For Film Financing, Try an IPO?

The story behind this film project has plenty of plot twists, but some critics don’t see a happy ending.

In a novel move, a film financing company is planning a $7.9-million initial public offering of stock to fund a single movie -- a gritty murder mystery called “Billy Dead” that would star Ethan Hawke.

Los Angeles-based Civilian Pictures Inc.’s online brokerage unit, Civilian Capital, hopes to help Billy Dead Inc., which was formed specifically to make the film, raise the money to cover its production and other costs.

Through Civilian, Billy Dead would sell 900,000 shares at $8.75 each, according to a preliminary prospectus filed with the Securities and Exchange Commission and posted on the brokerage’s Web site.

“I always thought the concept of liquidity in a specific film investment would be cool,” said Civilian Pictures co-founder and Chief Executive Barry Poltermann, 39. His firm eventually hopes to launch half a dozen movie IPOs a year.

With an individual stock representing a film, an investor who believed the movie had poor prospects could sell to someone who saw a surprise big hit.

For investors researching the shares, the routine could include “reading the box-office grosses in Daily Variety,” Poltermann said.

Civilian, which still needs SEC approval for the IPO idea, sees the concept becoming a regular alternative source of financing for indie projects, one that would allow movie buffs to invest, as the saying goes, in what they know.

The company is named for the notion that regular fans, not just rich folks and industry insiders, should be able to help greenlight a project.

The IPO plan includes a provision that the financed companies would have limited lives: Billy Dead Inc., for example, would be dissolved after about three years -- the economic life span of a typical film. The residual rights to the film then would be sold and remaining assets, if any, would be distributed to shareholders in cash.

Billy Dead doesn’t plan to pay dividends along the way, even if the film were successful.

More typically, independent films have been financed through private partnership stakes that aren’t publicly traded but follow a similar cycle, ultimately disbanding.

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Costly and Risky?

Skeptics see the IPO idea as merely the latest gimmick in movie financing, and likely to prove costly for anyone who would expect to buy and hold such a stock.

“It’s off-the-chart risky,” said entertainment lawyer Schuyler Moore, author of “The Biz: The Basic Business, Legal, and Financial Aspects of the Film Industry.”

Century City banker Lewis Horwitz, a longtime lender to independent filmmakers, said: “Only two people know whether any movie will ever be successful. One is Steven Spielberg. The other is God.”

Horwitz called it “very dangerous” to invest in any film, regardless of the budget.

“In the independent world, probably 80% of all films do not make a profit for the investors,” he said.

Over the years, companies have used various vehicles to raise money for films. A series of limited partnerships known as Silver Screen Partners, which funded Disney films in the late 1980s, was marketed through brokerages, Moore noted.

“You see financing waves that may last a few years, but this IPO idea seems like a trickle,” he said.

The preliminary prospectus for Billy Dead Inc. acknowledges numerous investor hazards, including that the film as yet has no distributor.

The stock that investors would be offered -- a class of so-called preferred shares -- would come with voting rights, and would trade on the obscure electronic Bulletin Board market for over-the-counter issues.

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Possible Pitfalls

If director Keith Gordon, whose credits include “A Midnight Clear” and “Waking the Dead,” or producer Julie Lynn were delayed by a scheduling conflict or left the project, that “could harm our business,” the filing says.

If the company fails to sign Hawke, who intends to play protagonist Ray Johnson, to a final agreement, the film’s “marketing appeal could be greatly diminished,” it adds.

Hawke was nominated for an Oscar for “Training Day,” released in 2001. His other notable films include “Before Sunrise” and “Reality Bites.”

In an interview, a spokeswoman for Hawke said he is “attached to the project as a producer and actor but is not involved with raising the funds.”

Because of its mature themes, including references to child abuse and incest, the film could be harmed by censorship or saddled with an NC-17 rating, which would limit distribution, the prospectus says.

It also warns that, because Civilian Capital helped form Billy Dead, the quality of its due diligence analysis “may have been reduced” by conflicts of interest.

Further, the $8.75-a-share offering price “was based upon the amount of capital projected to make the film, without considering assets, earnings, book value or any other objective standard of value.”

As a result, “there may be insufficient information for buyers in the market to determine a fair trading price, and our investors may be unable to resell their shares for more than the offering price even if our operating results are eventually positive,” the prospectus says.

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Mounting Hurdles

Although the hurdles are high, independent films can be profitable, industry experts note.

Poltermann, a self-described “film brat since age 12” who studied filmmaking at the University of Wisconsin, tasted success as an investor in, and co-executive producer of, the 1999 independent hit “American Movie,” a documentary about a bizarre filmmaker.

David Kirkpatrick, an independent producer and former studio executive who is an advisor to Civilian Pictures, said the Civilian team has solid artistic credentials and industry connections.

“This is not a conclave of dentists in Spokane saying, ‘Let’s invest in an independent film and maybe it will get into Sundance,’ ” he said.

As a producer, Kirkpatrick has had hits such as “The Big Night.”

“There is a certain urban myth that when you invest your money in a movie you never see a return,” he said. “But if you’re smart and pick well and you’re, in part, lucky, you might invest in anything from ‘Sling Blade’ to ‘My Big Fat Greek Wedding.’ ”

At least one potential investor isn’t deterred by the odds.

Lisa Reardon, whose 1998 debut “Billy Dead: A Novel” has been adapted by Gordon into the screenplay, said she has high hopes.

“My family’s all excited -- they’re ready to buy shares,” Reardon said in a phone interview from Chicago, where she is finishing her third novel. “My husband and I are talking about how much to put in.”