Do Studios finance their own films?
Internet Filmmakers' FAQ
In years past, almost always it was the studios themselves putting up the money. Often, it still is. In many cases, the money is borrowed from a huge revolving line of credit set up with a bank that has a long-term relationship with the studio. In others, the studio simply ploughs the money made from films in release into films in production, just like any other business would finance future production from current sales.
It's becoming more common for large films to be financed in large part by pre-selling rights for foreign territories. For example, someone might pay $3 million up front for the German distribution rights to the next Brad Pitt movie. Enough up-front payments can equal the budget for the film, thus cutting the risk heavily. On the other hand, with foreign box office receipts becoming increasingly important in the overall gross, it also limits how much money you can make. Most of Carolco's really big hits did not bring the company as much money as one might expect, because they'd pre-sold foreign rights.
In some cases, production companies have private financing deals with banks or other large investors. They pay for all or a large part of the film, then sell the US distribution rights to a major studio. This is called a negative pickup, because generally the studio has nothing to do with the film until a complete cut of the film is available.
It's rather uncommon for individual investors, even the really high-rolling ones, to have the opportunity to invest in a major film. All this changes when you're talking about smaller films, in particular direct-to-video films. Depending on the economic climate, prevailing tax laws, etc., these films are financed in a wide variety of ways - including getting a bunch of doctors and dentists together in a room to pitch your film in the hopes of getting a couple of hundred thousand out of them. Getting a lot of credit cards and maxing them out, whining to your parents, and cashing in disability pensions are other techniques that have worked in the past. If you poke around, you can doubtless find a way to spend $10,000 helping someone make an independent film he'll swear will be the next "Reservoir Dogs," but it almost never will be. Bankrolling independent films is not the high road to financial success.
There are a few interesting exceptions. Disney has made a practice of selling shares in blocks of its (at the time unmade) films through various partnership agreements. The catch is they never sell shares in their animated films. For that matter, when you buy in you have no notion which films will be made under the partnership. They've done this five or six times, and I believe none of them performed as well as simply buying Disney stock, though they also didn't lose money (which is pretty unusual in the world of film finance).
Actor Paul Hogan, made an unusual arrangement to finance Lightning Jack, a Western he made a few years back. He essentially sold shares of the film on the Australian Stock Exchange. Strictly speaking, he sold shares in a company whose only costs and assets were the film. The film got made, but bombed.
The producer rarely invests their own money. In the case of studio productions, the producer uses studio money. In the case of production companies, the producer works to get others to invest, basically serving as a broker, although there are now loads of companies in 'film capitals' such as Los Angeles, New York, London, and Hong Kong who specialise in raising finance for films.