1. 100% of filming costs are deductible in the same year as the investment.
2. 75% of the filming must be completed in the United States.
3. $15 to $20 million production cost cap and no minimum.
4. TV pilots, up to 44 TV episodes, shorts, music videos, and feature films all qualify.
5. Section 181 applies to active and passive income.
6. Section 181 is retroactive.
7. No expectation for film completion or distribution.
8. We issue Schedule K-l to our investors so they can use the tax deductions in their personal or business tax reports.
After the Dot Com Bust and in the poisoned investment climate following the Subprime Mortgage Panic, it is about impossible for a startup venture, like FlixPik, to obtain funding from the venture capitalists who threw money at internet concept deals during the Dot Com Craze. But, fifteen years ago the internet was not as widespread and failure of traditional film making was not as evident. So now, when venture capital will not consider us, is the right time to launch FlixPik. We are fortunate that RockThePost chose us as a crowdfunding project.
Use Common Sense
Investment in startup ventures is inherently risky, particularly for an industry changing venture like FlixPik. We will be the first fully participative audio/ visual entertainment company. No one has done what we seek to accomplish. There are unknowns and unkowables in starting a new ventures. Experience suggests that most of the unknowns will be negative which is why we need a strong management team who can deal with and overcome adversity.
Experienced investors diminish risk by diversifying their investments. Venture capitalists consider three winners from ten investments to be a good outcome. Earnings from the 'winners' must be sufficient to cover losses from the 'losers' and show enough profit on total investments to justify not putting the money in bonds, common stocks, and other presumably safer investments. That is why startup investments must have high, feasible upside returns and we have them which is explained as follows:
If you choose your investments wisely, diversified investment in selected startup ventures should yield a higher return over the long term.
Upside Return Calculations
We project third year net income at $51.5 million. After the third year, we will provide opportunity for our investors to take profit from their investments. Recently, large, growing websites have sold to public companies at ratios of twenty (20) times earnings or more. We offer 10% common shares to our investors. So, the upside return calculations for straight equity investment is
$51.5 million × 20 × 10% = $103 million
$103 million / $5 million = 20.6 or 20.6X initial investment
Convertible debt investors receive half the shares per $1 invested, but are repaid investment with 8% annual interest for a 20.6X return
Nearly all startups offer high upside returns. FlixPik is unique in offering downside risk abatement. No one starts a new venture thinking it will fail. We certainly do not. Nevertheless, failure is a possibility for every company even established firms.
The two most common reasons for business failure are underfunding and poor management. With $25 million total investment and our management team, we have the first two causes covered, and we don't see any other way we would fail.
What happens if FlixPik fails?
Our success rests on two fundamental propositions. First, there is a large number of individuals who will participate in creating audio/ visual entertainment if given a simple, no cost way to do so. Second, members will purchase completed productions of the entertainment they helped create. If we are wrong on either proposition, we will fail.
Regarding a prospective member base, every indicator seems pointed toward increasing consumer input to their entertainment and it is a worldwide happening. That someone would want to see the final version of what they helped create just seems logical. Especially if we include the member's name in the credits of the products they purchase as we plan to do.
Investor Tax Deductions
We can organize our early films as general partnerships or subchapter S corporations and pass back tax deductions to our investors who may be individuals or businesses.
To stem the rise of film production in Canada, Eastern Europe, and Australia by US companies, Congress passed legislation leading to Section 181 of the IRS tax code. Briefly,
Tax rebates and incentives for money spent on film or television production within a particular state combined with Section 181 benefits allow an investor to significantly reduce his or her investment risk. For example, if an investor is in a 35% tax bracket and a qualifying audio/ visual entertainment production is filmed in Michigan which has a 40% tax credit, an investor will be eligible to recapture 74% of their investment. The recapture is realized before the film is released.
Snakes on a Plane
For this discussion, we will assume the worst outcome. $25 million consumed with no appreciable member base and member purchases.
If we see that we are not able to bring in substantial members, we will cut back on costs, primarily what we spend for new films, and stretch our investment out to over one year. At the end of the first year, we will have two films completed and a third nearly complete. We will offer these 'audience participation' films to distributors for public sale. We have reason to believe that audience participation movies will sell well to the public.
In 2006, the producers of Snakes on a Plane (SoaP) decided to take input from the public after filming was 95% complete. Nevertheless, SoaP got an internet buzz as an 'audience participation' movie.
SoaP opened to theaters and received poor ratings and mediocre ticket sales. But, the real story is the first week of 2007, the first week of SoaP DVD sales. SoaP was top seller at over $15 million and nearly $24 million to date. And that was for a Hollywood schlock movie with audience participation as an after thought. Total and first month SoaP DVD sales are as follows:
|Rank||Cumulative Units Sold||Units Sold||Weekly Purchases||Cumulative Purchases|
|January 7 - 13, 2007||1||903,648||903,648||$15,343,943||$15,343,843|
|January 14 - 20, 2007||5||200,991||1,104,639||$3,958,216||$19,302,159|
|January 21 - 27, 2007||21||91,040||1,195,679||$1,819,890||$21,122,049|
|January 28- Feb. 3, 2007||30||53,313||1,248,992||$1,065,727||$22,187,776|
|Total To Date Sales||1,352,750||$23,742,259|
With $5.2 million to publicize FlixPik as a participative film company and quality, 100% audience participation films, we expect better sales in download and DVD than SoaP generated.
In other words, we will sell our three films for all we can get and even after deducting distribution costs, we believe we can recoup investment even under the worst failure we can imagine.