Finance and The King's Speech

And the Oscar goes to....a royal return for film financing fund
Harriet Agnew

01 Mar 2011

The King’s Speech, the Oscar-winning period drama being dubbed the most successful independent British film ever, almost did not get made at all. A host of high-profile production houses turned down the opportunity to back the project, but their loss has become one London investment boutique’s gain.

With the likes of Film 4 and BBC Films opting not to throw any money at the film, London-based Prescience Film Finance stepped in to provide two thirds of the film’s £9m budget. The investment was made using the firm’s £25m Aegis Film Fund.

The King’s Speech, which stars Colin Firth as George VI, has already grossed $245m worldwide and James Swarbrick, commercial director at Prescience, believes that cinema takings will hit $330m. He added that DVD revenues are normally about the same.

The film scooped a host of prizes at the 83rd Academy Awards in Los Angeles over the weekend, including the awards for Best Film and Best Director, while Firth took home the Best Actor gong for his portrayal of the stammering monarch.

Aegis began funding the film in November 2009. Swarbrick said: “We act like a media bank, raising finance for independent films.”

Aegis’s model is to securitise an up-front loan to a film producer against guaranteed future revenue streams, such as tax credits and distribution sales, which are payable once the film is completed.

For The King’s Speech, the fund lent money against the UK tax credit at a rate of 15%, against pre-sales contracts at 15%, and at a rate of 18-20% against distribution in territories that hadn’t been pre-sold.

Equity film financing is notoriously risky - according to data from the UK Film Council, only 35 of the 333 UK films released internationally between 2003 and 2006 made a profit for investors.

But Swarbrick said the Aegis fund is structured so that its returns are not dependent upon the box office success of any individual film. He said: “We make all of our returns from interest and fees charged from the loans.”

Nonetheless, the fund will share in the King’s Speech’s success because the terms of its loan entitle it to a share of the film's net profits - something Swarbrick said was “an unexpected bonus”.

He said: “A film like the King’s Speech happens all too rarely. It wasn’t immediately a slam dunk but once we saw what a good job the producers and directors and Colin and Helena did, we saw we were onto something special.”

Once the entire budget has been recouped, the profits are divided up, with half shared between the producers, directors and actors, and the remainder shared between the film’s financiers.

The Aegis fund launched in March 2009 and returned 13.8% after fees in its first year. Swarbrick said that its second year is expected to post similar returns, not including the profit share in the King’s Speech that Swarbrick estimates will add another 10% to the fund’s performance.

While the overwhelming response to the King’s Speech shows that there is an audience for low budget, beautifully-crafted films, funding for these types of ventures is still scarce.

Firth used his acceptance speech as an opportunity to criticize the UK Government’s “short-sighted decision” to axe the UK Film Council, the body which distributes national lottery money to film-makers and which gave a crucial £1m in early funding for The King’s Speech.

Bank lending has dried up and in a sign of further retrenchment, most of the large studios have closed down their “indie" divisions: Paramount shut down Paramount Vantage; Warner Bros closed Warner Independent and Picturehouse; and Disney folded Miramax.

On top of reduced funding, film makers must adapt to a new paradigm. The habits of consumers are changing dramatically DVD revenues are declining. Premila Hoon, previously global head of media and entertainment structured finance at Société Générale, and now co-founder of Entertainment Capital Advisors, a film advisory boutique, said: “The biggest risk for film makers is the rapidly changing landscape. We don’t know how consumers will consume film in the future. Digital distribution is where it’s at but how does one compete with free? To use a well-worn phrase, analogue dollars are likely to be substituted by digital cents.”

Hoon added that the film market is polarised, with franchise blockbuster films made by big studios at one end, and at the other, a small but flourishing market for small, well-crafted films such as the King’s Speech, while “everything in the middle is suffering terribly”.

However, she added that this meant it was a potentially exciting time to get involved in film financing: “It takes a bit of courage because you’ve got to try and work out how the market is going to evolve. But the established order is being shaken up, so now is the time to be in the business.”