Update on status of Jobs Act revisions to Regulation D, Rule 506 securities offerings
Last April, Congress passed, and President Obama signed into law, the JOBS Act. One important component of that act loosened restrictions on the way film and theatre producers companies can obtain financing through private offerings under Rule 506. This has been the preferred approach to independent financing for films and theatre projects for some time, largely due to simplified State “Blue Sky” procedures. Now, things are getting even better for those seeking investment under this system.
The JOBS Act requires the SEC to implement rule changes to allow previously prohibited general solicitation (i.e., public advertising) of offerings, provided the offering is made only to Accredited Investors (investors who satisfy certain wealth, income and investment sophistication standards).
These changes represent the most significant change to the Regulation D private placement system in several years. This will result in far more effective promotion of Regulation D 506 offerings to investors. Under the new rules, issuers can create what is essentially a quasi-public offering allowing general advertising and solicitation, while keeping the benefits of a true private placement.
The SEC is expected to finalize the rule changes within the next 90 days. For now, I'm counseling clients to treat their offerings as “Rule 506 Accredited Investor Only” to allow us to use the new 506c exemption once it is available.
If you're considering financing a film or theatre project, it makes sense to plan for the implementation of the new rules, and if appropriate, take advantage of the option for general solicitation. But, before doing so, it's important to consult with a qualified, experienced entertainment lawyer.
If you're planning a film project in 2013, you won't want to miss our Film Finance Bootcamp. Enrollment is limited, and opens again in January. So, sign up at http://filmfinancebootcamp.com, and we'll let you know as soon as spots are available. |
Is this considered a PUBLIC COMPANY when you do these crowd offerings? Also, I would love to see a film or tv offering that shows an ROI in less than two years because the investor has better choices than film or tv and that is the problem.
No Larry,
These are still considered small offerings, and they will likely operate under the SEC’s regulations covering “Private Offerings”.
Two year ROI would be terrific. Unfortunately, that’s pretty rare in entertainment. Remember that the first year after initial investment is mostly spent creating the product, so there’s little revenue expected. Then, in year 2, you’re looking at only the first one or two distribution windows. Most film projects don’t get close to breakeven until the home video and/or VOD windows, which mostly happen later in the scheme of things.
This is changing nowadays, but the advances paid for the VOD and internet distribution channels are quite small. As a result, investors will likely still have to wait 5 or more years for all but the breakout films to recoup.
It should also be noted that most films do not recoup.
See my forthcoming article about Why investors fund entertainment projects. It’s not all about the ROI. If it were, nothing would get funded.