On the subject of Investments.
For some time I had been advancing the cause of
The Gnomes of New Hope using front money for preproduction expenses and that worked fine for a while. But I came to conclude that that money was too costly for the results it was producing. If you look at blog on The Gnomes linked above, you will see some samples of the art work, for which this front money was used. However, the volume of artwork that is required for completion cannot be paid for with front money. My front money agreement pays out a 300% return on the back end. I have put a cap of 250K on the front money, so as to avoid running my preproduction expenses beyond 1M, even thought relatively speaking that is a drop in the bucket.
The real issue with front money at this stage of the game, is that I can no longer take small increments which do not move the production forward in leaps as opposed to the steps which have previously been occurring. Steps are simply not enough at this point, because it is not advantageous to have the momentum interrupted by a depletion of the funding resources. Thus far, we have moved forward in spurts, based both on our resources and what the creative material has allowed for, but it has become disruptive to the process to start and stop in this fashion. This kind of advancement is fine for development, to a point, but it is difficult to retain personnel and the external circumstance of the working environment looses it's stability due to alterations which result in loss of control within that environment. To the effect of not being able to implement the objectives in an orderly fashion. This has a domino effect in, not only changing the working parameters, but also the modus to initiate and fulfill the goals that have been set.
I can safely say that our creative materials are sufficiently prepared, that we will be able to advance on a consistent and productive basis, given that we are capitalized sufficiently to do so. From my point of view (as the goals have been outlined elsewhere) we can move forward without fear that production activities will catch up to the pre-production work which still needs to be done and thus cause a stall in activities.
Having at one time believed that we would move for a Limited Partnership, I started to take Front Money, with the expectation that the management structure would be formed on that basis. I delayed action on that front because the regulations with the SEC for a public offering puts certain restrictions on soliciting for such funds. Those restrictions essentially are too damaging to the development process, as it is uncertain about what kind of time frame can actually happen vs. the time frame that is specified in those regulations. Therefore, I advanced on the basis of using Front Money without preparing for solicitation. Rather, I applied that Front Money to preproduction development, which is one of the options open to me in the agreement. I could still continue to do that, but the increments need to be significantly larger than what I was working with in the past few years. At this point, I need at least 50k to make a significant dent in preproduction packaging (most likely more than that would be advisable) and that does not include the 150k required for the legal paperwork and such to set up for production. But my minimum Front Money investment needs to be at least 10K, anything smaller than that is (yes, helpful, but more so) distractive, because it simply does not go far enough.
Joint Venture
I am at the point where; I prefer a Joint Venture as the means to finance this production. That's not to say that an LP could not also be part of that plan, but the LP would need to be managed by a team that is put in place as a result of the Joint Venture. The essential elements of the Joint Venture certainly need to include a degree of capitalization (directly to IMS to recoup development costs, in addition to contributions to future production costs and investment in equipment & facilities), but also needs to be founded in provision of external resources as well. Critical to this is both production and distribution. These two elements need not be resident in one partner to the JV, but I do believe they need to be in place (at least) simultaneous to the initiation of the JV Agreement (depending of course upon what the parties to the agreement are bringing to the table). So the Joint Venture Agreement will then be comprised of three essential elements - Development (the purview of IMS), Production (divided by categories), and Distribution (accommodating certain rights to all parties). Production could take place at IMS, but it does not need to, depending on what the production is. A certain level of production remains at IMS, but that is relatively inconsequential in the context of the larger cinematic endeavor.
These statements are presuming that structure of the JV is addressing the three primary markets, theatre, film, & television, each managed under their own budgetary and contractual limitations and isolated from one another in that sense, yet linked in terms of the Executive production team.
Leaving all other ancillary markets to stand on their own or become part of the JV only in the degree that direct investment in those markets allows for. It is not to be presumed that any other rights are automatically attached to the film, television, or theatre rights, because they are not.
Ancillary Markets
In all ancillary markets, production and distribution mostly operate under different parameters (because of the MFG/PKG/INV specifications of each product line) and therefore, although the core structure is essentially the same, the personnel, resources and operating methods are different. Thereby making those markets their own operation not bound to the JV for film & television. The same can be said of the theatre, for there are no ancillary rights attached to that arena, unless there is direct investment in those markets from the theatrical production group, in like manner. This is the case with all markets - ancillary participation is entirely based on investment in that market, no unidentified rights exist in any agreement and there is no implied participation in any market not specifically defined.
As a whole however, a Joint Venture Agreement might encompass these other markets as to the equity in the agreement, only to the degree of vested interest in those markets, in which event these markets would operate internally under subdivisions. In any event, these other markets do need to be isolated from each other and self-contained in their operational methodology. Obviously, this could become complex if it is not approached correctly.
But the essential markets need to be isolated from one another and funded separately, as stated, looking toward the film market as a primary source of income, because the expenditures (in the film arena) are fixed to produce the final product, while the exhibition and distribution costs do not involve ongoing production expenses, other than certain post-production MFG items and marketing. Whereas, in a theatre production there are continuous production expenses in order to present the product, being that it is live and requires ongoing employment of personnel.
Certainly all the ancillary markets contribute to a holding fund to support the theatre production, not wholly, but only in part and sufficiently to ensure that the management operation remains self-contained and is not overly obliged to investment funding (funding outside the JV). Although some degree of this type of funding will likely be required. The historical expectation that ancillary markets are part of the theatrical rights is not the case here. Support from these markets will be part of the management structure, in the sense of a foundation, which is under no obligation to , or control by, the theatrical management organization. In this way the theatrical endeavor will be encouraged to maintain a healthful balance sheet. Essentially the funding provided by the foundation will be an internal investment group, returning the profit to the JV Group and therefore not obliged to investors in a LP or to the SEC regulations in that regard.
A Limited Partnership
In the event of an LP - the specifications will isolate that portion of the income which is assigned to the LP, relative to the percentage of capital provided by such, by specifying the percentage going to the LP and it is not to be presumed that the LP is participant to all of the net income, or the Gross income for that matter, but rather only participant to the degree specified, because full capitalization is not derived from the LP, only supplemental provisions which will be clearly defined.
A Summary
So in brief, the product line (s) are well established and in place sufficiently for a, well capitalized, production management team to more fully implement and exploit in an array of markets.
As you will see from discussions elsewhere, the timing of this implementation is such that deep saturation into the markets is the most viable approach, but such saturation can only be effected by a management operation that has already established a firm modus operandi in practicality and has the resources to support such full implementation.
This kind of implementation is contingent upon an established order that has stability, long term stability. Bringing that kind of power into the process would be my goal and I see that as being achieved on the basis of the Executive Producing team that we need to build.
Being specific, I invite competent individuals to engage in dialogue on this matter.
Those are some thoughts for today, AG
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