Within the Hollywood film production business, there are two categories of Film production: A Studio film; and an Independent Film (commonly called an Indie by Hollywood insiders)
A Studio Film is produced and created by a large Film making company and always invests higher amounts into production than the normal Indie.
Ten major studios produce studio films as compared to hundreds of Independent Film Companies.
A studio film has a facility and normally multiple facilities to build production sets within and lots of funding to build expensive sets outside of the studio. A Studio film normally uses ‘A’ list actors and the cost for those actors is usually way more than the Indies. A studio film normally stays with the conventional movie plots and stories that appeal to the general public audiences taking a little risk of failure.
Independents are much more apt to use plots and storylines that the Filmmakers elect to manifest their artistic natures. However, Independents also create low budget normal films on low-cost sets, commonly called ‘B’ films. These ‘B’ films are often targeted to foreign markets as well as marketing them to television networks.
An Independent film is building your own company every time you want to make a movie. Commonly they are funded by a combination of foreign pre-sales and an equity investor.
These films are generally bonded with completion bonds, but not necessarily. Without completion bonds, no institutional investor is used, going with a plain equity funder from beginning to end. Requiring a completion bond also puts constraints on the film such as who the cast is, who is directing it, the timeline of the shoot, the distribution companies, and their presales contracts, amongst other more minor requirements. Commonly, an Independent Film can range from $12000 to $70 Million. A Studio film will start at $30 Million and range to $250 Million.
Studio Financing is a templated-out system done the same way each year multiple times. It is mainly within the same set of companies and the studios can own the domestic theater release which guarantees the all-important promotion with Box Office receipts. A studio film’s ‘A’ list cast and directors as well as the studio’s brand name also guarantees a return to the studio and/or institutional investor of the principle used to create the movie.
Financing an Independent film imposes more risk than a studio film and more complicated risk than a studio film but far more upside potential for a successful film. If the budget to finance an Indie is to low to hire marquee talent, then there are no presales or guaranteed revenue from any venue and the filmmaker must sell the film based on the finished product. Most of these films do not find distribution and will loose for the investor, the entire production cost. If the Independent producer does find an equity partner with a $1 Million plus investment, he can sign a cast to guarantee a production budget return by presales, however, the production budget has to match the marquee talent return or part of it will be lost if the movie does not do well. To get an Independent Financier to forgo the risk of moving production funding to an account for the production of a movie and having the movie not be made is that the financier often requires that the marquee talent sign Letters of Intent (LOI) make the movie. Usually, these LOI’s are based on a script and a director being attached.
To get the talent attached, it normally requires a producer to put up 10% of the talent fee. This puts the producer at high risk because he then has to get the equity player to invest in the film package or has to get the filmmakers to make the movie on a low presales budget. A screenplay with the attached cast and director is often called a film package and many times Agencies that represent marquee talent will put together the package attaching the talent.