12.14.2011

A Call for More Transparency

Jeremy Juuso shares his thoughts on "Accounting Transparency: The Path to More Film Investors" that matters to anyone who wonders why in an industry that makes so much money why there is such a lack of outside investment in it.

As the large number of audits relating to the accounting practices of film distribution companies seems to indicate, distributors appear quite reluctant to allow artists, producers, and investors to lay claim to profits unpaid, but agreed to, in contracts. It is not unusual for profit participants in successful movies to wade through the swampy dentistry of auditing and litigation (or threatened litigation) in pursuit of such profits.

This is why actual ancillary film data, beyond just estimates, prove so challenging to locate. Releasing actual numbers could result in a bevy of profit participants contesting amounts owed and amounts paid.

In a time when the industry was flush with DVD income and cash from investors chasing it, treating profit participants to opaque accounting made sense. Any problems could be left to the courts, where profit participants seldom had the means and the will to tread, and new profit participants would always be around the corner to take the place of old ones.

But now, as piracy and new media fragmentation bleed the industry dry, forcing financiers to rely more heavily on the discounting of receivables, can film distributors really afford to treat profit participants, particularly the industry’s shrinking pool of equity investors, so poorly? 
And the best solution to enforce this...

Ultimately, only the government could push the industry collectively toward transparency, but this remains highly unlikely, as the government has bigger fish to fry, namely deficits.

Cones Analyzes HR 2930 and What It Means for Film Investments

On November 8, 2011, the Senate read HR 2930 as passed by the House of Representatives for the 2nd time and placed the legislation on the Senate's calendar for further consideration. The bill, referred to as the Entrepreneur Access to Capital Act, ostensibly seeks to amend the federal securities law to provide for registration exemptions for so-called "crowd funded" securities.

The legislation, if approved by the Senate without further changes (i.e., as passed by the House) and signed into law by the President, would amend the Securities Act of 1933 to exempt from the registration requirement securities offerings for $1,000,000 or less (or up to $2,000,000 if the issuer provides audited financial statements). It also limits the amount sold to any investor to $10,000, or 10% of such investor's annual income. Additional requirements are set out for sales through intermediaries and/or issuers. Further, the legislation calls on the Securities and Exchange Commission ("SEC") to promulgate rules to carry out the intent of the legislation.

How does it differ from the SEC's Regulation D, Rule 504? What level of disclosure to investors is required? Is "crowd funding" the appropriate term to use in describing this new small offering exemption? What changes will be made, if any, on the Senate side? How will SEC rule-making impact the legislation, if passed? What are the practical limitations for such small offerings?

Read more to find out...

The Negative Impact of Cable Bundling

An interesting post on Andrew Sullivan's blog about why cable television can't be a la carte made me think of the impact cable bundling has outside of the legalities and economics of cable television.


Cable bundling has enabled the corruption and radicalization of cable TV news. It the basis of Fox News' business model.

Here's how it works. Fox charges cable companies about 70 cents a subscriber. That fee provides about half their profits. So everyone who has Fox News on his or her cable system is compelled to pay Fox 70 cents a month. No matter how much I loathe Fox and what it has done to our political discourse, I have to pay them 70 cents a month. What this means is that Fox pays no economic price for stoking extremism. The opposite is true. It can cater to a mere three or four million Americans, 1 percent of the population, a ratings bonanza in the chopped up world of cable TV, while collecting a fee from tens of millions who detest the network. It boils down to this: I cannot stop paying Fox News no matter how much I hate it. I'm captive.

If Fox became a la carte, the results would be dramatic and immediate.

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