Podcast #13: Paul Scanlan & Jeff Annison
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Transcript
Colin: Hello and welcome back to Filmonomics @ Slated. I’m Colin Brown, your podcast host for this interview series that examines some of the economic riddles behind filmmaking.
Why is it, for example, that a business built on creativity seems to rely so much on conventional wisdom and outdated, rather conservative ideas? Why does independent filmmaking try to mimic the Hollywood playbook so much when cinema history tells us that success on the fringes have come to those who experiment and take risks in form, content and method? Why too the persistent urge to engineer success based on what has worked before, rather than on what has never been tried? And why, in this new world of neuroscience, big data and social engagement analytics, has North America just suffered through the worst attended summer movie season in 25 years — in the same year that a modestly budgeted Indian film grossed more than $300m at the box office and a Chinese one more than $800m? Perhaps the US industry has been over-thinking the business profit part of the equation at the expense of story execution and audience excitement.
I say all this because my joint guests this week are now seeking to invite members of that very audience into the film decision-making process by making them vested stakeholders. Paul Scanlan and Jeff Annison are the co-founders of Legion M, an essentially crowdfunded entertainment studio. Much like Slated itself, Legion M was born out of a democratizing impulse to demolish cinema’s industrial barriers to entry. Slated wants to give professional investors an easier, more accessible way to own a piece of the Hollywood action; Legion M wants to do the same for the average movie or TV fan — and to then mobilize them into an army marching towards the studio gates.
“We love the name Legion because it represents something with force but it is also a community and it is a call to action. And just to point out, it is Legion M with a bar over M. The M bar is the Roman numeral for one million. That is our representation of our long-term goal of having one million people as a part of our legion. It’s a swing for the fences, we realize that. But having a million people in our community and having that kind of investment dollars to put behind projects — that could make us one of the most influential companies in Hollywood.”
That was Paul, the company’s chief Centurion, speaking. Both he and Jeff, the company’s president, had experience raising capital with their previous media startup ventures, MobiTV and the New York Rock Exchange — but in those cases their funding pool was limited to accredited investors, an elite sliver of the entertainment watching demographic that represents just the wealthiest 2%-3% of Americans. All that changed in May last year with the activation of the equity crowdfunding portions of President Obama’s Jumpstart Our Business Startups Act or JOBS Act that laid out the federal ground rules for reaching out to ordinary members of the public with investment proposals for early stage ventures. Taking advantage of the Act’s Title III provisions, Legion M raised $1 million in less than three months from as many as 3,100 individuals. Over-subscribed by nearly 30% beyond that million-dollar funding cap allowed by the SEC under that Title III, the offering set equity crowd-funding records last August — and provided Legion M with the seed capital and encouragement to a second funding round that will have just closed by the time you hear this podcast. For that Legion M turned to a Title IV of the JOBS Act and its Regulation A+ fundraising provision often is described as a mini-IPO that allows new companies to tap the public for up to $50 million. Last time I checked, ten hours to go before the financing round closed on Sept 2nd, Legion M had raised more than $2.2 million from a pool of 4,228 investors. A third successive financing round will follow this Fall.
As of now, the total money raised is nearly $4 million from a pool of seven and half thousand backers. All those Legion M investors get an opportunity to pitch story ideas, help determine which of them get approved, and at the very least go behind-the-scenes with their creators via live streams and online hangouts. Unlike the original United Artists, that director-run studio whose creation in 1919 prompted the famous remark about the lunatics having taken over the asylum, industry control is not being completely by-passed here. As you will hear, Legion M still relies very much on film business insiders for core managerial and talent decisions. But nonetheless all those lunatic fan-boys and cineastes are absolutely fundamental to Legion M’s success in ways that go beyond their casual pocketbooks. Their active participation not only helps stoke demand for the content being produced, making that content more likely to succeed, it also serves as a fun source of entertainment in its own right for investors. Here’s Paul again explaining how the company works.
Paul: Legion M is the world’s first fan-owned entertainment company. So like what you mentioned, we are kind of a combination of an entertainment company and a production company. We want to create movies and TV shows and VR projects but we’re equity crowd funded. So, it is kind of like Kickstarter and Indiegogo, but it is next level because in this case rather than just getting rewards like a coffee mug or a T-shirt or something for your contribution, you’re investing and you’re owning a piece of the company alongside of us. So you actually have shares. Our long-term goal, just to be clear, is we want to keep raising financing and keep laddering up. Our long-term goal is unite one million fans together to co-own Legion M alongside of us. The average investor right now puts about $500 to $600 in. So if we get to a million, we will have raised 500 to 600 million dollars to invest in projects that have a million people emotionally and financially invested. Because we see Legion M not just as a company; it’s a community. We spend a lot of our time and energy nurturing that community and targeting people that are passionate about entertainment. We could have gone the Wall Street route but then we would raise capital in a different way. The JOBS Act has been really productive in allowing us to go out and target people that are fans of entertainment. We look at two large areas. We look at film festival fans like Sundance and Toronto Film Festival and South By (SXSW), and we look at Comic-Cons. These are the people that we want invested, putting a hundred dollars in or $500 or whatever their interest level is, but those are the people that can create the power when we unite together into a community.
Colin: It should be stressed here that all those who invest in Legion M are not buying stakes in individual projects, or even in a slate of projects or a film fund, but rather in the company itself. As such, the calculus is somewhat different for investors. They are betting on managerial expertise — and all the financial controls and corporate strategy that go with that — as much as they are on creative content portfolios. The two are not necessarily correlated. Companies can go under waiting for the cash to come in from successful films. Conversely, they can also thrive making great deals on poor films. So I asked Legion M’s founders whether their investors are aware of what they are getting in and what their investment pitch to them is. Here’s Jeff.
Jeff: So that’s a great question. When you invest, you are buying stock in the company and so you literally are a shareholder. You own a piece of the company. We like to say that it is like investing in Walt Disney Studios not now but back when it was just Walt and Roy, right? Legion M is a startup company. That is what the JOBS Act is about: it’s allowing people to invest at a much earlier stage than it has ever been possible before. So when you invest in Legion M it is a very high risk, high reward sort of investment. We are very upfront with people because we want people to understand what this is all about. We want them to understand what they are getting into. We tell people that, statistically, the most likely outcome is that you are going to lose all your money simply because most startup companies fail. And if you look out over history, that is the case. However, the ones that succeed often go on to change the world. At one point Facebook was at the same stage that we are, at one point Google was, at one point Walt Disney Studios was. Had you invested in Facebook when they were at our stage you would have probably received about a three thousand to one return on your investment. Which means that an investment of a hundred dollars will be worth over three hundred thousand dollars today. That is an extreme example! We tell people not to expect that, but the point is, that potential is on the table.
But the other half of it — and this is what Paul alluded to earlier — there is also a real emotional return on investment that you get. Part of our charter as a company is to open the doors of Hollywood and allow fans to come inside and so when we are working on projects we like to take people behind the scenes and get them involved and emotionally invested in all of these different projects. First of all, it is really fun, it is really cool and we love the opportunity to bring people along as we go on this amazing journey. But there is a really smart business reason behind it too, which is that if you are following along with the film — and maybe you are around when we get the script and you get to go behind the scenes while we are filming and you are involved in certain ways — by the time that film comes out, you are emotionally invested in it. There is no question that you are going to come and see the opening night. And you are going to bring all of your friends because this is your movie. And that is really the fundamental business plan behind Legion M. If we can build this large audience of fans that are financially and emotionally invested in the projects that we create then when those projects come out, we have an inherent competitive advantage compared to every other company that is out there.
Colin: Since so much seems to hinge on cultivating that communal bond, I wondered what Legion M does to foster a personal connection between its creators and their investor-audience. It is one thing to keep a small syndicate of investors feeling engaged and involved, quite another when you’re talking about thousands, even hundreds of thousands of stakeholders.
Paul: Yeah, it is a good question. The good news is that we are living in an age and a time where technology makes communities more scalable where we can have this sort of engaged community at a very large scale and still glean from there what we need to glean and still allow the two-way back and forth discussion. We have an incredibly vibrant Facebook group all ready where we have people continually giving input and getting feedback. We also have an online forum where we can organize and manage specific discussions maybe around the genre, or specific project or even allowing community members to connect with one another on their own projects.
Like I said earlier, this is an area of the company that we invest in. And we also have a lot of volunteers. So the people that are getting involved in Legion M, as Jeff mentioned, they are looking for emotional ROI. They want to be a part of something. They see Legion M as an opportunity and a movement in a way. It is an opportunity to get involved in the industry and have a voice but it is also a force of change because a fan-owned entertainment company can, in our opinion, represent a positive force in the industry.
One of our first films is COLOSSAL, which is one of the most original movies of the last decade. For us, it was an investment and it was also a statement. It is a statement around the types of projects that we want to be known for. We want to be able to back creative visionaries like Nacho Vigalondo to bring new original products to the marketplace.
And the other component of it is that there are a lot of meetups happening. So Legion M, as a community, we organize meetups. But also meetups are organized organically by other Legion M members in different parts of the country. Even with 15,000 people — actually well back before that at 5,000 people — we had these meet ups happening and people getting together wearing their Legion M gear, connecting, making friends and this is important because when we have a film, as Jeff mentioned, and that film is in theaters we’ll organize a meetup. We all go see it together and then grab a drink or a coffee afterwards and discuss it. For the average investor, someone who is looking to be a part of something, that might be the best way to go see a film. I mean it is more than just being part of the audience, you are going with a group of co-owners for a movie that you had played a role in bringing to market.
Colin: Regular listeners of this series might recall that the film mentioned here, COLLOSAL, was also referred to in a recent podcast by Sophia Dilley. The company she works at, Route One Entertainment, co-financed that $15 million sci-fi fantasy along with Voltage Pictures. Legion M got involved in COLOSSAL later on during the release phase. Working with the film’s US distributor Neon, it created fan exclusives including opening night gatherings around the country, swag bags and an online question-and-answer session with its writer-director, Nacho Vigalondo. It also invested, not in the production of COLLOSAL, but rather in its distribution release. This is not an insignificant commitment. The marketing expenses of a theatrical release, still anachronistically known as prints and advertising or P&A costs, can be substantial. Typically those that invest in P&A do so on a last-money-in-first-money-out basis. They make back their investment, plus a percentage, by having first dibs on a share of the ticket sales and perhaps other revenue streams too such as video-on-demand streams and downloads. Limited upside, in other words, but also far quicker recoupment. But try explaining all that to an ordinary investor! Given the complexity, it’s not surprising that Legion M’s website says simply that it invested in COLLOSAL and has a stake in its success. But it did make me wonder where in a film’s lifespan Legion M will be concentrating its fan dollars on going forward: marketing expenses or production financing?
Jeff: That’s a great question. The answer is it can be both and pretty much anything in between. So to give you an example, with COLOSSAL, we got involved with that movie after it was already completed. Neon purchased that film in Toronto last year at the film festival the completed film to distribute it and then brought us on board as a partner in the P&A fund. So in that case, the movie was already complete. We had the opportunity see it and we thought, “Oh my gosh, this is such an amazing film. We want to be a part of it. This represents what Legion M is all about.”
On the other end of the spectrum, we have a number of projects including our ICONS: FACE TO FACE virtual reality series, an interview that we did with Stan Lee and Kevin Smith. We have got a PITCH ELEVATOR series that we are working on and these are ideas that we have internally come up with and developed, hired the studio to produce them, and in that case we own 100 percent of the rights. And so Hollywood is a hit driven business, right? Which means that it is extremely difficult and really impossible to predict which movies are going to be a hit and which projects are going to be a hit. If you want to make money in the long term in Hollywood you diversify. You diversify across genre and in our case we’re also diversifying across media. We do films, television, virtual reality and, as we just discussed, we also diversify in the stage of the deal. We are making early stage bets that are highly speculative and we are making very late stage bets, which have a lower potential return but generally tend to be lower risk as well.
Colin: This investment mix also means that revenues have a better chance of appearing on the Legion M books both earlier and more regularly. One of the frustrations of film investing, especially for those new to the business, is how long it can take before even a successful film starts showing actual profits. Try explaining that lag to a battalion of investors who may be salivating over the reported weekend grosses. I wondered whether expectation management played any part in the diversification game-plan. Here’s Paul.
Paul: Well, it is true. But there is another really important component to that which is: We already have these 15,000 people that are invested. When they make that investment they do not necessarily want to wait two years before they can get behind something. So we want ultimately have a range of projects. We want to be starting on productions so we can go behind the scenes and talk to people about that. But we also want stuff hitting the market so people can go out and bring their friends out and go see something. We want that on a continual basis because we see the emotional ROI as being an important element of Legion M. And that emotional ROI realistically leads to financial ROI, right? The two are inextricably linked because if people feel good about it and they are engaged in it, having fun, then we have got this community that has value. In the entertainment world increasingly, having that fan-based or community that can be attached and engaged on something is one of the most critical factors when evaluating a project’s potential success. It is one of the reasons why so many of the major studios just keep churning out sequels and reboots and things that are related to an existing fan base.
Colin: Which begs the question: How does Legion M decide on the types of projects it supports. A film like COLLOSAL seems like a perfect crossover hybrid for a company targeting both geek genre afficionadoes and auteur-leaning arthouse constituencies. Did Legion M make a conscious decision to straddle these two worlds first. Here’s Jeff’s response.
Jeff: Absolutely yeah. We do target the film festival crowd as well as the Comic-Con crowd. And like you said, there is a lot of overlap, but really from our standpoint we feel like those are the most passionate fans on the planet and that is what we want to be the foundation of the company. Especially in our early days, as we go on to the next stage, really a big focus for us is going out to these people that are already devoting a lot of time. They are just the perfect audience for this sort of thing.
As far as how do we select the projects, I mean you hit the nail on the head right? That is the billion-dollar question in Hollywood. Because if you can do a slightly better job of picking a hit than the next guy then you can become wildly successful. We have got a really special advantage in the fact that we have got this legion of shareholders that are invested in the company. And that is a really important distinction.
Just to illustrate by example, I want to talk about one of the projects that we’ve launched called PITCH ELEVATOR. The whole idea behind PITCH ELEVATOR is that anybody can have a great idea for a movie or TV show but very few people have the opportunity to get that idea in front of the folks that can make it happen. At Stan Lee’s Los Angeles Comic-Con last year, we built a full size elevator set on the floor of the conference and we invited people to come in to this elevator and make their elevator pitch. So when you walked in, there was a countdown timer with two minutes on the clock, there was a cameraman and a secondary camera, and you had two minutes to pitch your idea for a movie, television show or virtual reality idea. And we collected, through the elevator at the conference as well as online, over 400 pitches from people. Just regular people. These are members of the Legion but this was also open to the public and anywhere in the world, any age, I mean this was literally open to everybody on the planet. And so we had this enormous amount of raw material. All these great ideas. And then what we did was we built a game that allows the members of our Legion to watch all of these 400 pitches, rate them and evaluate them and we built this really fun game that narrows it down eventually to the top 10. And those 10 people are going to have the opportunity to pitch their idea to a panel of industry insiders and studio executives and those sort of people that can make these ideas come to reality. And one of them will be selected as a Legion M project that we sign a development deal on and add to our slate.
If you think about it, evaluating incoming material is a huge challenge in Hollywood. How do you economically evaluate all this material that is coming in and how do you get the right decisions out of it? And so we turned this over to our Legion of people. We are using the wisdom of the crowd because this isn’t one or two people reading a script and doing a treatment on it. This is a large number of people that are making these evaluations and even more importantly, these are all people that have a financial stake in the success of the company.
So you know a lot of times when we do open stuff on the Internet and you have polling and votes and surveys there is a kind of inherent selection bias in the people that are participating. You are inherently limiting the people that are making decisions to the sort of people that are willing to take the survey for a chance at winning a gift card or for five bucks or for whatever you are willing to pay. But because every single one of the members of the Legion is invested in seeing the Legion succeed, it fundamentally changes the way that people are going to evaluate things.
That is just one of the ways that we try and leverage this amazing power, that we have from this community. When it comes to projects we do not vote on every single project. We have a saying like you do not make great art by a committee, right? You make great art by finding great artists and investing in them and then getting out of their way. In our case, we have a stellar advisory board of people like Tom Quinn and Tim League from Neon — and Tim is also the CEO of Alamo Drafthouse. We have got Scott Landsman who is the head of comedy television at Sony. We have got Seth Green and Matt Senreich and the whole team over at Stoopid Buddy Stoodios, who are founding investors. We’ve got a really big group of people that understand how Hollywood works. And the way that we feel about is that we have an amazing ability with our Legion to know when content is good and to help us evaluate content and find new content, but when it comes to the nuances of Hollywood and understanding how to make money in Hollywood, that is where you need to go to the people that understand how the system works.
Colin: The intriguing element here is that Legion M is both working with the film industry and at the same time trying to re-write, if not subvert, some of the industry ground rules. Have they encountered any resistance, I asked? And among those in the film industry that have warmed to the idea of a fan-based entertainment company, what kinds of collaborations have been suggested? What potential does the industry itself see in Legion M?
Paul: I would say overwhelmingly the response to Legion M has been very positive from the industry. Jeff and I are no strangers to kind of introducing new concepts that can sometimes feel disruptive. We launched MobiTV 17 years ago. This was the first company to break live television and prime time content out of the living room. And at that time, the industry was pretty resistant to that and did not think it was a good idea. The truth was that it was very early and there were very limited handsets at that time. But we had a vision for where this would go. And three years after introducing it, of course everyone came around. We won an Emmy from the Television Academy honoring us for this great contribution and creating this new category.
In this case, you know we are just over a year into this company. I would say the response has been phenomenal. It is not unilateral. There are some people that still do not quite understand it but when they do, then they are immediately engaged and see the critical value that we bring to the table. It was funny because a lot of the projects that we invest in, COLLOSAL is an example, aren’t projects that need money. We want to fund things that deserved to be funded but we also want to participate in things that are maybe are already fully funded. In that case, you really need to have a strong argument for why they should make room for you at the table. When Jeff and I show up to invest in a project, it is not just Jeff and I. We are not wealthy kind of oil tycoons or tech tycoons that want to invest in your project. We are a legion, a community of people that want to get behind your project. Once people realized that, that is extremely powerful.
We have had over a thousand people sign up just to be notified when we are going to start taking submissions. Right now, we are being really proactive about the things that we want to go after. We are not sitting back and reviewing projects that are coming to us. We are going out and talking to the people that we respect and admire and want to partner with. We have not really talked much about it but we took the executive producer role on a horror film that comes out next year. It is called FIELD GUIDE TO EVIL. It is a lower budget film. It is a $500,000 production but it is a global anthology of dark horror, of dark mythology. We’ve partnered with Ant Timpson and Tim League on that one. They went out and they found eight up-and-coming but already award-winning directorial voices in this genre but from eight different parts of the world. With Legion M getting involved, what we are doing is we are allowing this kind of creation of mythology to come together from around the world. Legion M is getting involved even before the film comes out. We are helping to sort of promote and one of the things that we have mentioned earlier is about having a positive force in the industry. You know, for us, we want to be the type of company that will take a chance on up-and-coming directors in helping to discover and find the next Guillermo del Toro etc. that is out there. That is something that we want to participate in.
We have been sponsoring the Holly Shorts Festival in L.A. We are working closely with that team there partly because we know that their audience is potentially interested in our community but also because we want to understand who are the next great voices that are coming through the ranks so that we can establish relationships.
Jeff: Just to jump in and add one thing, when you ask how the community helps us, if you just look at where we are, we are betting way out of our league when it comes to projects, right? If Paul and I waltz in into town with a million bucks or a couple of million bucks, the fact that we have been in business for a little bit over a year, we have already been in COLOSSAL which starred Anne Hathaway and Jason Sudeikis and, like Paul said, it did not need our money but they chose to bring us along and chose to get us involved because they like this idea of having a legion of fans. Same thing with Stan Lee. We did a Stan Lee virtual reality interview with Kevin Smith. Stan does not need our money, I mean, Kevin, you know these guys have their pick of projects that they can work on. Their compensation for being in these projects was a little bit of stock in Legion M. We did not even pay them cash for it. But they were so receptive to the idea of working with a community of fans that we got to do this project and there are hundreds of people that are trying to get them to do their projects.
Again, we feel that is one of the real superpowers of the Legion. Every project out there needs funding. The best projects — the ones that everybody wants to get in on — they have got their choice of funding. And so, like Paul said, they can choose to take their money from oil tycoons or tech magnates or they can take it from a legion of fans.
Colin: Which brings us all back to Slated. If Legion M succeeds in bringing a legion of fans to the table, how might they envisage working with a Slated platform that has been arming and mobilizing its own brigade of professional film investors. How do they see the shifting game of film thrones now playing out with these new transformational forces?
Jeff: So we’re huge fans of Slated. I think what Slated has done as far as creating opportunities for emerging filmmakers and for giving filmmakers an alternative finance platform, we think it is really cool. We also love the fact that it really kind of opens up a space that was previously untouchable to smaller accredited investors, right? The sort of people that want to put in maybe ten grand or twenty-five grand or something like that. Like those sort of opportunities just don’t really exist for the most part because Hollywood is such a capital-intensive industry. I think it is an amazing platform. It is amazing opportunity. We are very symbiotic in that Slated works with accredited investors. We are open to everybody, which I think is really nice. We think that there is great opportunities for us to partner on projects where maybe the stuff that is doing well on Slated we bring the Legion in and we co-invest on some of those projects or conversely, maybe we can use the power of the Legion to help filter through all of the different projects that are available on Slated to figure out one that Legion M is going to invest in or is going to co-produce and then allow the other Slated investors to invest directly in it.
It’s a wild, brave new world! The Internet has created so many amazing opportunities and so many disruptive ways for consumers and businesses like this to connect with each other that I think there is really no shortage of options.
Colin: Those were the voices of both Paul Scanlan and Jeff Annison, the co-founders of Legion M, the company looking to raise an army of fan investors under the Standard of a new entertainment company. For its first released feature film project, COLLOSAL, Legion M created a theatrical title card that featured a photo mosaic of all its investors’ headshots. Each of those individual heads are extremely small of course, and only briefly glimpsed for a matter of seconds, but at least those investors can say their face has been on the silver screen. It’s a cute gimmick, for sure, and one that illustrates the scope that cinema still has for involving its own consumers.
Now, whether that crowd of consumers can help embolden the creative choices of the entertainment that follows those title cards is one of the many questions waiting to be answered. Asking a crowd to choose between option A or B, as Legion M did when deciding between different trailers, will often yield insightful and actionable demographic data. But how do you effectively harness all that collective fan energy into helping creators produce original content? Will a multitude of creative seeds ripen into fresh ideas or will it produce stale group think and more rotten tomatoes?
It is worth pointing out that Roman legions themselves were typically composed of only three to five thousand soldiers, who were then sub-divided into smaller, more manageable cohorts that could be commanded as a cohesive unit. As anyone with a massive social media following can attest, once you get a beyond a certain number, interactions become logistically unwieldy, exchanges are less meaningful and social bonds start to weaken.
But perhaps none of this really matter as long as audiences are made to feel a tangible connection to the entertainment being created. If you can touch a collective nerve, then you have the makings of a popular movement. Look at the wild success that WOLF WARRIOR 2 enjoyed this summer. This Chinese action-packed sequel is as generic as they come — but it nonetheless tapped into China’s unrestrained pride in seeing a hero of their own fighting for justice. Audiences there felt the film spoke to their desires, just like Americans felt with FIRST BLOOD and its RAMBO follow-up — although by the third Rambo it all started to feel cynical and manufactured and the grosses started to drop off. All of which is to say, audiences will forgive the wizards behind the cinema curtain if they feel a genuine affinity and a personal attachment. And that’s what Legion M is going after.
That’s all from me for this episode. I hope you’ll feel connected enough yourself with these podcasts to tune in again for another episode of Filmonomics @ Slated coming soon. And please leave a review or feedback on our iTunes podcast homepage. It will take many armies of support to reboot the cinema system in ways that will serve us all.
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