Zach Braff Explains Why The JOBS Act Matters To Social Media

This + $Millions = Movie

Zach Braff is making a new movie thanks to social media.  The star of Scrubs has starred in several movies over the years but has only written, directed, and starred in one full length theatrical film, Garden State back in 2004.  That’s about to change with the launch of his Kickstarter project to fund a new movie, Wish I Was Here.  The project requires funding of $2 million but only one day in it has raised nearly $1.5 million.  It might even be fully funded by the time I finish writing this post.

Braff’s successful Kickstarter project comes on the heels of another record-breaking Kickstarter project for the Veronica Mars movie.  That project is not only the most funded movie project on Kickstarter (the second highest film raised just over $800,000) but also shows the power that social media, crowdfunding in particular, can have on an established industry like making movies.  Kickstarter has been used to fund hundreds of movies from documentaries to comedies to unofficial Star Trek fan pics.  Veronica Mars was the first time a major Hollywood studio allowed Kickstarter to participate in its development.

Series creator Rob Thomas had the idea for the film and ensured the series star was interested, then pitched the concept of launching the Kickstarter project to the studio that owned the Veronica Mars franchise.  Warner Bros. approved of the concept, essentially telling Thomas and the fans that if they raised $2 million then the movie was a go (and WB would distribute the film, another huge hurdle for actually seeing movies once they’re made).  The project gave itself 30 days to reach its funding goal; it raised $2 million in less than a day.

This is not to say that all Hollywood financing will shift to Kickstarter.  Nor does it make any star’s project instantly successful–the Veronica Mars project succeeded and Braff’s looks highly likely to succeed but another TV star, Melissa Joan Hart, has a Kickstarter project with a deadline of May 26 to raise $2 million.  To date is has raised a bit over $36,000.

Kickstarter funding does have the ability to connect fans of characters or stories and put their money where their mouth is in terms of making a movie happen.  In that sense it’s a brilliant market research and fundraising tool with almost no downside.  The only criticism that emerged after the Veronica Mars project, largely driven by bloggers as far as I can tell, is that the projects take money from fans only for the reason of taking more money from them down the road (when they go see the movie).  But anyone who has ever been a fan knows that’s how it works–we pay money to attend conventions/shows where we buy more items.  We go see a movie then buy it on DVD or digital download.  We’re fine paying for multiple items connected to stories we love.

And with Kickstarter, that’s exactly what you get.  Kickstarter is known as a perk-based or reward-based funding platform.  Meaning that when you contribute to a project you are signing up to receive something based on your contribution.  At the lowest level it may be a thank you.  At higher levels it could be physical goods, pre-ordered products, participatory credits, special meetings with the creators/inventors, all kinds of things.  But ultimately that is what you’re paying for–nothing else.  If the project fails, you don’t get money back.  If the project succeeds and results in billions of profit, you don’t get anything else.  You are not an investor, you simply bought something associated with the project.  If you don’t get what you paid for you can sue the project owner, but that’s not like a giant lawsuit over a failed company by disgruntled investors.

That distinction matters.  In the US it is currently against the law to crowdfund for equity investments (where you put money in to own a piece of the final result or company).  That kind of investment is controlled by the SEC and ran into a very public wall when the website buyabeercompany.com tried to gather enough pledged funds to purchase Pabst Blue Ribbon brewery for $300 million.  After gathering pledges above $200 million the SEC stepped in and informed the site owners that this kind of activity was highly regulated–the SEC shut down the site and settled with the creators.

As Braff explained in an interview about the project:

Listen, I would love, more than anything, to have it be you get an equity stake. You have 10 bucks, you make your 10 bucks back with the percentage of profit, like a stock. But that’s not legal yet.

And he’s right, for now.  But that’s set to change soon.  In 2012, Congress passed the Jumpstart Our Business Startups Act or JOBS Act.  The bill focused on having the SEC relax regulations about gathering investors to contribute money in exchange for ownership–equity investment as opposed to reward-based investment.  The prior rules essentially forced businesses that wanted to raise money from large groups of people to issue stock and jump through all the hoops associated with such an offering–it made this kind of investment only financially viable for extremely large sums of money.  For smaller amounts of money, $50,000 or $10 million, it didn’t make sense to issue stock and private lenders including banks may not be interested, leaving those companies with no viable option.  But with the changes in technology and the ability to raise money via social media, there needed to be a change to regulations to allow that activity to take place.

Even in the middle of a re-election year and our highly partisan political environment the law passed the House by a vote of 407 to 17.  The law requires the SEC to issue new guidelines on investments–it has issued draft guidelines for institutional investors (large banks, wealthy single investors, etc.) but is overdue for issuing guidelines for consumer investment (the $5 or so you and I might contribute to a project).

Once those guidelines come, we’ll see if the journey Kickstarter has begun in transforming Hollywood economics takes the next step.  The potential is there–in the UK where equity crowdfunding is legal, at least one UK platform reported at a recent crowdfunding conference that reward-based projects typically raised from $3,500 to $35,000 but equity-based projects raised an average of $88,000.  Investors are more willing to give money in exchange for ownership.  That may make larger budget movies possible if we take successful projects from the $5 million range to the $15 million range or higher.

This additional money doesn’t just impact Hollywood but virtually every creative industry.  Virtually every media can now be distributed digitally and crowdfunding not only raises money but establishes an initial audience of consumers and evangelists.  Years ago to raise money from thousands of people you had to travel from city to city, struggling to get the word out.  Now you can use social media and have thousands of people backing your project.

Ultimately, this is a movement that can bring a new wealth of creative content as projects that may not have been funded with the old models suddenly find enough support to reach the market.  Which really only matter if it helps bring us a Chuck movie.

Advertisements

3 Comments

Filed under Celebrities, Commercial Activity, Crowdfunding, Laws, Social Investment, Social Media Risks, Social Platforms

3 responses to “Zach Braff Explains Why The JOBS Act Matters To Social Media

  1. Great post Ryan.. with the changes coming from the JOBS Act that you discuss, and the recent trend of outlets funding production of their own shows (Netflix with House of Cards, and Amazon with their 13 pilot shows), the entertainment industry hos some interesting developments to deal with.

  2. “Zach Braff is making a new movie thanks to social media.” Another great reason to hate social media.
    Okay, I’m kind of kidding (only kind of, because Garden State was awful.) But it’s going to be interesting to see how the law and practices change in this area. Thanks for the interesting post.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s