds: equal to Net Receipts less Net Participations

18. Modeling Film Performance
Copyright © 2015 by Rob Ogden 19

19. Comparable Films Analysis
Overview
• Primary method of projecting box office performance, the key driver of overall film performance
• Comparable film selection requires both objective comparison (budget, screen count) and
subjective analysis of a film’s elements (story, genre, star power, director ability, etc.)
Comparable Film Selection Process
• Identify largest possible sample set of comparable films based on objective and subjective factors
• Use average of comparable film WWBO to determine BaseCase projection (one approach)
• Project Low and High performance cases to analyze range of results
SampleComparable Selection and Performance Cases:
Copyright © 2015 by Rob Ogden 20
TITLE YEAR DIRECTOR STAR(S) BUDGET DBO IBO WWBO DBO/Budget
1 A Walk Among the Tombstones 2014 Scott Frank Liam Neeson 28,000,000 26,307,000 26,874,000 53,181,000 0.94x
2 Non-Stop 2014 Jaume Collet-Serra Liam Neeson 50,000,000 92,168,000 130,641,000 222,809,000 1.84x
3 The Grey 2012 Joe Carnahan Liam Neeson 25,000,000 51,580,000 25,698,000 77,278,000 2.06x
4 Unknown 2011 Jaume Collet-Serra Liam Neeson 30,000,000 63,686,000 67,100,000 130,786,000 2.12x
5 Taken 2009 Pierre Morel Liam Neeson 25,000,000 145,000,000 81,829,000 226,829,000 5.80x
Average (Median) 28,000,000 63,686,000 67,100,000 130,786,000 2.06x
PERFORMANCE CASES
Low Base High
DBO 41,600,000 64,000,000 86,400,000
IBO 43,550,000 67,000,000 90,450,000
WWBO 85,150,000 131,000,000 176,850,000

20. Ultimate Returns Projection
Invested Capital
• Equity funded by Production Company
Total Proceeds
• Net amount recouped by Production Company from the Participations Waterfall
Financing Costs
• Repayment of Senior Loan principal, interest and origination fee
Return Metrics
• Net Returns to Equity -Total Proceeds net of Financing Costs
• Net Profit - Net Returns to Equity less Invested Capital
• MOIC (Multiple of Invested Capital) - Net Returns to Equity divided by Invested Capital
• IRR (Internal Rate of Return) – time-weighted rate of return on Invested Capital (requires timed
model)
Copyright © 2015 by Rob Ogden 21

21. Sample Returns Summary
Copyright © 2015 by Rob Ogden 22
Production Company Returns
Equity Funded 13,383,008
Cost Recoupment 28,875,000
Preferred Return 3,609,375
Net Profit Share 7,154,957
Total Proceeds 39,639,332
Less: Senior Principal Repayment (18,367,399)
Less: Origination Fee (396,063)
Less: Senior Interest Expense (964,288)
Net Returns to Equity 19,911,582
Net Profit 6,528,574
MOIC 1.5x

22. F3 Financing Model
Walkthrough
Copyright © 2015 by Rob Ogden 23

23. Hands-On Modeling Exercise
Copyright © 2015 by Rob Ogden 24

24. Prospective Project Details
Title The Gunman
Budget $50mm (estimated)
P&A $35mm
Genre Thriller/Action
Producers Joel Silver, Andrew Ronna, Sean Penn
Director Pierre Morrel
Writers Don MacPherson, PeteTravis
Stars Sean Penn, Javier Bardem, Idris Elba
Copyright © 2015 by Rob Ogden 25