The battle of costs and resources in the planning phase of film production
The producer of a film project faces a similar challenge to all professionals arriving at the production phase. When the film project is ready to be shot, he/she searches for financers and resources. Let us assume that the production costs of the film run to a total of USD 20 million. Furthermore, the film producer has a financing partner who at the same time does not wish to cover the entire film budget, but is willing to put up USD 8 million towards production costs. Thus, the producer has to raise the difference from elsewhere.
If the producer can show that he/she already has a funding resource of USD 8 million, this definitely helps in winning a positive decision from additional potential financers. This may happen in a form whereby disbursal of the sum available is tied to preconditions. For example, that the producer will be authorized to call on the funds if the production costs of the film are available in their entirety, or to a predefined level.
For further successful fundraising, it is expedient for the producer and the primary financer to set down in writing a letter of intent concerning financing. In the industry, this document is referred to as a letter of intent.
How does the Hungarian film subsidy system work in the financing of film productions made in Hungary?
Films produced in Hungary (that pass the cultural test) may be eligible for 30 percent normative state subsidy on 100 percent of the direct film production costs, in the case of applications submitted after 11 June 2018. All this ensures that it is sufficient to search for financers for the non-subsidized part of the budget of a film.
Similarly to the abovementioned letter of intent, in which the financer declares his/her intention to contribute to the costs of the film, as well as the related conditions, it is necessary to define the expected sum of the normative film subsidy.
The sum of the film subsidy can also be quantified in the comfort letter, which plays a vital role in fundraising. In this, professionals backing the filmmaker declare how much the sum of the indirect film subsidy will be on the basis of the planned budget of the film and other information at their disposal.
We can determine the precise amount of the film subsidy on the basis of the relevant regulations, as follows:
- Initially, the direct film production costs must be determined; this is the Hungarian budget of the film production (payment financially fulfilled by the Hungarian film production enterprise and verified with receipts).
- Within this, the direct Hungarian film production costs will be determined (that is, all those direct film production costs occurring in the form of Hungarian tax or public due payment liabilities, or where the costs result in tax or contribution payment liabilities in Hungary).
- The rate of film subsidy is 30 percent of the direct Hungarian film production costs.
- In addition – and assuming that there are not only direct Hungarian film production costs – the non-Hungarian film production costs can be accounted up to 25 percent of the expenditure in Hungary, which are also entitled to 30 percent film subsidy.
Another element worth highlighting is that the regulation does not fix minimum film production costs, nor does it limit the maximum production costs.
Planning is at the heart of successful film subsidy
It is clear from the following table in which scenarios, and what level of film subsidy it is possible to reckon on in the case of a film with a budget of USD 20 million. Depending on what proportion of Hungarian and non-Hungarian film production costs are represented in the overall film production cost, a variable sum of subsidy can be associated with the same total costs.
Level of film subsidy as reflected in the distribution of film production costs
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