Friday, July 15, 2011

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

Like so many indie filmmakers, a few years ago, I sat down to write a business proposal for a movie I wanted to get financed. Like so many filmmakers, I knew nothing about writing a business proposal, so I got all the books, read all the blogs, and taught myself.

One of the first things I learned, which will come as no surprise, is the practice of presenting comps – short for complimentary films. These are movies like the one you want to make that are already on the market. You use their performance as an example of what your film might do. Typically, a business proposal would have three comps: a highly profitable, a mid-level, and a not-so-successful.

Really? Just three?

Most of the research I'd done on the subject talked of the difficulty of finding financial information on movies. That makes sense, IMDB Pro was new, so it probably wasn't around when these books were written.

So I decided to bring the digital revolution to the business plan. First, I e-mailed IMDB Pro to find out where they got their numbers. They said they are a compilation of information provided by the production companies and the trade magazine reports. Fair enough. The textbooks all said contact the production companies to get what information they are willing to share, and then dig into the trades. For $13 a month, IMDB did the work for me.

So, I did a search for all films with budgets between one and ten million dollars released between 1999 and 2006. [NOTE: I attempted to update these numbers for 2010, but IMDB is revamping their Home Video/DVD numbers, so they are no longer available. Given the change in distribution and viewing habits, that data is vital, so my old numbers have to do for now].

Many of these lower budget movies show no income whatsoever. These films either have no distribution – which is important, more on that later, or were direct-to-video which make for difficult calculations. I removed titles with no income data.

So, my statistical set becomes all movies with budgets between $1-10 million, that have reported theatrical income.

Instead of three comp titles to work with, I now had 260. I loaded all of them into Excel and got to work.

On the income side, we have two fields: Box Office and Home Video. Box Office was required for this exercise, Home Video was not. In many cases there was no HV income reported on titles that we all know are available, like: But I'm a Cheerleader, Jesus' Son, etc. Fifty-five titles in all had no Home Video reported, so that skews my income numbers in a conservative fashion.

Box Office is only domestic, so again my numbers are extremely conservative as foreign box office creeps up to equal domestic. I have no TV numbers, domestic or international - so, again, my income numbers are well below what might be expected.

In other words, the final report will be worse than real life. That's a good thing as far as investors are concerned.

Expenses include:
Distributor Fees = 50% Box Office
Prints & Ads = 3K plus 33% of box office (more on that calculation below)
Home Video costs = 40% of Home Video
Guild Obligations = 12% of Home Video.

For studio films the calculation for Prints & Ads can be as much as three times the budget. This is another reason tent pole movies have such a slim profit margin, if any, in the theatres. My calculation is based on a rolling open. Smaller distributors may only have a handful of prints to send to theatres, so they will open in select cities to get reviews for the DVD. The movie will stay in theatres as long as it makes money, but there isn't a huge advertising budget. To open a movie in New York, theatres require proof of $100,000 in advertising. My calculation figures on a three city open at $100,000 each, plus one third of the box office which might be churned into more prints and ads. It's not a perfect calculation, but it's more accurate than the studio model, and errs on the conservative side.

Given all of these calculations, what did I conclude?

116 movies showed a profit. That's 45%. Of those, the average return was 80%.

So if you give a filmmaker a million dollars to make a movie, you have basically a 50-50 shot at a profit. If you do make a profit, chances are, you'll walk away with 1.8 million off of your million dollar investment – and that's before international box office, international home video, pay TV, free TV, International Pay TV, International Free TV, and now, Video On Demand.

Of course, it's still a high risk investment. Remember those movies that showed no income. But as the high risk world goes, I'd say the film industry, if done smartly, is safer than most people think.


catwoods said...

Kind of makes you wish you had that cool mil to invest!

LOL. Or not. Writing is hard enough.

RSMellette said...

Yeah, doesn't it? The best thing about having a million to invest in a high risk venture would be that means you've got enough money to loose a million dollars.

Would be nice.

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