Crowdfunding with a Capital C: It’s Future in Hollywood

Films are shifting to crowdfunding for revenue, but is that the best move?

By: Michelle Monteiro, Staff Writer

When Chinyere Fidel, a 21-year-old Book and Media Studies student at the University of Toronto, was browsing the Internet one day, she wasn’t planning on pledging money for Reach Me, a film about “a dozen characters who get a second chance at life as a result of coming into contact with a book.”

The director, John Herzfeld, who began writing the film over a decade ago, launched a Kickstarter campaign after his main investor pulled out, pleading with the online community to help him raise the $250,000 needed to finish the already-started film.

A ten dollar donation will give Fidel, a downloadable PDF of the movie script; one hundred dollars would give her an opportunity to go to an advanced screening of the film in Los Angeles; for a hundred dollars more, she could participate in a Q&A session with Herzfeld and the cast; a thousand dollars, and she could have dinner with the cast members. The list doesn’t stop there but Fidel isn’t doing it for the reward, she wants to help the struggling director.

“This movie project really peaks my interest,” she said. “So of course I would invest in something that I want to see brought to life.”

Herzfeld is among a list of celebrities to turn to Kickstarter, one of the many crowdfunding websites available, to fund filming projects amongst other things. It just goes to show that no one is too big, or too cool, to crowdfunding.

In its early days, crowdfunding was a way to fund what couldn’t be funded in the traditional sense, to challenge the mainstream Hollywood system. It has been the silver-lining for low-budget filmmakers who’ve struggled to access conventional funding, however, larger projects are now reaching directly to their potential audiences to secure their budgets through these innovative platforms. With a growing number of accomplished directors, producers, screenwriters and the like turning to crowdfunding, it begs the question, has crowdfunding shifted the way Hollywood films are being produced?

Sylvester Stallone, who plays Gerald in the Reach Me film, seems to think so. In Herzfeld’s Kickstarter campaign, he is heard saying that backers (those donating their own money in support of a project) are “participating out of their kindness and their love of films and [are] changing the way films are being made.” But is Stallone correct?

Although, crowdfunding isn’t a recent phenomenon — in fact, an early model can be traced back to the 18^th century — it has only recently received attention and much controversy in the advent of the Internet. Defined by Deloitte, a professional services network, crowdfunding portals are “websites that enable large numbers of individuals to financially support a project or company, with each backer contributing just a small percentage … of the total funding”.

With global funding waning, most likely due to the economic crisis, alternative methods were explored as crowdfunding came full force in 2009 with the launch of Kickstarter. Fast forward to 2013, and independent films have received over $100 million through Kickstarter alone, not to mention what other crowdfunding platforms have raised. Huffington Post coins crowdfunding the “reboot of capitalism,” a convenient way to circumvent the competitive film industry in today’s society.

Currently, there are over 450 crowdfunding platforms (CFPs) active worldwide, the majority based in North America and Europe. Massolution, a research firm specializing in crowdfunding industries, recently released its Crowdfunding Industry Report, which revealed that CFPs raised $2.7 billion in 2012, an 81% increase over the previous year. In North America, crowdfunding volumes grew 105% to $1.6 billion dollars in 2012 and grew 65% to $945 million in Europe. According to the report, volumes are expected to exceed $5 billion by the end of this year.

(Download the latest free Massolution report here.)

The numbers are expected to rise, at least in North America, especially with Obama’s Jumpstart Our Business Startups Act (JOBS) coming into effect in the 2013-14 period. This act enables startups to pitch and advertise investment opportunities to individuals and could pave the way for equity crowdfunding (where backers are given a small piece of the pie).

There are films you probably didn’t know are being crowdfunded right now. In the past few months, several Hollywood projects have received buzz for their use of crowdfunding websites to raise a portion, if not all, of their required costs. Here’s a list of the most talked about or most high-profiled in chronological order:

A film adaptation of the TV series Veronica Mars, which starred Kristen Bell as a private investigator, broke all Kickstarter records in March after smashing its $2 million goal in merely ten hours and then amassed over $5.7 million in contributions from people in over twenty countries. Rob Thomas, the creator and executive producer of the series, called his campaign “our shot. I believe it’s the only one we’ve got. I suppose we could fail in spectacular fashion, but there’s also the chance that we completely revolutionize how projects like ours can get made.”

In April, Zach Braff launched his own Kickstarter campaign for his indie pic, Wish I Was Here. With a cast of Kate Hudson, Mandy Patinkin, Anna Kendrick, Jim Parsons and Josh Gad, Braff managed to raise over $3 million in thirty days. “Everyone was like, ‘Oh my God! Congratulations! That’s insane! I can’t believe it worked! No one thought it would work,’” he commented upon the news of his successful fundraiser.

Criminal Minds actor, Shemar Moore, used Kickstarter in June to enlist financial support for his rom-com, The Bounce Back. But after failing to raise enough money, Moore moved his campaign to Indiegogo, another crowdfunding website, and surpassed his goal by a hundred thousand dollars.

James Franco wanted to get in on the action and in June, joined Indiegogo as well to fund three films based on his book, Palo Alto Stories. According to him, the goal is to “give very talented young filmmakers the shot they deserve at making movies.” The actor also said that all proceeds from the movies will be given to The Art of Elysium, a charity.

Spike Lee’s untitled film, described as being about “human beings who are addicted to blood” was crowdfunded in July and fellow director, Steven Soderbergh, even pledged $10,000 to his campaign on Kickstarter.

Keep in mind, though, that artists you may have never heard of are raising hundreds of thousands of dollars. Films, inventions, causes and socially responsible businesses are sprouting.

Despite seeming so effective, CFPs have gotten mixed criticism recently. The high-profile cases listed above received a lot of social media backlash. In response to the possibility of a Veronica Mars movie, writer/director Joe Swanberg questioned the logic behind crowdfunding to his followers on Twitter.

“So Warner Brothers (who owns the rights to Veronica Mars) just put themselves out of business,” he tweeted. “If the audience can pay to create the movies they want, we don’t need studios anymore, right?”

Unknown filmmakers aren’t thrilled either. Having to share the generosity of backers with those already established in Hollywood, according to them, is unfair because they have a presumed advantage to accessing funds. Why give money to a nobody when you can help James Franco?

“I can’t even imagine how it must feel for unknown filmmakers to not get the money they deserve. It has got to be frustrating. Backers should support the ideas being created, and not the creators themselves,” Chinyere Fidel pointed out. “But at the same time, as someone who is donating money, sometimes it’s easier to trust a familiar face over a stranger’s.”

Contrary to this belief, these high-profile projects have actually brought tens of thousands of new backers onto CFPs. Kickstarter estimated that Braff’s Wish I Was Here and the Veronica Mars movie campaigns generated an “extra four hundred thousand dollars in pledges for other projects.” According to Kickstarted, a documentary film about crowdfunding which ironically is also being funded by Kickstarter, “the pie is getting bigger” and there is “more money for all.”

The main reason why crowdfunding has been so successful is that it proves to be an innovative method of obtaining funds where, in showbiz, modestly budgeted films are finding it progressively difficult to get studio support.

Generally, it is a challenge to raise enough capital. This is, after all, a competitive business. But it’s more of a struggle for beginners and unknowns because Hollywood mostly produces pictures will similar themes, plots and values.

There’s the defeating the “bad guy” storylines (James Bond, Star Wars, Jurassic Park), the rags to riches (Les Misérables, Slumdog Millionaire), the quest (The Wizard of Oz, Lord of the Rings), the voyage and return (Finding Nemo, Alice in Wonderland), the comedy and redemption storylines. These may be mundane and typical tropes, but Hollywood producers know these will appeal to a mass audience.

As Spike Lee said in response to his Kickstarter campaign for his upcoming project, “With the current climate in the Hollywood studio system, it’s not an encouraging look for independent film makers. I’m not hating, just stating the facts. Superheroes, comic books, 3D special EFX, blowing up the planet nine times and flying through the air while transforming is not my thang. To me it’s not just that these films are being made, but it seems like these are the only films getting made. To the studios it seems like every film must be a home run on a global scale, a tent pole enterprise, able to spin off sequel after sequel after sequel after sequel after sequel.”

Investing in an unheard-of creative idea is risky, and in an industry where money is coveted and cherished above all else, producers will rarely take a chance, unknowns rarely get their “big breaks” from them.

Fortunately, crowdfunding provides an outlet for them, an opening into Hollywood. Crowdfunding gives them a chance, albeit a small one, of becoming a Hollywood A-lister.

CFPs are also a means of generating social capital which is equal to, if not more important than, the financial help. Never before have we had the opportunity to test an idea in front of so many people prior to its production. When the idea does take off, a community to support its progress will already have been established. For particular films, crowdfunding has been a way to judge if there is enough interest in actually producing them. And backers love becoming a part of the process.

“I would love being a part of the process because I would be contributing to a project that I’m passionate and intrigued about,” argued Fidel. “I’d be excited to see a project get off the ground, one I helped get off the ground. Wouldn’t you feel important?”

Like Fidel, backers want to feel as though they contributed to something potentially huge, or at least reap the rewards given when they donate money.

There are downsides to consider, however. As a CFP user, there are things to take into account. If you’re the one looking for funds, you must be aware of the conditions on some of these crowdfunding websites. You don’t necessarily receive all the funds raised and in some cases, not at all if the goal isn’t met.

In Kickstarter, a project must successfully reach its financial goal by a particular time in order for the funds to be obtained. If not, all proceeds will be returned to the backers. In the case of a successful campaign, the crowdfunding website collects 5% of the donations. Indiegogo, another CFP, allows users to keep whatever funds they raise regardless if they reach their goal or not, and they gobble a small percentage of the funds as well. Other rules and restrictions may vary depending on the location of the user.

With crowdfunding still relatively new, growing and largely unregulated, those who are contemplating contributing to crowdfunding projects should also be warned about the risks. With the JOBS Act coming into full effect soon, legal and financial experts worry that when the crowdfunding system fully opens up to equity investment, there will be more room for fraud, misunderstandings and more opportunities for projects to “crash and burn”.

Today, concerns of scams and fraud are accelerated by social media. The Internet’s simplicity and easy access makes it effortless for scammers to create supporting websites that make fake products look legitimate, or to steal product ideas from others and claiming them as their own. In August, Ted Hall’s Kickstarter campaign for the ShopBot Tool, Handibot, was attracting double the attention when a similar campaign was also launched on Indiegogo. Hall later discovered that the campaign running on Indiegogo had graphics and text copied from his Handibot Kickstarter page, adding to the fear that scammers can raise money under false pretenses.

Another fear is that backers are being asked to take a greater leap of faith than ordinary consumers because they are buying into the unknown, as opposed to others who are buying into an already finished product. There is also the possibility of a time lag of several months before a funder will get to see the outcome of their donation, and that is ifthe project is successfully completed.

It remains to be seen just how much funds received from the public will actually translate into films. Will John Herzfeld’s Reach Me come to Hollywood? There is no way of knowing, but Chinyere Fidel nonetheless hopes that her donation will be put to good use.

Known as Michelle, she’s been writing since hands could grasp paper and pencils. She’s learned that a pencil is an extension of the hand, a gateway to the psyche. Currently, she is an undergraduate at the University of Toronto, completing a BA in English and Book & Media Studies. For more of her quirkiness, follow her blog at http://therealmichellemonteiro.wordpress.com.

Banner and feature images courtesy of Glen Scarborough