Dr. P.V. Viswanath

pviswanath@pace.edu

Review Questions to Study and Prepare

Process

1. What are the three major parts to making a movie?
2. What is the genesis of every movie?
3. Why don't screenplay writers get paid a salary? Why are they paid on spec?
4. Why are budgets important in the making of a movie?
5. What is the largest item on a film budget?
6. Who are the major people in principal photography?
7. Why is it important to have a storyboard?
8. Why is it important to keep track of expenses on an on-going basis?
9. What is the negative cost?
10. Why might a film not be shown even after it is completed?

Contracts

1. “A movie is a complex creative project involving sequences of actions, each one a sunk and irrevocable cost for the party incurring it.” What is the implication of this statement for contracts in the film industry?
2. Why are options so prevalent in the film industry?
3. Why do options sell for less in the theater than in Hollywood?
4. Why don’t distributors simply rent movie theaters for a fixed price, which takes into account the costs of maintaining and running the movie theatre?
5. Why are many contracts in Hollywood based on revenue? Why are they not all based on revenue?
6. What is the rationale between pay-or-play contracts?
7. Why do people in the movie business make a distinction between above-the-line and below-the-line expenses?

Financing

1. What is a PFD deal?
2. A PFD is usually a step deal: can you explain why?
3. Why is most of the compensation in a PFD deal after the film is greenlighted?
4. What is end-user financing?
5. How does end-user financing differ from other financing deals?
6. Why are completion funds more expensive than other types of financing?
7. What is gap/supergap financing?
8. Why is gap financing riskier than other kinds of financing?
9. What is co-financing?
10. What sort of movies tend to be co-financed? Why?
11. What is the connection between co-financing and competition for internal resources?
12. Why do governments provide tax deals for film financing?
13. There seems to be a trend towards fee-based compensation for studios, rather than equity. Why might this be so?
14. What is a negative pickup deal?
15. What are the advantages and disadvantages of negative pickup deals?
16. What is the difference between a negative pickup deal and an acquisition?
17. Here's what Wikipedia says about a negative pick-up deal: "unless a film has U.S. distribution, a lot of investors and foreign buyers won't pre-buy a film and unless the film is already financed, the studios don't want to guarantee distribution." How might this Catch-22 be resolved?
18. What is a completion guarantee? Why is it necessary?
19. Why would actors be interested in financing films?
20. What sorts of collateral would banks accept in order to be willing to lend money to a film producer?

Capital Structure

1. In the studio system of the first half of the twentieth-century, a studio was a vertically integrated entity. In that context, one could talk of internal financing versus external financing. Why is the concept of internal financing less relevant today?
2. What are some of the types of equity financing in today's film industry?
3. What are some of the types of debt financing in the film industry?
4. What sorts of collateral are used by movie producers to obtain debt financing?
5. How is movie financing, particularly a PFD deal comparable to venture capital financing?
6. How important are bankruptcy costs in the determination of optimal capital structure for a firm that's not in the movie industry? How important are bankruptcy costs in the determination of how much of the financing of a movie is in the form of debt and how much in the form of equity?
7. Debt financing has the disadvantage that it limits flexibility in future financing. How does this lack of flexibility play out in film financing?
8. What are the agency costs in the context of film financing?
9. Why is the business of making a film structured as a separate corporation? Why are there not corporations that are in the business of making many movies?
10. Each movie is different; there is very little predictability about whether a movie will succeed or not. This implies that there is very little correlation between the success of one movie and the success of another. If so, why is each movie structured as a separate corporation?
11. How are the tax benefits of debt maximized in the film industry?
12. What is the (approximate) equivalent of covenants in the film industry?
13. What is the relevance of an MPAA rating in film finance?