Cryptocurrency technologies could be about to democratize film-making.
Over $2.9 billion was made at the box office in 2020. Over 40% of this was monopolized by the two largest movie studios: Columbia Pictures and Universal Studios. In comparison, indie films garnered just 11.9% of the global box office, despite often being of higher artistic quality.
The reasons for this discrepancy are complicated, but one of the biggest barriers for independent filmmakers to overcome is fundraising. Today, though, it is possible that cryptocurrency-powered fundraising could become the future of indie fundraising.
Crowdfunding Has Become a Popular Fundraising Route
There is precedent for sourcing funds through the crowd. Sites like Kickstarter, IndieGogo, and Seed & Spark have provided a platform for indie film producers to secure funds from large numbers of individuals.
The Problems With Crowdfunding
The problem is that the crowdfunding market has become increasingly saturated and it can be expensive to stand out. Advertising alone can eat around 10% of your entire budget — and this doesn’t even include the costs that platforms like Kickstarter will incur.
Another challenge for filmmakers is the low rate of success. 61% of Kickstarters fail to achieve their funding goals. So filmmakers risk throwing away their hard-earned cash on a gamble with less than 50/50 odds.
Part of the problem with traditional crowdfunding platforms is that you are asking people to buy a product before they can see it. Asking for blind donations can be a tough sell — and people are bombarded with such requests every day.
Finance Matching Also Has Its Problems
One way to get around some crowdsourcing problems is to offer people a piece of your movie. The finance matching platform Slated takes this approach. It uses an algorithm to connect financers and moviemakers. This type of financing has been the source of some successful movies, but it limits your pool of funds to accredited investors, meaning that you may fail to get a match for your project.
This route still leaves a major problem for indie filmmakers. Traditional studios will often demand sweeping changes to scripts, which may interfere with a filmmaker’s creative freedom. However, when the alternative is begging friends and family for money, many filmmakers may feel that they have no choice.
This is where cryptocurrency fundraising comes in.
Cryptocurrency Could Blow the World of Film Fundraising Wide Open
Fundraising using cryptocurrency is not a particularly new idea. Cryptocurrency tech companies, among others, have been using initial coin offerings (ICOs) to raise funds for their projects since 2016.
ICOs work by issuing a token on a blockchain that is backed by “smart contracts.” These contracts enable developers to code specific conditions into each token, giving the token some utility. It also ensures that participants understand what they are buying. In most ICOs, ownership of a token is considered to represent ownership of the system, much like traditional corporate shares.
Example: Braid
The ICO process has recently been applied to the movie industry. In 2018, the first blockchain-funded film, Braid, raised $1.4 million by using Ethereum tokens. Rather than just asking investors for money, allowing investors to buy a token ensured that they’d be entitled to a share of 30% of the box office products, relative to their investment.
Crypto Platforms Are Breaking Down Barriers to Entry
The problem with the ICO approach for many filmmakers is that cryptocurrencies have a significant technical barrier to entry. Creating smart contracts requires using a developer who understands programming languages like Solidity and the contracts need to be carefully vetted to ensure that they are secure. These technological demands might be beyond the skills or budgets of many indie filmmakers.
These technologies are still in their infancy, but new fundraising platforms for films are coming into existence. One example is Film.io, which provides both a way to raise funds and also gives fans a voice in the direction of a production. It does so using FAN tokens, which act as an internal network in the currency that can then be cashed out. The project is still in beta, but it provides a glimpse into the future of the cryptocurrency fundraising sector.
Are There Risks Fundraising Using Cryptocurrency?
Despite the potential benefits indie filmmakers should be aware of the risks. The first is the emerging crypto technology itself. There are very real risks that come with it. Smart contract bugs have led to nearly $100 million in losses in 2020.
Additionally, cryptocurrency is notoriously volatile. For example, the price of Bitcoin has fluctuated dramatically, which means that filmmakers might struggle to identify the right budget for their project.
There are also certain legal challenges associated with cryptocurrency. Governments are increasingly looking for ways to regulate it and laws change rapidly. So you will need to ensure any project conforms to established laws and processes — like “Know Your Customer” — to remain in compliance.
Questions Indie Filmmakers Should Consider Before Cryptocurrency Fundraising
Risks aside, there is huge potential here. Any filmmakers interested in using cryptocurrency to fundraise should keep the following things in mind:
- Which platform should you use? – You can either build your own token with a developer using Ethereum or join an existing platform like film.io. Building tokens ensures more control, but you will need to do all your own marketing.
- What are your local regulations? – Cryptocurrency regulations vary across jurisdictions — including countries, states, and provinces. Before running a campaign you should consult with a lawyer and accountant to make sure you are legally raising funds.
- Do you understand the risks? – Cryptocurrency is an inherently risky technological platform, you will need to follow guides to make sure you understand the specifics of the technology underpinning your raise.
If you answer these questions sufficiently, it should be possible for you to mitigate any of the risks associated with cryptocurrency fundraising.
While it may be some time before these platforms become mainstream, that also allows enterprising filmmakers to compete in a less saturated marketplace. And it may be easier to engage fans in creating your next film experience.
Saul has worked with a variety of crypto, AR, and VR startups helping them carve out niches with investors and the market. Now he identifies and assesses new markets that startups are attempting to capture.
