Wednesday, January 27, 2010

In Malaysian Film Financing, 2+2 = 3

Things are getting weirder and weirder for the Malaysian film industry – especially for the local TV Producers. At times when financing sources are drying up, the few banks that are doing so have decided to do some creative accounting. I guess since it is the creative industry we are talking about, the accounting too needs to be creative.
Now, we poor producers are always on the look out for convenient sources of funding. The new Creative Industry Fund or CIF is much welcomed. However, it is now being handled by Bank Simpanan Nasional, and they are currently in a flux try to find out the best way to disburse the funds to local players.
Once BSN gets its act together, most applications will be dealt with in a fortnight, and loans up to RM5 million can be applied for and received under this scheme with a fantastic 2% interest rate.
All these look great on paper. Let’s see what happens in real life.
Now there is another bank that funds local filmmakers and have done so for the past few years.
They charge at the normal 8% commercial rate, but it is attractive to most TV producers because you can apply for it without having to put up any collateral. They accept personal and directors’ guarantees. Of course, they only fund parties that have real contracts with stations. So basically, what they are doing is factoring your contracts.
A couple of years ago, this bank, in lieu of the non-collateral policy, decided to cover their backs by imposing a mechanism called the sinking fund. This sinking fund aims to get a cash collateral of 20% of your available total funding line. It will be placed in a fixed deposit at another bank giving you a 2% interest.
So if the bank offers you a line of RM2 million, they will keep RM400,000.00 into the sinking fund taken from the payments paid to you by the stations over a period of time. This money is returned to you once you do not owe the bank any more money and close the funding line.
Previously, they deduct the 20% from the final payment you receive from the TV stations. To the producers, what this means is that your gross profit goes into safekeeping because that’s what producers make in this business – 20 percent.
However, we made do with this funding mechanism.
This year, some smart alec decided to change the mechanism. Now the bank has decided that the sinking fund needed to be increased to 30 percent!
To make the fund look less attractive, they also decided that half of that sinking fund should be taken from the producers upfront before the first drawdown.
The balance for the sinking fund will then be deducted or taken from the payment made by the station.
So if you have a half a million contract with RTM for instance, before any drawdown is made from this bank, you need to put up RM75,000.00 cash collateral into your sinking fund.
Later, when RTM pays you the full amount once the project is delivered to them, the bank wallops another RM75,000.00 from this payment – a total of 30% from your billings.
Wait, don’t forget the 8% interest that the bank imposes on the borrowings. That’s RM40,000.00 more.
There’s also a 0.8% e-transaction fee to another party. This may be a mere RM4,000.00 but it adds up.
Now there’s talk about us producers having to ‘donate’ 1 percent of our earnings from RTM to a welfare fund for hard-up artistes and film workers, and if this happens its another RM5,000.00.
So, if one has a RM500,000.00 contract with RTM, you can expect a total of RM199,000.00 already taken away from you (including RM150,000 that went into the sinking fund).
Now, you mustn’t forget that we need to pay back the principal loan. So if the bank loaned you RM400,000.00, they actually deduct that amount first from RTM’s payment to you.
So in actually fact, they take RM400,000.00 plus the RM199,000.00 above the principal amount. This totals RM599,000.00.
At the end of the day, the piss poor producer suddenly finds himself RM99,000.00 in the black.
Does this make sense to you? Not me.
And this is if your billings come to half a million that is equivalent to one 13 x 60 min series. Imagine if you have a RM2 million contract with RTM. The numbers are compounded further.
If there is a banker out there or an accountant out there, can you please make sense out of this? Help us out please. This business doesn’t seem to be kosher.

1 comment:

joolee said...

I think the piss-poor producer will be in the red, not the black.