Friday, July 8, 2011

Let's Talk Business, Indie Film Business, Part One

During one of the panels at this year's Dances With Films festival, our guests pointed out that the most recent WGA strike ended with a horrible deal for top-tier writers. I asked if these people were seeing any participations (a.k.a. "backend") money. I got the reaction I expected from people used to working with studio films, laughter.

One of my many day jobs in the studio system was working in the Participations Department for both Universal and Warner Bros. I recall one of the senior analysts talking about the reports she slaved away on day-in and day-out. "I don't know why we bother. They never pay."

We were talking about tent pole films, so I asked, "What about the low-budget ones?"

"Oh, yeah, they pay."

Why would a smaller film that fewer people have heard of pay out more money than the household name, summer blockbuster? Lots of reasons.

The easiest to wrap your head around this is that they cost less to make. The film industry is a funny business. The price of the product is in no way related to the cost for the consumer. It costs you the same amount of money to see Harry Potter as is does The Hang Over. Participants – people who participate in the sharing of the profit of a film – don't see any money until there is a profit.

The more difficult reasons smaller movies pay out before larger ones has to do with the fact that the above sentence isn't entirely true.

Some participants – usually big stars – can negotiate a deal where they are paid based on gross income, not net. So their money is deducted from the pool before the other participants get to share. This makes the math really difficult.

Add to this, the initial investors are also participants. Different from the writer, director, hired producers, talent, etc. who are paid a salary to make the movie, the investors are the ones who paid these people. They must get that money, and the rest of the cost of production, back first, with interest, since they've taken the biggest financial risk. As an indie filmmaker, you want these people make money because you've probably got another project you'd like them to invest in.

All of this who-gets-paid-back-when stuff is called "the waterfall." Ideally, the people who took the most risks are at the top of the waterfall taking their fair share first. The people at the bottom may never see a drop. They are the ones you usually hear complaining about there not being backend money in the movie business.

But keep this in mind. The people at the bottom of the waterfall have already been paid. Sometimes they've made six or seven figures before there was any water in the stream. The people who paid them are at the top hoping against hope that there will be enough water to refill their reservoirs.

I've seen so many speakers at seminars wearing designer clothes, expensive jewelry, and driving fancy cars complaining that they never see any money from their movies. It's made me conclude that there are two types of people making this claim: those that have already been paid, and those that are making so much money that they don't want anyone else to know about it.

I also mentioned at the seminar that close to 50% of low-budget films turn a profit. In part two of this segment, I'll show you how I got to that number.

Until then, thanks for reading.


catwoods said...

Hmmm, funny how people forget where their money comes from. Funnier still is that when they make so much money, they lose track of reality.

It's why I hate celebrity hype. I simply can't abide by their sense of what's unfair when we have children starving and living in the streets.

Interesting perspective from a great insider!


RSMellette said...

Thanks, Cat.

And celbrity hype cuts both ways. You have people like George Clooney who say, "You're going to shine a spotlight on me? Fine, I'll go where the light is needed."

Good and bad. Light and shadow. Life.

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