The Opportunity to Invest in Film Financing Through Secured Debt
By E.J. Kavounas
In recent years, the way films and television projects are financed has evolved considerably, with major studios like Netflix, Warner Bros., and Amazon often funding projects directly from their own balance sheets. These vertically integrated giants produce, distribute, and exhibit their content across global streaming platforms, allowing them to absorb the financial risk and retain the lion's share of profits. However, a significant number of films and television series, including those that eventually appear on streaming platforms or in theaters worldwide, are not studio-backed but instead financed independently. These independently produced projects offer an underexplored investment opportunity, especially in the realm of secured private debt.
Understanding Independent Film Financing
Independent film and television projects are typically financed through a mosaic of funding sources. These include equity investments from high-net-worth individuals, family offices, and private equity firms, combined with soft money such as government grants, tax credits, and rebates. In many cases, producers must also secure loans from private lenders to cover budget gaps.
Equity investment is often seen as the riskiest component of the financing stack. These investors are last in line to recoup their investment and only see returns if the film performs well at the box office or garners significant licensing deals. To help mitigate this risk, some investors rely on federal tax incentives such as IRS Section 181, which allows for an immediate deduction of qualified production expenses. Internationally, similar risk-reduction mechanisms exist, including production grants in Canada, the UK, Germany, and Australia, all of which aim to stimulate local film production by returning a percentage of the budget to qualifying projects.
Yet, beyond equity lies a more stable and potentially lucrative corner of the film financing landscape: secured debt. This form of investment is far less dependent on a project's commercial success and more reliant on pre-arranged financial structures, making it attractive for investors seeking lower-risk exposure to the entertainment industry.
What Is Secured Debt in Film Finance?
Secured debt in film financing involves lending money to a film or television project with the backing of tangible or contractual assets. These assets may include:
Tax Credits and Rebates: Many U.S. states and foreign governments offer refundable cash rebates or transferable tax credits for qualified production expenses. For example, Georgia, New Mexico, and Louisiana in the U.S., and countries like Canada and the UK, provide significant credits that can total 20% to 40% of a production's local spend. These credits are typically assigned to a lender as collateral and repaid when the credit is monetized (either through a sale or refund from the state).
Pre-Sale Contracts: Independent producers often secure distribution deals in advance of production. These contracts guarantee payment from international or domestic distributors upon delivery of the completed film. A lender may advance funds against these contracts, with the sales revenue acting as repayment.
Gap Financing: In certain cases, lenders will finance the "gap" between what a producer has already raised and the total production budget. This is generally based on projections of future revenue from unsold distribution territories or rights. While riskier than tax-credit or pre-sale backed loans, these still involve a degree of structure and collateral.
How the Process Works
A typical secured lending process begins with the production company providing a comprehensive financial plan to the lender. This plan includes:
A detailed production budget and schedule
Copies of confirmed pre-sale agreements
Letters of intent for tax credit eligibility following a pre-production audit, often from a local accounting firm, that provides an Opinion Letter based on spend and legislation.
Completion bond (an insurance policy that ensures the film will be finished on time and on budget)
Cash flow schedule detailing when expenses will be incurred and when revenues are expected
Once the lender verifies the collateral, it structures a loan that may cover 30% to 70% of the production budget, depending on the strength of the security. The loan is usually repaid within 12 to 24 months, with interest rates ranging from 8% to 15% annually, depending on risk profile and collateral quality.
Why Investors Should Consider Secured Debt
Investing in secured debt for film and television projects offers several distinct advantages:
Reduced Risk: Unlike equity, which depends entirely on the project's success, debt investments are backed by assets with known or contractual values.
Attractive Yields: Interest rates can be significantly higher than traditional corporate bonds or treasury notes.
Shorter Duration: Loans are often repaid quickly, sometimes within a year, allowing for higher liquidity and faster reinvestment opportunities.
Portfolio Diversification: Entertainment lending is uncorrelated to stock and bond markets, offering an alternative asset class that behaves differently during economic cycles.
Cultural Impact: Investors can contribute to the creation of artistic works and cultural products, sometimes receiving credits, invitations to premieres, or other non-financial perks.
Understanding the Risks
Of course, no investment is without risk. For secured debt investors, the primary concerns include:
Production Delays or Failures: If the project is not completed, the tax credits or pre-sale contracts may not be triggered.
Regulatory Changes: Tax incentive programs are subject to political and budgetary shifts, which could impact availability or timing.
Counterparty Risk: The solvency of distributors and tax credit buyers must be vetted, as delayed or defaulted payments could impact returns.
Completion Risk: While completion bonds help mitigate this, some projects still run over budget or behind schedule.
These risks are typically addressed through rigorous due diligence, third-party oversight (such as completion bond companies and audit firms), and well-structured legal agreements.
Emerging Trends
The popularity of private debt in entertainment has increased in recent years. While boutique finance firms have helped expand access to this market, it is worth noting that some traditional commercial banks also provide film financing, particularly for the most secure collateral such as tax credits. However, these institutions often struggle to offer the level of leverage or production-specific flexibility that many independent producers require. As a result, more agile private lenders continue to play a vital role in bridging financing gaps. One example is Level Field Media whose principals have financed over 850 film and TV productions. This boutique lender assists producers using structuring, to increase collateral by mixing multiple jurisdiction’s tax incentives. Acting as a consultant, providing finance strategy, boutique lenders help producers reduce their reliance on equity while maximizing returns to investors and minimizing their risk.
Conclusion
While equity investment in film can yield outsized returns, it comes with considerable risk tied to box office performance and commercial viability. For investors looking for a more predictable and secured pathway into the world of entertainment finance, private debt backed by tax credits and pre-sale agreements offers a compelling alternative. These investments combine the allure of Hollywood with structured asset-backed returns, creating opportunities not just for financiers but for storytellers and audiences alike. As demand for content grows globally, so too does the opportunity for savvy investors to participate in its creation—with less drama and more security.
E.J. Kavounas
Founder
Copilot Entertainment
E.J. Kavounas is an executive with over two decades of experience in media finance and investment banking. He produced the feature Hero Mode, starring Mira Sorvino and Sean Astin. Prior to this, he worked for 15 years in investment banking, including at Credit Suisse in Los Angeles, where he was a Managing Director. He has closed over $10 Billion worth of transactions, including financing the feature films Empire State (Dwayne Johnson) and Escape Plan (Sylvester Stallone and Arnold Schwarzenegger).
He holds an MBA from The Wharton School of the University of Pennsylvania and a BA from Middlebury College. In addition to his professional achievements, he is an advisor to Caltech Connection which supports community college undergrads through mentorship opportunities with Caltech grad students.
