Washington Filmworks has recently dedicated several blog posts to the discussion of crowd funding and whether or not the model is accessible for everyone.  This week, Seattle-based filmmakers from Zombie Orpheus Entertainment and Dead Gentlemen Productions broke the Kickstarter funding record for their project The Gamers: Hands of Fate.  Having raised $405,000, they are officially the “most funded Kickstarter film to date.” Producers of The Gamers have also successfully funded projects like JouneyQuestWranglers of Death, and Demon Hunters utilizing this financing method.

This week we’ve also reached out to one of our local “crowd funding experts”, Steve Edmiston, to weigh in on the sustainability of securing film financing through crowd funding platforms.  Steve is with Invicta Law Group, where he focuses 26 years of experience for his business, IP, and entertainment industry clients. He is a screenwriter and producer, with feature films including Crimes of the Past, A Relative Thing, Farewell to Harry and has also written and directed multiple award-winning shorts, including local favorite The Day My Parents Became Cool.   Steve teaches at the Seattle Film Institute and the University of Washington and can be reached at sedmiston[at]invictalaw.com.

Below is part one of two posts on the issue.

Change.  A major change in how we think about financing independent film has not only arrived, it is maturing – crowd funding.  And more change is coming.  It seems that everyoneis embracing this newest gift to the “democratization” of the filmmaking journey.  But is the change all, and only, good?  Does the “gift” come with a catch?

I can’t help but be reminded of the social science concept known as “the Axemaker’s Gift,” popularized by the 1997 book of the same name.  The idea is this.  Dating back to the discovery of the most basic of tools – the prehistoric axe – we’ve routinely accepted technological advances without question, without assessment of the underlying societal cost of that “gift.”  The axe was an effective hunting, cultivating, and building tool.  The cost was a new level of violence in warfare, the centralization of power in those who knew how to make the axe, and the taking of more from the land than the land was ready to give.  Similarly, the astounding gift of Guttenberg’s moveable type press also aggregated power through the desire to print in a common language, the loss of similar competing languages and dialects, the accumulation of power by nations controlling the presses, and corresponding loss of power by those (the Church) that had previously controlled the written word through by scrivening by hand.

Yes, there is a point.  Everyone knows the “lightning in a bottle” crowd funding success stories – led by the Pebble “smart” watch campaign that sought $100,000, but yielded a tidy $10.2 million, or the Ouya Android gaming console (over $8.5 million on a $900,000 goal, with 63,000 backers to date).  The gift of crowd funding is exotic and intoxicating, but I worry that it comes with a cost, and I’m just not sure we filmmakers see, or know it yet.

Seattle filmmakers are quite familiar with crowd funding through numerous locally spawned Kickstarter and Indiegogo (and a smattering of others) campaigns.  Just review the Seattle Mayor’s Office of Film+Music newsletter for your weekly fix of ten local projects nearing the end of their Kickstarter ticking clock, still seeking to exchange “rewards” (swag including tickets, credits, DVDs, posters, etc.) for pledged dollars from enough “backers” to get over the funding threshold.   Their newsletter dated August 22nd shared several true success stories (The Raven, exceeds the $7,500 goal; and Decimation blows by its $5,000 goal with $13,122).  These bright spots are followed by projects for which success appears anything but guaranteed.

My suspicion is this: that overall, Seattle-based independent filmmakers seeking crowd funding glory approximate the national averages for success.  And these averages should provide a reality check for creatives that believe that the holy grail of establishing a career as an independent filmmaker – starting with finding money for a project – has been offered as a gift, simply there for the taking, with no devil to deal with.  My present take on crowd funding is that, like the axe, the crowd funding phenomenon comes with its own set of costs, and they’re too big to ignore.

First, some good.  Crowd funding shows no signs of slowing. More crowd funding opportunities are coming on line.  In case you thought you only had a handful of options, there are 452 crowd funding platforms worldwide, across diverse industries.  Over $1.5 billion was raised in 2011; over one million campaigns were funded.

How fast has Kickstarter grown?  Kickstarter reports that in 2010, it launched 11,130 projects, with 3,190 achieving funding.  One year later, the successful projects (11,836) exceeded preceding year’s launched projects.  Film and video garnered $60 million in funding, less Kickstarter’s percentage-based cut of the pie.  And perhaps to prove that some truly great films get made following a Kickstarter campaign, Sundance reported that of 11,712 submissions, and 174 films accepted, 14 raised funds through Kickstarter.

Conclusion?  We can fight about the accuracy of the reported numbers, and a fair number of folks are challenging the industry’s self-reporting, but it appears hard to dispute that (1) crowd funding is here to stay, (2) it’s going to keep growing fast, and (3) for some, at least, it’s working.

Exploring the bad and the ugly.  Perhaps inevitably, documentation of failed crowd funding campaigns was bound to occur.  It has, in the glorious “real time” that can only be found on the Internet.  Check out the recently launched thekickbackmachine.com and browse the film category.  You will quickly begin to get a feel for the absolute and admirable epicness of some Kickstarter failures, and if you look at enough of them, you begin to develop opinions as to what might have gone wrong.  As a foray into the “bad” and “ugly,” it’s going to be your first stop.

Also, because crowd funding has moved from its infancy into “the toddler years,” we’re getting some real insight into what the real probabilities of success might be after a campaign is funded – which should of course bear upon whether backers find satisfaction and continue to participate and support other filmmakers.  A recent study of 47,000 projects by Professor Ethan Mollick, of the Wharton School of Business at the University of Pennsylvania, suggests that after funding, just one quarter of Kickstarter projects are completed on time, and just 75% delivered any product after eight months.  The worry is this:  if independent films do not succeed after funding in some measurable, replicable way, the first generation of backers feel the products do not live up to the hype.  If they believe they got burned by amateur filmmakers and producers that don’t make a good film, or don’t complete the film, or don’t fulfill the swag, will the early Kickstarter-filmmaker success-in-funding stories become the angels of crowd funding’s death, by failing to deliver on their promises?

Also, while we can agree that crowd funding is growing exponentially, the scale per project, particularly applied to filmmaking, is still extraordinarily small, at least in Hollywood terms. If sixty million is the Kickstarter aggregate funded figure for films, while it’s a big number, it is not even the budget for a single “large-scale” Hollywood theatrical release.  I’m not suggesting it should scale to that level; however, if Professor Mollick is correct, and the average successful project clocks in at $7,825, then I’m struggling to view this revolution as sustainable for a film industry seeking to create living wage jobs.

Reflecting on my own entrepreneurial journeys, I’m also curious about a filmmaker’s “Plan B” if crowd funding is the primary means of financing your film.  I get the sense that in many instances, there is no backup plan to a Kickstarter project.  What if you, the filmmaker, blow your budget for any number of legitimate reasons (we’ve all been there), and you can’t finish the film, and you haven’t cultivated some form of traditional stand-by source of real capital (e.g. investors or bankers or friends or family) that might be in a position to help you across the finish line?  In a strange way, you might want someone under sufficient duress to rescue their “good money,” or with enough love of you to rescue you, when things go wrong.  Consider that someone that’s invested $100,000 and stands to lose it all might, no matter how reluctantly or angrily, and likely under draconian terms, give you $10,000 more to avoid a debacle of not even finishing the film.   They’ve got real skin in the game.  You don’t want to beg them, but you can and you will.

Compare that scenario to your Kickstarter donors, who you’ve committed a signed poster to, and a “making of” DVD, as well as credit, are they going to kick in the emergency cash?  Not likely.  I am curious whether a filmmaker that doesn’t owe a duty to an investor, but has been handed the cash with little obligation other than the fulfillment of rewards, shares the same “never say die” commitment (let alone a legal, fiduciary duty) that the project will be completed no matter what.  I wonder if it’s just too easy to walk away.  I’m seeing that while there is little or no practical recourse for the Kickstarter contributor, the reported complaints are, not surprisingly, on the rise.

Certainly steering to the ugly is the revelation that when you fail, you will likely fail epically – unlike horseshoes and hand grenades, close may not count at all.  Professor Mollick’s study reports that the mean amount pledged for failed projects is 10.3% of the goal.  The average failed project received under $1,000 in pledges, compared to the average of $7,825 for successful projects.  Remember, Kickstarter is all or nothing, so you don’t get the 10.3%, it reverts to the backers.  The worst part about this (at least to me) is that it makes Kickstarter feel like the place movies go to die, just as much, or more so, than where movies go to live.  Perhaps it’s just the inevitable capitalistic cream rising to the top on Kickstarter, but if you’ve elected to spend a $10,000 budget on the video to raise the money for the Kickstarter campaign, versus putting that money toward scripting your feature, making a short movie, completing a business plan and private offering documents, attending film markets and festivals, and networking to potential investors – it seems by failing on Kickstarter, you’ve pretty much eliminated going back to the drawing board and trying to raise money for your film with a more traditional Plan B.  Seriously, after failing with Kickstarter, what are you going to say in your business plan if you’re being honest?  “I tried to raise money on Kickstarter but it appears that nobody really wanted to fund my project, even though they could have for even just one dollar.”  This failure is public.  This failure is never going away.  Such unabashed failure is simply not the most compelling disclosure to your potential investor, or project history on your documentary grant application.  Will the phenomenon of Kickstarter become newly synonymous with “one and done?”

More bad – the immensity of the time suck.  Every single individual I know that has actively conducted a Kickstarter campaign that has failed regaled me with stories of how much more work the campaign was than they thought it would be.  I’ve heard repeatedly that they were surprised about the amount of time, energy, and expense required.  I have been warned by 100% of those I’ve talked with that some overarching, cut through the noise “hook” for the campaign is required, coupled with an abundance of skills, and bodies, to throw at aggressive, 24/7 levels of social networking.  Professor Mollick agrees.  His study indicates that one of the most significant variables correlating with success is a project founder with 1000 Facebook friends How important was it?  Success jumped from 9% at 10 friends, to 40% at 1,000.   You do the math.

Another “axe” would seem to be the diversion of resources from the things you want to do ­– make a film – to the things you have to do for Kickstarterwhich are make a promotional film and promotional plan for the campaign, campaign actively, and then fulfilling the campaign promises.  A booming industry has developed around Kickstarter campaigns, and for a fee, you can hire firms to make your campaign videos and run your campaign, including your social networking.  As money pours into the campaigns, the campaigns get better, it gets more difficult to stand out in the burgeoning crowd, and you spend even more time and money to keep up.  Do you have to keep up?  Unequivocally yes, according to Professor Mollick.   Make a great campaign video, get the attention of the Kickstarter staff and get “featured” – you’ll be in a select group where nearly 90% hit their goal. Just make a video, and your “group” hits the average funding rate for campaigns at 38%.  No video – your chance of success drops to 15%.  You’re smart.  You’ll make the campaign video the best you can, you’ll lobby for “featured” status, and you’ll socially network night and day. It’s the “gift” that keeps on taking.

A final “bad” thought – your life in the fulfillment warehouse.  While traditional investor management is an ongoing expense in both time and energy, I suspect that successful crowd funded filmmakers, after having so enjoyed identifying the clever rewards to grant can become a truly frustrated with the new burden carried at the back end.  If you’ve done your job and raised enough money to finance the creation of the rewards, fulfillment and the shipment of the rewards, and the customer service needs in what is effectively your newly minted online store, congratulations!   If you haven’t, as the filmmaker/producer, you’ll find yourself as the last man or woman standing in your garage in the middle of the swag pile, after everyone else has moved on to another project, and you get to spend your time packaging, licking, posting, and shipping, instead of marketing, selling, and festivaling your film – well, you’ll get through it eventually.

Watch for part two of this guest post, wherein Steve discusses potential changes coming down the pike with the JOBS Act and shares some best practices for using the crowd funding model.  Care to join the conversation? We’d love your comments.