Entertainment Lawyer Question and Answer Forum:

Welcome to this week's Entertainment Lawyer Q&A, published by The Film & Television Law Quarterly and the entertainment law firm of BLAKE & WANG P.A. Each week an entertainment lawyer will respond to reader questions and publish the best discussions.

Have a question for an entertainment lawyer? Post it on our website at blakewang.com and get the answers you need.

Question:

How do I set up a PPM for my film? What is the JOBS Act? Can I raise investment money from crowdfunding sites?

Answer by Brandon Blake - Entertainment Lawyer:

There is no doubt that private equity investment is a major source of financing for independent feature films. In fact, investors in Rule 506 offerings invested $895 billion dollars last year alone. Yes, almost a trillion dollars was raised in 2011 under Rule 506 for all different investment types. That is more than five times the $169.9 billion that was raised in IPOs globally for 2011. So the money is out there, the question is how to bring that funding to feature film budgets.

Our law firm has been setting up Rule 506 offerings, as well as other offering types, for feature film producers for more than 12 years. We expect the next 12 months to be the best period we have ever seen for producers raising private equity financing.

The Jumpstart Our Business Startups (JOBS) Act was passed in April of 2012, and is being implemented now by the SEC. The JOBS Act was designed to make raising money easier for small businesses, including feature film producers. The best feature of the JOBS Act is Title II, which will allow start ups and film producers to advertise their investments to the general public for the first time, provided the offering only allows “accredited investors” to invest.

This new provision will overcome the only real disadvantage to exempt offerings, which was the restriction on general advertising. By providing for general advertising of film investment opportunities, the SEC is going to exponentially increase the success rate of private investor financing, unlocking groups of investors who have probably never been approached about feature film investing.

While the SEC seems to be doing everything right on the JOBS Act, Title II, it has disappointed many micro-financing entrepreneurs with the failure to fully implement the JOBS Act, Title III, which was supposed to allow for crowdfunding sites like Kickstarter.com and others to raise investor money, not just donations.

The SEC has greatly complicated that process, among other things requiring any crowdfunding website to be a member of FINRA, the same securities regulator that major brokerages and investment banks have to join. The regulatory and reporting requirements are so steep that there would be no way to profit from running a crowdfunding site in the United States. The SEC has also stepped up enforcement of crowdfunding sites, making them risky for both the owners and the users.

So the SEC is both giving and taking this Holiday season, but there is a good chance that with the new JOBS Act Title II in effect in the coming months, startups and film producers could more than double last years haul from Rule 506 offerings, which will make a great Holiday gift for the film industry.

As with any legal matter, please do not make a decision about complex matters without consulting an experienced entertainment attorney first. I have been representing feature film projects and television series for more than 14 years. Please feel free to contact my office about a quote.

- By Brandon Blake, Entertainment Lawyer

About the Editor:

Brandon A. Blake is an entertainment lawyer and producer who works with Academy Award winning actors, directors and filmmakers. A complete biography is available online.

About the Entertainment Lawyer Q&A: The Entertainment Lawyer Q&A does not create an attorney-client relationship, nor is the information treated as confidential. Responses to selected questions will be made public and shared with our subscribers. All entertainment law information is informational in nature and is not intended to be acted on without entertainment lawyer counsel.

Entertainment Lawyer Question and Answer Forum:

Question:

I want to use crowdfunding to get investors for my feature film project. Can I get investors through my own website or do I have to use another site like Kickstarter?

Answer by Brandon Blake, Entertainment Attorney:

Great news for everyone looking to begin promoting his or her feature film, television, and music projects to investors this year. As you may remember, back in November of 2012 I provided an update on the progress of the Jumpstart Our Business Startups (JOBS) Act, which was passed in April of 2012. Well the SEC has been working extremely slowly in enacting the JOBS Act, but things are finally starting to move forward.

The SEC just voted 4 to 1 in favor of implementing section 201(a) of the JOBS Act, known as Title II, which lifts the ban on general solicitation and permits filmmakers, television producers and music labels, among others, to openly advertise that they are raising money in private offerings.

What does all this mean for independent entertainment producers? It is a big deal, because for 80 years the SEC has prohibited any kind of public advertising of small offerings. Because of this limitation the only way to approach new potential investors was through the use of stockbrokers or, more clandestinely, finders. Now after all of these years, the era of investor “introductions” is over and producers can finally do things like buy Internet and radio advertising, use mailing lists, and even promote offerings on television.

However, this is certainly not going to be a free-for-all and there are some important limitations left in place by the SEC to keep producers in line while marketing small offerings.

First, the SEC still requires that small offerings be filed for exemption through the SEC. That means that before producers can start advertising their offerings they will have to prepare the same limited offering materials that have been required for years, and there are now additional reporting requirements with the SEC. The SEC is going to require filing 15 days before the start of general solicitation, and also within 30 days of completion of general solicitation. Both of these are new requirements and will require use of the new EDGAR filing system.

Second, state law is not going to be pre-empted, so producers will have to be even more careful planning their marketing strategy and making sure that their limited offerings are tailored to the particular states where the best investor prospects exist. Nationwide advertising campaigns will still be limited by what each State will allow under the new regulations.

Third, the SEC will restrict the investment to accredited investors only, which are high net worth individuals, companies and a few other types of investors. So the tradeoff on general advertising will be the requirement to only allow more sophisticated investors to buy in.

So how will all this impact raising money online? The good news is that once you have an offering filed with the SEC, you can openly promote the investment online, including through your own website. Sites like Kickstarter are still strictly off-limits, however. The reason is that the SEC has not enacted the crowdfunding portion of the JOBS Act, which is referred to as Title III. This is the more controversial and complicated portion of the bill and it might well be another year or more before it is enacted.

A special note of caution: The general solicitation ban will not be lifted until September of 2013, and an offering and filing must be in place before the start of advertising. The SEC has been extremely strict about deadlines and has sanctioned a wave of early JOBS Act claimants, so please do not act on this without legal guidance.

Our firm has been handling PPMs, limited offerings and investment companies for the film, television and music industry for 13 years. Feel free to contact us for a quote for affordable, high quality legal service.

Entertainment Lawyer Question and Answer Forum

Friday, January 9, 2015

Crowdfunding and the JOBS Act

Entertainment Lawyer Question and Answer Forum:

Question:

Answer by Brandon Blake - Entertainment Lawyer:

Thursday, January 8, 2015

Crowdfunding Film and Television Projects

Entertainment Lawyer Question and Answer Forum:

Question:

Answer by Brandon Blake, Entertainment Attorney: