Why bank film financing remains silent in Asia

In the early years of the 21st century, bankers in the film industry set their sights on East Asia and headed to Hong Kong and Beijing. They can see that mainland China’s decision to open the film sector to the private sector would be a game changer. Multiples are built, the box office is growing, and co-productions have begun across the Pacific.

But the revolution failed to happen, Asian film finance refused to turn to the West, and debt financing for the film industry remains a minority activity in the region.

Film production continues in East Asia on corporate balance sheets (or self-financing) with a generous splash of private equity. Structured large funds are still rare outside South Korea, and the region does not have the same culture of support as Europe.

The site’s incentives have made headlines in a host of countries (Malaysia, Singapore, Thailand, South Korea, mainland China, Mongolia, and the Philippines) over the past decade, but governments haven’t always followed suit. The amounts were small or quietly withdrawn.

Only in Australia and New Zealand have production discount systems been large, transparent and reliable enough to consistently attract large projects from outside the region, allowing bankers to turn incentives into usable production cash flow.

Nick Cole, an attorney and consultant who used to work for Film Finance Corp. Screen Australia’s leading federal support body: “Australian banks have triple A ratings, but have never had the desire to fund films.” Some small private businesses have emerged, with lending capacities of up to A$2 million ($1.4 million). Fulcrum is one of those players for the long haul. “But there is no appetite for a real gap, little pre-sales discounts are happening and there is activity that funds the tax structures, because the Australian government is very strong,” Cole says.

Budgets for most Australian domestic production are modest. Big indie titles including “Hacksaw Ridge,” which is said to have raised $40 million, and which has attracted a host of funding and international partners, are an interesting exception.

The numbers are lower in Southeast Asia.

It is almost impossible to link products due to small budgets and lack of familiarity. Most of the activity is balance sheet financing and cash flow to credits, which is why we’re stepping in and doing what we’re doing,” says financier producer Justin Demin at Singapore-based 108 Media. The company recently bought UK-listed film and television distributor DCD Media and is preparing itself to be a multi-faceted financier on an Asian scale.

West Bank Los Angeles-based Bennett Bozell has long been one of the most prominent bankers in Asia’s film industry, but macro trends have forced the company to change with the times. “Our team in China continues to operate, even after co-production has stopped. There is no real financing for the project, it is all corporate loans,” Bozel says. This is a business of scale and power.” “We generally don’t care about completion bonds in China, but in Australia we have to get them for tax credits.”

With Korean content now some of the hottest in the world and Korean companies looking to expand, the country seems to present opportunities.

Jerry Ko, who has financed films and television within CJ ENM Group, says CJ uses debt financing for its productions in the United States, but not at home. “In Korea, in the past, there was a lot of private equity and venture capital financing. Some of the funds were managed by banks. So, you could say there was bank-led investment, but no bank lending. [for production]“Of course, we use corporate-level bank financing for cash flow,” Koo says. But we don’t use it to deduct location subsidies, because the tax incentives and location are not great in Korea.”

In the past, the company compiled production rolls of 10 or more films annually and aimed to put 30%-40% off the same budget, while taking out 30%-50% of outside funds.

But the COVID-19 pandemic has shaken all previous certainties. These days, the financing environment is tough even for Korean films. “It’s hard to be positive,” he says.

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