I recently attended the Toronto International Film Festival (TIFF) for the first time. The festival attracts producers, distributors, buyers and sellers from around the world every September. This year’s event was attended by 473,000 film goers, 5,400 industry professionals and 1,200 journalists. TIFF is considered to be one of the top festivals and markets for independent film and has generated quite a bit of buzz over the years for such films as The King’s Speech, Moneyball, Silver Linings Playbook, Argo and Dallas Buyers Club, all of which premiered there.

Although there are the stars and the industry parties, the real business of a major film festival is conducted in hotel lobbies, one-on-one breakfasts and even chance meetings on the street. Since TIFF is focused on independent film, the business being conducted is almost always about financing for independent projects. The festival is attended by industry creatives and financial people looking to make the right profitable match.

Financial people, such as bankers, players from the New York financial markets and other investors, spent their time hunting down deals, while independent film production companies, producers, directors and sales agents worked to position their content for a sale or to attract investors. I observed that many of the attendees are a tight knit group; many already know each other and are chasing the same deals.

Budgets for independent film productions are typically much smaller and rely heavily on fundraising, including pre-sale of foreign rights and production tax credits for financing. I learned that many deals revolve around films that haven’t been shot and that pre-sale of foreign rights prior to the film being completed is the norm rather than the exception.

A challenge facing independents in this market, as I heard repeatedly, is that the U.S. dollar’s exchange rate value is high relative to other currencies, making it more difficult for foreign investors to make offers with the right profit potential. Another challenge I heard often is that post-theatrical release (after-market) revenues appear to be shrinking. These challenges mean that foreign pre-sale market deals are more difficult in this environment.

Another takeaway for me was that deals are really made within two basic scenarios. The first is typically for a movie that premieres at a festival like TIFF and is picked up (acquired) for domestic distribution by a studio, who acts as the film’s distributor. The other scenario occurs when a film has not yet been produced, but closes financing at a festival. The focus here is on getting the film made rather than finding distribution, which occurs later.

I came away with a feeling that the business is evolving quickly, and TIFF reflects that in its independent focus. New profit models are being tested and proven in the content world, and accountants/advisors will always be needed to advise on such things as forecasting the films’ revenues and expenses, potential back-end profits and the changing distribution landscape and consumption of content. Professional advisers are also important in helping find the most efficient ways of doing business — from utilizing favorable state tax credit programs to production accounting to deal structure and reviews of back-end profit participations.

About Peter Klass (Senior Manager, GHJ)

Peter began his career at GHJ in 2009. As a member of the Firm’s Entertainment and Media practice, he specializes in contractual accounting with a focus on performing audits of production and distribution of motion picture and television programs on behalf of third party participants. He also consults on entertainment litigations and participates in settlement negotiations of audit claims.

Peter began his career at GHJ in 2009. He currently oversees participation audits at various studios, including Paramount Pictures, Lions Gate, HBO and The Weinstein Company. Prior to joining GHJ, Peter worked at Sony Pictures Entertainment, where his focus was managing issuance of profit participation statements, coordinating worldwide royalty audits and accounting systems analysis.

Peter received his degree from the University of California, Los Angeles. He is a Certified Fraud Examiner, and is a member of the Association of Certified Fraud Examiners.