A $500m deal between Legendary Pictures and Warner Bros. Bob and Harvey Weinstein raise $490m in equity through Goldman Sachs. A $500m deal between Virtual Studios and Warner Bros. A $600m equity deal between Relativity Media and Sony and Universal. The figures from the equity funding boom among Hollywood studios are remarkable.

In the last two years alone, the US film industry has been stuffed with institutional funding worth $9bn, and the money shows no sign of drying up. It is the financing phenomenon of our times.

An increasingly sophisticated Wall Street, a vast amount of money washing around the capital markets looking for a home, and a more fail-safe, risk-spreading approach towards film investment have, it seems, finally provided a solution to Hollywood's traditionally difficult relationship with finance.

So headline-grabbingly successful has the wave of equity financing been in the US that its proponents are keen to spread the word to other parts of the world. Where better than Europe, where the film industry has an even leaner financial history, owing a large part of its survival over the years to generous government subsidies and life-saving tax breaks'

The voices calling for the US model to be brought across the Atlantic to revitalise the European industry have grown increasingly loud in recent months, and the move is beginning to feel like the inevitable next step in the evolutionary process.

'No reason subsidies in Europe are incompatible with hedge funds'
But how realistic is it really' How easy, or indeed desirable, would it be to apply a financing model that has developed for the specific conditions of the US market to an industry with significantly different traditions' Can big European films like Asterix At The Olympic Games (produced by France's Pathe Renn Productions), Brick Lane (the UK's Film4 and Ruby Films), and Manolete (Spain's Lolafilms) attract such investment in the future'

Can the highly engineered, slate-based, equity-fuelled wonder-system of Hollywood really be shipped across to the subsidy-riddled, multilingual, culturally sensitive film-makers of old Europe'

It most certainly can, according to Stewart Till, former head of United International Pictures and chairman of the UK Film Council. 'There's no reason why subsidies in Europe are incompatible with financing from private-equity funds or hedge funds,' says Till.

'Hedge funds, I'm sure, would be very comfortable if there's a public-sector subsidy reducing the amount of money they had to put into each film. Whatever terms and impositions are included with the public-sector finance are in the main absolutely outweighed in the eyes of the investors by the fact that some money is coming in that doesn't take first recoupment position.'

But that is not to say there might not be other barriers to implementing the US financing model in Europe, says Till. Financiers used to big American studios and a simple distribution system may find the European structure troubling.

'In the US the hedge funds have gone to the studios and said, 'We'll finance a slate of films,' and the studios have said, 'OK, here's a slate of films, we'll take a distribution fee and you're in first position to recoup your investment and make a return.'

'But when you come to Europe it's hard to find a slate of films, and they have much more complicated distribution rates. But it's not an insurmountable problem.'

'Language alone is a significant issue'
One possibility is for Europeans to pool resources. German bank Dresdner Kleinwort, which has poured $4.6bn into a variety of Hollywood slate deals, is considering investing $100m-$130m in an uber-slate of 18 to 25 films from a range of mid-sized companies from around Europe.

Heather Mansfield, of London-based Mansfield Associates, which provides risk analysis and management for institutions investing in film, agrees there is no reason why the European subsidy mechanism and the American model cannot work together. But she says there are plenty of other reasons why the American model will not apply across the Atlantic.

'There are very, very few independent production companies in Europe which are in a position to support the continuity of output that such slate funding requires,' says Mansfield. 'The banks' assumption European producers can come together to provide that sort of continuity of output is slightly pie-in-the-sky, and it indicates a profound lack of understanding of the way Europe works.

'Language alone is a significant issue. The thing about the American model is that they all have American language as a basic component. The idea that French, Italian, Spanish, German, Scandinavian movies are basically suitable for the kind of model that the Americans funders have in mind is bound to raise enormous questions.

'As for those very few companies which are capable of that kind of output, why are they capable of it' Because they are already very well funded. They are either broadcaster-backed or have access to huge state subsidies or they've been in the business for donkey's years and they make their own stuff.'

'European subsidy system is a key problem'
Roy Salter of the Los Angeles-based The Salter Group, which advises investors in the entertainment and other industries, believes while the subsidy system in itself poses no barrier to investment, the effect it has had on European film-makers over the years is a key problem.

'A lot of the European producers have really been trained to think about making their films by first and foremost developing a script and communicating that script to the finance community they know,' he says. 'And the finance community that they know are the art and culture funds. So they don't really know how to talk to a bank or how to construct a mechanism as an independent producer similar to those in the US to enable themselves to see a small production capability evolve.

'They just have not been taught. The correct approach, in my view, is to do this very, very carefully, with a very select group of players who really know how to do what they know how to do.

'And it has to be coupled with counsel - how do you run your business as compared to how you've been running your business' - so as to slowly, carefully expand into a capability to service a global audience, rather than just the local audience that the art and culture funds have historically oriented your behaviour towards.'

The result, Salter believes, could be a uniquely European solution that combines the continent's own traditions with the most usable elements of the American model.

'I can see a careful balance of development towards an appropriately robust commercial finance environment balanced very carefully against the artistic and cultural finance environment, and I can see Europe's evolution being very unique and distinct.'

Indie producers in a good position
The major US studio financing deals may be grabbing the biggest headlines in the US, but independent producers are also getting a piece of the rich new finance pie as investors realise there are reliable returns to be made in film.

Last month, Michael London's Groundswell Productions closed a $205m financing deal with global investment firm TPG-Axon Capital. Last year Tom Pollock and Ivan Reitman's Montecito Picture Co sealed a $200m deal with Merrill Lynch and other investors to co-finance 10 films over the next five years, with funds consisting of equity provided by Merrill Lynch, hedge funds and bank debt.

Merrill Lynch is also involved in another indie deal, providing $50m to fund a slate of lower-budget films and TV movies from Regent Entertainment. And Intrepid Pictures, backed by hedge funds and run by producers Trevor Macy and Mark Evans, signed a co-financing deal with Focus's Rogue Pictures. Other financiers have also expressed interest in the independent sector, including Endgame Entertainment chief Jim Stern.

It is a level of interest that could bode well for European producers if financiers do begin turning their attention to Europe in a major way, as European film-makers share more of the characteristics of US indies, at least in terms of scale, than of Hollywood majors.

But as Alex Brown, head of structured asset finance at the Royal Bank of Scotland's media and entertainment arm notes, the problem for independent producers on either side of the Atlantic in attracting financiers is a lack of the kind of track records Hollywood studios can display.

'The data set is one of the challenges,' he says. 'The hedge funds do like to say, 'OK, that's been the track record - can we run a probability analysis of recreating that track record' So you automatically go to those producers and distributors that are the pre-eminent ones in Europe, of which there are a handful.'

In which case, perhaps smaller European producers should not start revising their budgets for an avalanche of hedge-fund cash just yet.

What about the banks'
By rights, European banks should be actively positioning themselves for the possible development of a thriving equity-funding market for the local film industry. If deals worth hundreds of millions of dollars are to be put together on their home turf, the local players will be missing a key opportunity if they let US institutions with a few deals' experience behind them take the business. But how active are they'

There is no doubt some are getting stuck right in. In February, the Royal Bank Of Scotland unveiled a 20-film, two-year co-financing package with New Line Cinema worth $350m. Alex Brown, who set up the deal, says it is only a matter of time before other similar deals appear.

'You don't see many signs of it happening yet, but it's something we're exploring,' he says. 'The subsidy question is certainly not a barrier, as long as you structure a deal such that the producer's status remains intact so they benefit from subsidies and incentives.

'You can bring an equity deal to that as well. The US major studio obviously has a huge distribution machine which I think, from the perspective of an investor, in a huge number of circumstances, is what you're buying into. That's more complicated in Europe.

'But we have the desire to do both US and European deals, and discussions are happening. I'm working with several production/distribution companies in Europe to see if we can put a deal together. The US has just got a headstart, that's all.'

Heather Mansfield is less optimistic about the prospects of European banks diving into a prospective funding boom. 'There are very few banks that will get engaged in film financing,' she says. 'In the UK there's Bank of Ireland, Allied Irish Banks and Royal Bank of Scotland, but that's about it.

'Those three banks are completely global in their approach, but in continental Europe the vast majority of banks deal only with producers from their own country.

'There are plenty of banks engaged with the industry in contract discounting or tax-credit discounting, or a bit of contract cash-flowing, but they don't risk-lend, which is completely different. And there's a huge difference between the kind of project lending the banks do and the great corporate flush of hedge funds money which is being talked about.'

It seems inevitable the European film industry will benefit from the surge in private finance in some guise. To just what extent remains anybody's guess. 'There will be a few people who are happy to join in,' suggests Mansfield.

'But the idea it will be a great transforming financing movement which will sweep across Europe and change the face of our industry is fanciful.'

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