While other entertainment sectors like music and cable television have seen paradigmatic disruptions in the past 15 years, Hollywood has thus far proven immune. That’s about to change. Equity crowdfunding and blockchain distribution may be about to turn Tinseltown upside down.

Currently the movie business operates in an esoteric netherworld, full of middlemen, secret contracts, and mafia-like protection rackets. Major studio heads and a few A-list actors gain fortune and fame and everyone else ekes out a living even while working on summer blockbusters. Hollywood’s financial structure is murkier than the latest spy-thriller. According to opaque industry accounting, even runaway hits like The Hobbit trilogy lose money.

How are movie dollars made? According to reports, major studios generate their bulk revenue from licensing deals with broadcast networks, all of which are owned by the studio’s corporate conglomerates. This makes it nearly impossible for outsiders lacking massive archives to break through without a steady stream of hits.

Rewards crowdfunding platforms like Kickstarter and Indiegogo tried to breach the Hollywood fortress but Tiseltown gatekeepers repelled them. Enticing the crowd with DVDs and other goodies preproduction distracts talent, robs films of commercial value, and degrades marketing and licensing opportunities.   

Enter equity crowdfunding. Reg CF—now a year old—allows moviegoers to become equity partners in films and share in their potential success. Instead of a DVD, Reg CF investors get ownership. Perquisites are still available and producers can offer large investors roles as extras, access to exclusive parties with the actors, or behind-the-scenes looks at production. 

Producer’s not only get their projects partially funded through crowdfunding but also get a readymade marketing operation. The potential for financial payout incentivizes Reg CF investors to work for the film’s success. This cast of potentially hundreds or thousands of acolytes gleefully spreads the word on social media and their other networks, building grassroots excitement for a movie premier. Traditional advertising can’t buy this type of organic hype.  

Two movies crowdfunded on Mircoventures/Indiegogo portals have been early adopters. Animated film ‘Bunny Bravo’ has raised almost $150K towards its goal of 200K to cover distribution and marketing.  ‘Field Guide to Evil’ successfully completed a $500K offering earlier this year.

Entertainment is one of the leading sectors of the nascent equity crowdfunding movement.  According to Crowdfund Capital Advisors, entertainment ventures have received almost $3.5M in funding thus far. 

Further down the road, blockchain technology may give Hollywood another shock. This new concept aims to excise everyone but the ‘creatives’ from filmmaking. Through decentralized online distribution, cryptocurrency, ‘smart’ contracts, and IP ownership, blockchain may signal an alternative way to make movies.

Nick Ayton of The 21 Million Project is producing a film/tv series using this concept. He claims he can cut a film budget by a factor of 5 or 6 through blockchain, thereby making a $30 million film for a $5 million. The 21 Million Project has committed 80% of profits to holders of 21MCoin, the online security financing the film. These crowd investors will receive film royalties in perpetuity.

It remains to be seen if blockchain becomes the new standard and if so how long it will take, but what is certain is crowdfunding is here to stay and everyone that doesn’t adapt, even Hollywood fat cats, will be left behind. 

By Jossey PLLC