I spoke by phone to producer Doug Mankoff March 6, 2002.
Doug: "While I was at Duke majoring in History, I came out to Los Angeles one summer to work as a grip, electrician and runner for producer Michael Nesmith. He was one of the Monkees. He produced music videos, commercials and movies.
"Duke did not have a film program, but they had a film club, which I joined. I made a documentary about a calf roper on a rodeo scholarship to a college in Louisiana. I graduated from Duke in 1985. On the basis of my documentary, I got into the NYU Film School. After a year, I figured out that I didn't really want to be a director. I was more interested in the big picture. I dropped out of NYU.
"I worked as a PA for Nesmith on his film Squaredance. In late 1986, I became the first production person for a company called Year Look. They made video yearbooks for schools. Then I started my own company Camp TV making videos for summer camps. They were now making consumer videocameras of sufficient quality that it opened up possibilities.
"In my late 20s, I went to Harvard Business School because a friend told me that he heard that people that went there got jobs at studios. While at Harvard, I bought Year Look and put it together with Camp TV. And that helped pay my way through business school. That time I didn't drop out. My brother would've given me too much crap if I had.
"And then I came out here and again, I went to work for the only guy I knew - Michael Nesmith. The studio jobs that probably were available weren't the kind of jobs I was interested in. They were marketing or new business development or finance. I ran Michael Nesmith's company for one year and that didn't turn into much because he was in the middle of a lawsuit with PBS. He won the suit but we yielded no films from that year. But I liked what we were talking about - the idea of raising some money and investing it in a series of films.
"So I went back to Dallas, where I'm from, and raised some money from family and friends, and started Echo Lake Productions in 1997. The idea was to invest equity in films and ultimately put together a library. The problem was: (A) Everybody else had the same idea. (B) Credit was loose. It was easy to get a bank loan on your film. And you could get 100% of your budget financed through foreign pre-sales and a gap loan (a loan on unsold territories). And producers were able to get [their] fees out of that.
"My idea was that Echo Lake would be a financing company. We'd move into production through financing. Let me give you an example. We financed Allison Anders' film Things Behind the Sun ."
A young music journalist's dark memories are awakened when he goes to interview a female rock singer, and both are forced to confront troubling secrets from their pasts.
Doug: "And that was done the way I thought we'd do our original investments. We supplied the budget of the film, one million dollars. Now you give a certain amount of back end [a percentage of the profits] to Allison Anders, her producing partners, and some of the actors, and you own the rest of the film. When you sell the rights, you make the decisions. And if you have rights to a number of films, then you have a library that you can sell to someone and is worth something. That's equity investing. The other way producers finance their films is by getting a bank to loan them money.
"Gap financing is a type of loan where the bank will lend money to the producer and the collateral is territories that have not yet been sold. To give you an example, Echo Lake's first film was Detour [a 1998 film with a $2.5 million budget]. The producer went to a sales agent, Shoreline Entertainment, and asked them to help him finance the film. And they did so by making some pre-sales. And they sold rights to some foreign territories. Now those buyers don't give you that money. They say they're going to give you that money. The bank will lend against that commitment.
"That was the way all the bank loans were done on independent films until Mike Mendleson at Bank Peribah [French bank, now Mike is with Patriot Pictures] started doing gap loans. He thought, I'm no dummy. I've done a lot of bank loans. I know what these territories are worth if we have Morris Ruskin and Viky Pike selling, and we have these stars in the film... Why don't I make a loan against the unsold territories and that way the producer still has upside later. And if he sells that territory for more than I lent against it, he's happy and I'm happy. This put Mendleson at a great competitive advantage. If you're a producer, where are you going to go to borrow your money? You're going to go to the most aggressive entity.
"People got overaggressive. Imperial Bank, now part of CoAmerica, did a lot of these gap loans. Banks were doing gap loans that accounted for half the budget. The loans were expensive. But the banks were lending a lot of money compared the collateral they had, and some of the banks got burned.
"The first way we started spending our funds was doing loan investments rather than equity investments. We figured we'd take risks slightly greater than bank risks and we'd charge slightly more than banks charge."
Luke: "So how did that work out for you on Detour?"
Doug: "Fine. We didn't take any market risk. We made a type of loan that was paid back by the bank when the bank loan closed. Sometimes people need a pre-production loan. They're putting together all the elements and they want to close those deals. And someone steps in and makes a bridge loan. And that money is lent to the producer until the bank loan closes. And then the bank pays the bridge loan lender. It worked out great. We got paid back. We made our return on our investment.
"I wasn't concerned early on in our investing about the genre or the script. The driving force for the first four films (Detour, Flight of Fancy, Bruno, Dog of Flanders) was doing a deal that made sense. Then we got La Ciudad , a film that was looking for finishing funds. It's a beautiful film. That decision was all about picture quality. This was going to help us transition from financiers to producers. And it would help brand the company in terms of quality."
Luke: "What was the first film you were actively involved in the production?"
Doug: "Things Behind the Sun. None of the films I've produced are well known. When I talk to people back home in Dallas, they don't know about any of these films."
Luke: "The independent world is increasingly squeezed. How are you holding up?"
Doug: "As financiers, this is good news. The money we have to invest in films is worth more now. The bad news is that the market is tough. It's tough to sell films and make a profit. Our solution is to be selective."
Luke: "I'd think there'd be a conflict between quality projects and profitable projects?"
Doug: "There is. My investors are like theater investors. Sure, they'd like to make some money, but they want to be involved in things that are good for society. They want to support the arts."
Luke: "And there's no business where you get to see as many beautiful women."
Doug: "I get to see a beautiful woman every night. I've been married eight years and I have two girls. I don't go to a lot of parties. I'm home by 6:30 every night."