Before investing in a film, ask these 15 critical due diligence questions. A must-read guide for financiers, attorneys, and entertainment executives.
The phone call comes from a high-net-worth client. They’ve been approached about financing an independent film. The pitch is polished. The producer has credits. The projected returns sound compelling. But before any funds move, before any term sheet gets signed, the real work begins.
Film investment due diligence is not glamorous.
It doesn’t happen at a rooftop dinner in Cannes or during a sidebar at AFM. It happens in spreadsheets, legal memos, and hard conversations. Done right, it protects capital. Done wrong, it can cost everything. Here is what every serious financier, attorney, and entertainment executive needs to know before saying yes.
The Accounting Foundation That Can Make or Break a Film Deal
Start with the money managers.
A production accountant is not a back-office hire. They are a frontline risk control mechanism. An experienced motion picture accounting team is crucial for the production’s success, and that team must be licensed in the state where filming occurs.
Why does this matter so much?
Because state film incentive programs vary wildly. Many states apply a very specific definition of what qualifies as goods and services under its incentive structure, and actively excludes certain expenses tied to highly compensated individuals. Miss that detail and projected returns evaporate before principal photography wraps.
Equally important is how revenue flows back to investors.
A Collection Account Management Agreement, or CAMA, managed by recognized firms like Freeway Entertainment or Fintage House provides a contractual framework for worldwide revenue collection, lender recoupment, and profit disbursement. It is sometimes difficult to protect an investor without a collection agent. This is not optional language for serious dealmakers.
Reading the Budget Like a Financier, Not a Fan
Passion for a project clouds judgment. Numbers don’t lie. Film investment due diligence demands a granular review of every budget line item. General benchmarks offer a useful starting framework. Cast fees typically run 10 to 35 percent of budget. Producer fees range from 5 to 10 percent. Legal and finance costs fall between 1 and 5 percent. Completion bond fees generally land between 1.5 and 2.5 percent.
One chronically underestimated line item: music licensing. Popular and well-known songs can command licenses in the six-to-seven figure range. Savvy investors and their counsel should demand that music rates be negotiated before the budget is finalized, so creative decisions aren’t held hostage to an unaffordable sync fee discovered in post-production.
The Screen Actors Guild-AFTRA and other guild considerations also affect the bottom line significantly, adding costs tied to work rules, overtime, portal-to-portal pay, and residuals that can shift a budget meaningfully depending on production tier and geography.
Sales Agents, Territory Tiers, and the Global Marketplace
Any serious film investment due diligence conversation must address the international sales landscape. A credible sales agent is not simply a salesperson. They are the mechanism through which pre-sale contracts are converted into bankable collateral for lenders.
Tier 1 territories, which typically include Germany, France, the United Kingdom, Japan, Australia, Canada, and Korea among others, command higher cash-flow percentages against minimum guarantees than Tier 2 markets. Understanding this distinction matters enormously when a lender is underwriting against pre-sales.
To vet sales agents properly, the major film markets offer unmatched intelligence. The American Film Market in Santa Monica each November, the European Film Market in Berlin each February, the Cannes Film Festival in May, and TIFF in September are the four calendars every investor’s counsel should track.
Tools like IMDB Pro and the industry subscription platform Cinando offer additional research depth between market cycles.
Lender vs. Investor: Knowing Which Seat You Want at the Table
Structure determines outcome. The distinction between being a lender and being an equity investor is not semantic. It is financial survival.
Lenders typically recoup their principal in first position, plus a premium at prime plus 2 to 3 points. Equity investors recoup last, after loans, residuals, and deferments are paid, with a 10 to 20 percent premium, followed by a back-end participation that generally splits 50 percent of profits pro rata among equity investors. The remaining 50 percent flows to producers and creative participants.
For clients who can negotiate lender status, the risk profile changes substantially. For those entering as equity investors, the completion bond question becomes non-negotiable. A completion bond functions as an insurance policy guaranteeing the film’s completion and delivery, which provides comfort to investors and lenders that pre-sale obligations will be honored.
The Credits Question: More Than an Ego Play
Sophisticated investors understand that screen credit carries market value beyond vanity. Executive producer credits have proliferated across independent film, with some productions carrying 30 or more producorial credits. Studios and streaming platforms are actively pushing back on this trend.
Investors should determine early how hard they are willing to negotiate for credit placement, inclusion in paid advertising, and favored nations provisions. Credit negotiations can become complex and sometimes protracted. Entering that conversation without a clear client mandate wastes time and sometimes goodwill.
Mini FAQ: Film Investment Due Diligence
Q: What is the most important protection for a film investor? A: A combination of a completion bond, a Collection Account Management Agreement, and proper insurance coverage naming the investor as an additional insured. These three structural protections form the foundation of investor security in an independent film deal.
Q: What is IRS Section 181 and how does it benefit film investors? A: Section 181 allows qualified investors to take an accelerated deduction on their film investment against applicable passive income, making it a significant tax planning tool. Eligibility requirements apply, and investors should consult qualified tax counsel familiar with entertainment industry structures.
Q: Why do Tier 1 territories matter for film financing? A: Banks and lenders assign higher cash-flow percentages to pre-sale contracts from Tier 1 territories because these markets represent more economically stable and reliable distribution revenue. Strong Tier 1 pre-sales can meaningfully improve a lender’s willingness to advance funds against projected revenue.
The Bottom Line for Entertainment Financiers
Film investment due diligence is not a checklist exercise. It is a strategic discipline that separates informed capital from expensive mistakes. As the source framework makes clear, with due diligence and information in hand, you can begin to strategize on how best to minimize your client’s risk and help to secure the return of your client’s investment.
The global independent film business runs on relationships, market knowledge, and structural discipline. Whether your client is writing a check at a festival dinner in Toronto or wiring funds from a family office in Geneva, the 15 questions outlined here are the difference between a calculated bet and blind exposure. Ask every one of them.
