Appeared in 1985, Film and Audiovisual Industry Financing Companies allow investors to support French creation. But despite an attractive tax exemption of 48%, their model, essential for the industry, does not aim for big returns.
What do we have in common? The fabulous destiny of Amlie Poulain, Untouchables and the Palme d’Or 2023 Anatomy of a fall? In addition to their successes, their credits display strange support: Cofimage, Cofinova, Cinmage… Behind these obscure names hide the Sofica (financing companies for the cinema and audiovisual industry).
Little known to the general public, they are nevertheless historic actresses of the 7th art. They were created in 1985 by Jack Lang, in the context of cultural exception, says Guillaume Sorne, general delegate of the Sofica representative association (ARS). They are in reality investment vehicles, which allow individuals to mobilize their savings in the service of audiovisual and cinema production.
48% tax reduction
The Soficas are under the triple supervision of the National Cinematography Center, the Financial Markets Authority and the General Directorate of Public Finances. Because investment grants a big tax reduction. By respecting certain criteria (support for exports, television, etc.) all companies offer a tax advantage of 48%, and allow the extension of the tax shelter ceiling to 18,000 euros. Knowing that the maximum investment is 18,000 euros, the investment offers up to 8,640 euros in tax reduction. A nice end of year gift!
Each year, a new company must be created, to collect until December 31 and then invest. This is why, for historical players, we see a small figure attached to the name of the fund. This year, 13 Sofica(1) were approved by the triple supervision, specifies Guillaume Sorne. All backed by one or more production companies, they must sign a charter with the CNC, in which several objectives are set out: financing at least 50% of independent productions, helping young directors and small and medium budget films (less than €8 million). euros)…
Express collection
The overall envelope is set at 73 million euros, distributed by the CNC between the approved companies. There is a weighting according to the commitments of each, their seniority, collection capacities… This ranges from 1.5 million euros for Impact Sofica 2023, which appeared this year, 11.9 million for the 19th version of the Cinmage history.
The public appeal for savings runs from October to December 31. Supported by banks and wealth advisors, collection is rapid: the first vehicles reached their ceiling in November! All Soficas are going as fast as they can, assures Alexandra Reveyrand de Menthon, operations director of Entourage Sofica. Because as soon as the envelope is full, they can request extensions of a few hundred thousand euros, deducted from the budget of their competitors.
Not everyone reaches the ceiling every year but we see very good collection trajectories
Entourage 3 has completed its budget of 3.75 million euros + an extension of 500,000. Not all of them reach the ceiling every year, analyzes Guillaume Sorne. But we see very good collection trajectories. In 2022, we are almost at 73 million euros.
Companies then have one year to invest the funds. Everyone is free to make their choice of cinematographic and audiovisual projects, explains Kevin Vidalenc, advisor to the Linxea heritage center. The online broker distributes Entourage 3 exclusively on the web, convinced by the fact that Sofica is a partner with Mediawan, the leading production company in France.
The only constraint: respect the commitments made to the CNC. Companies set up investment committees, specifies the advisor. They are made up of professionals from the world of cinema, television and culture in general. They study the projects proposed by producers and distributors, and select those that interest them. This concerns 90% of the funds: the system requires keeping 10% of cash.
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A risk, but guarantees
The contracts concern three stages of the life of the projects: production, implementation and distribution. Soficas are always remodeled to meet the needs of the industry, notes Guillaume Sorne. An example: since the health crisis, they have been able to finance distributors, hurt by the closure of cinemas.
The main volume of activity concerns production association contracts and participation in project budgets. There is a strong capacity for leverage, assures Guillaume Sorne. In the financing plan, there is often 5 or 10% missing. From then on, the producer requested Sofica. With fairly low amounts, they make it possible to initiate production of the film. There is also the distribution association contract, which accompanies the release of the films.
The 13 funds also engage with producers on the development of projects that are not necessarily intended for release, in the spirit of research and development. Finally, the backing consists of a 0-rate loan to one or more production companies, which can represent up to 35% of the total investment. Barring a disaster, the backing and development funds will be recovered.
On the distribution side, the films are about to be released, the placement is less random. We are sure that the film will be released, we know who is in the casting, how it is written, analyzes Kevin Vidalenc. The main risk is focused on production contracts, as projects may not come to fruition. The unknown is stronger, he adds. This is where the know-how of each Sofica comes into play to smooth out the risk. This structure prevents the vehicles from collapsing. There are bets, but a certain number of guarantees, summarizes Guillaume Sorne.
Limit profitability
We tend to imagine that a hit at the box office will boost the result. Guillaume Sorne qualifies this received idea. The contracts mean that the remuneration is caped quite quickly. Even if they finance a great success, it will never return +50 or 100%. Because the idea is above all to support production. Soficas are not pension funds, recalls the general delegate of the ARS. This is not the logic of the system. Management aims to be more reasonable.
Entourage invests in both cinema and television, with a focus on impactful films and social issues. We had great success with Small victories, and we were able to obtain 110%, says Alexandra Reveyrand from Menthon. In our deals, when a film works, we can get bonuses, and reach the end 115 or 120%. But it doesn’t go beyond that. Investments for television have more limited returns. For the series, everything will depend on whether they integrate the platforms or sell abroad.
Naturally, in the basket, other works will have disappointing results. The loss can then be more marked. It would therefore be exceptional for Sofica to recover 100% of the capital invested. It’s virtuous for the industry, maintains Guillaume Sorne. This explains why the return is calculated tax advantage included. It ensures that the Soficas find their way there. The rate of return on investment is often positive, but not staggering: around 3 to 5% annually.
There is a lot of room. We are sure not to make a loss, tax benefit included.
Win by losing
Rather than performing, the challenge is above all to limit damage, judges the director of operations at Entourage. In general, Soficas recover 70 to 75% of their initial capital, even if we hope to do much more. The main thing is not to exceed -48%, so as not to cancel the tax advantage. The Soficas set a goal: an annual return of 3 to 5%, tax benefit included.
For the moment, Entourage’s indicators are rather positive, with successes like The animal kingdomor the TV movie Like my son with Tomer Sisley. In any case, the model limits the pocket of risk. Of the 90% invested, Soficas allocate almost half to backing (the zero-rate loan) and to development contracts. These two elements are not profitable, but almost guaranteed.
In the end, the Soficas risk less than 50% of the capital. By adding the 48% tax reduction, barring major bankruptcy, savers should get their investment back. And since some bets will work, delivering 3 or 4% per year is plausible. We understand better why shares are snapped up in just a few weeks! There is a lot of room, says Alexandra Reveyrand de Menthon. We are sure not to make a loss, tax benefit included. As Soficas have recently changed their formula, there is no performance history yet. But we hear sounds from optimistic corridors…
Fees expected
9 vehicles are carried by banks and offered to their customers (BNP Paribas, La Banque Postale, Socit Générale, Crdit Agricole, etc.). For others, this involves a wealth management advisor. Companies often impose a minimum of 5000 euros. We cannot therefore exceed 18,000 euros. But knowing that the payment cannot exceed 25% of net income, you must then earn 72,000 euros. The average ticket is around 8,000 euros, estimates Guillaume Sorne.
The average ticket is around 8000 euros
Entrance fees vary. But the tax advantage concerns the overall sum, nuance Kevin Vidalenc. 48% will therefore be recovered via tax reduction. You must also plan for around 2% management fees. These withdrawals partly explain the limited yield. Please note: the funds are blocked for 5 to 10 years, even if in practice, it is frequently 6 years. Which has a logic: cinema or TV production often requires a long time. At the time of closing, the capital is redistributed to investors with a document summarizing the overall performance.
People are happy to have invested in the films we are talking about, which are successful
Passion investing
Slightly complex operation, uncertainty about the result… These products are not intended for everyone! A certain amount of gymnastics is necessary, warns Guillaume Sorne. We must understand that a Sofica seeks to find itself by counting the tax advantage. He nevertheless recalls that their primary goal is to maximize the return on investment of their subscribers, taking into account the regulatory constraints imposed on them. The typical profile of the investor is a person whose income tax is in the range between 5,000 and 8,000 euros, summarizes Guillaume Sorne. This represents approximately half of the French population.
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The Soficas are intended for tax exemption, but beyond that, they will appeal to fans of films and series. This pleasure investment allows you to direct your tax for the benefit of French culture. Sometimes, investors benefit from little extras, such as invitations to previews. It’s rewarding to contribute to the development of our film industry, rejoices Guillaume Sorne. Because Soficas are essential. They finance almost one in two French films. This is even 80% of arthouse films and/or whose budget is between 2 and 10 million euros. Without their contribution, it is estimated that half of these films would not be made.
It is possible to invest until the last week of December, but the ARS delegate says he is rather confident in reaching the envelope of 73 million euros. Then, savers will have the pride of seeing their Sofica in the credits. People are sensitive to it, smiles Alexandra Reveyrand de Menthon. They are happy to have invested in the films we are talking about, which are successful. Financing a Palme d’Or is still nice!
(1) The 13 Sofica: Cineaxe 6, Cincap 8, Cinmage 19, Cinventure 10, Cofimage 36, Cofinova 21, Entourage Sofica 3, Impact Sofica 1, Indfilms 13, La Banque Postale image 18, Palatine toile 22, SG image 2023, SofiTVcin 12