INTERNET FILM OFFERINGS

	By John W. Cones
	Los Angeles Securities/Entertainment Attorney

	This article is written in response to the many inquiries online and elsewhere
about raising investor funds on the Internet for feature film projects.  First,
it is important to understand that the Internet is nothing more than a new form
of communication.  The technological creation of a new way to communicate does not
in and of itself change long established federal and state rules and regulations
that apply to investor financing of film or other entertainment projects.  Thus,
it is extremely important in analyzing whether funds for the acquisition, development,
production and/or distribution of a feature film project can be accomplished on
the Internet, that we understand clearly whether or not a security is involved.

	To simplify, a security is being offered or sold if the investors are going to
be "passive".  If, on the other hand, the investors are going to be regularly involved
in helping the film's producer make important decisions, such investors may be considered
"active" (i.e., non-passive), and under such circumstances, no security offering
is being conducted.

	Further, any communication put on the Internet for the purpose of raising money
from investors will be properly be characterized as an "advertisement" or "general
solicitation" by the federal and state securities regulatory authorities.  As a
general rule, the advertising or conduct of a general solicitation relating to a
security is prohibited unless the security is registered with the Securities and
Exchange Commission (SEC) at the federal level, and with the appropriate state regulatory
authority in each state in which the security is being offered, prior to the start
of the offering.

	Low budget filmmakers may consider the use of the Regulation A public/registered
offering (combined with state registration in each selected state) for amounts below
$5 million.  Another possibility is the SCOR offering (a state level public offering
of corporate stock for up to $1 million, combined with the federal Regulation D,
Rule 504 exemption from federal registration).  A third possibility that is even
more complex that these other two involves securities offers being made over the
Internet to a pre-screened and qualified group of accredited investors (i.e., a
pre-existing relationship already exists between the prospective investors and the
securities issuer/film producer or the registered SEC/NASD securities broker/dealer
firm conducting the sale of the offering on behalf of the producer).

	Another approach involves the posting of a generic business plan (or an executive
summary of such a business plan) on the Internet and designing the business plan
specifically for the purpose of attracting "active" investors only.  This is not
a security, thus the securities rules noted above are not involved.  Such business
plans can be communicated to anyone (i.e., a general solicitation via the Internet
is perfectly permissible with an active investor business plan).

	However, a business plan, by itself is not an investment vehicle.  If the response
to the business plan is positive, the producer may then choose to structure the
investment as an investor financing agreement, a joint venture, an initial incorporation
or an active-investor limited liability company (all non-securities investment vehicles).
 If, on the other hand, the business plan attracts significant interest from investors,
but they do not have sufficient means to finance the amount of money needed on an
active-investor basis, then it is still possible to stop the use of the generic
business plan seeking active investors, wait a period of time (3-4 weeks is the
suggested guideline by the SEC) and start a traditional (non-Internet) securities
offering (i.e., conduct a corporate stock offering, a limited partnership offering
or a passive-investor limited liability company offering) making offers to these
same prospective investors with whom you have now established a pre-existing relationship
for purposes of this subsequent securities offering.  In addition, one of the above-mentioned
properly conducted public/registered offerings over the Internet could also then
be used to raise the money.

	Before any film producers expend a considerable amount of money creating a Web
site and marketing such offerings on the Internet, however, it would be wise to
determine as much as possible just how successful these offerings have been.  Film
offerings of any kind are considered highly risky investments for investors.  Merely
putting them on the Internet will not reduce the risk to investors, thus, this new
form of communication, may, in effect, merely be shifting producer monies to the
pockets of Internet service providers, without creating a favorable track record
for success in raising funds.  Use caution.

For more information see:

California Department of Corporations Release No. 100-C "Offers of Securities Made
on the Internet", November 5, 1996.

"Direct Public Offerings/Raising Equity Capital via the Internet", Internet Equity
Consultants, at http://www.internetequity.com/intro.html.

"Financing on the Internet" by Dr. Jeffrey J. Moffie at http://www.ipoexchange.com/ipo-art2.htm.

"43 Ways to Finance Your Feature Film" by John W. Cones, Southern Illinois University
Press (800/346-2680).

"Film Finance and Distribution--A Dictionary of Terms, by John W. Cones, Silman-James
Press, 800/822-8669.

IPONet SEC No Action Letter re "Electronically Transmitted Indications of Interest
and Posting of Notices of Private Offerings on Password-Protected Page", July 23,
1996.

"The Internet and Financial Markets", written by James E. Grand and Gary Lloyd for
Upside Magazine" at http://www.ipoexchange.com/ipo-art.htm.

"SCOR Registration" by Mark J. Astarita, at http://www.e-ipoet.com/scorlaw.htm.

SEC Release No. 33-7289 "Use of Electronic Media for Delivery Purposes", October
6, 1995.