Film Producer’s Guide to Film Finance Part 2

Notes

This is PART TWO of a 3-part series about creating a business plan for film producer’s looking to land an investor to finance their movie. You can find PART ONE and PART THREE here.

What you will learn:

  • Illustrating the films you plan to create
  • What to say to film investors
  • How the film industry works
  • Understanding where your company and films fit in the film industry
  • How to talk to film investors

The Films

This area of the film business plan dives deeper into the film or films you are pursuing.

The Right to Know

As a future partner, the investor has the right to know with some level of detail what it is you are trying to make. Just saying, “it’s a movie” isn’t enough. You’ll want to give them a clear if not accurate portrayal of the project you are planning to create in order for the investor to make an informed decision. Communicating with ambiguous responses to your investors questions will leave them frustrated. If they ask you, “what type of films do you plan to make?” and your response is, “Good ones”. Is that really going to convince the investor to pull out their check book? I don’t think so.

A lot of filmmakers are afraid their ideas will be stolen which is why they leave out a lot of details about it. It’s no wonder why nobody will want to finance it. Nobody in their right mind will ever give a stranger their hard earned money (even if their wealthy) to someone who just says, “My movie will be awesome, it’ll be a guaranteed box office hit. Trust me, this is a great investment.”

Now I have heard horror stories of filmmakers who revealed their ideas in detail, only to find their ideas stolen by someone else. So, it’s up to you to do your due diligence and find trustworthy investors before spilling out details about your films.

Your goal as a filmmaker is to provide enough solid information to estimate revenues and give the investor a real opportunity to agree or disagree with your projected forecast of the potential success of your film.

The objective of the Films section is to provide enough information of all the essential areas without going into too much detail.

Scripts

Within a paragraph or two, write a synopsis that tells enough of the story and genre of the film you plan to create.

Typically, you’ll want to protect yourself anyway you can from possible theft of your ideas. Now you can’t copyright ideas but you can copyright your project. Most writers register their scripts with the Writers Guild of America (or Canada). Doing this proves that your story existed as of a particular date, and you can feel free to give it to others. But, do keep in mind that simply registering your script will not prevent theft; it simply helps you prove ownership in the event of theft.

Here’s a quick quote from Michael Donaldson, in his book Clearance and Copyright, says:

Copyright law only protects “expression of an idea that is fixed in a tangible form.” This means that written words are protectable; the ideas behind them aren’t. You can’t copy something that is just an idea in the air.

Attachments and their value

To further advance the value of your project, include well-known actors, sets or things who are attached to the project that may help convince the investor to invest. Look at every aspect of your project for any perceived value it may have that can influence an investors decision to want to invest.

Budget

Breakdown the script and calculate the entire amount. A paragraph or two is normally enough to state the size of the budget.

Too much is too much

The goal of your film business plan is to have potential investors read your proposal with enough information to make an informed decision without making your business plan weigh ten pounds that includes every bit of detail about your project. Keep it as concise and clear as possible.

Strengths & Weaknesses

It’s a very good idea to point out all the strengths including weaknesses of your company. Don’t shy away from pointing out the weaknesses. Your investors are not stupid and if problems arise during production, they’ll discover those weaknesses inevitably. So, being upfront about it may actually prove to be more worthwhile and your investor may be able to provide additional assistance.

At the same time, let your strengths outperform your weaknesses. Point out valuable skills, experience or history among your team.

The Industry

When discussing the motion picture Industry, keep in mind that each area of film distribution is a separate industry in itself. For example, DVD, cable, pay-per-view, the internet, the domestic and foreign markets. All these areas affect your business plan in terms of their potential revenue source.

When writing your plan, think about what your prospective investor wants to know, for example:

  • How does the film industry work?
  • What is the future of the industry?
  • What role will my company play in the industry?

Always assume the investor your speaking with has no previous knowledge of the industry. Things are constantly changing and you want to make sure you and the investor are on the same page at all times.

LEARN 7 KEY PRINCIPLES USED BY SUCCESSFUL SCREENWRITERS TO WRITE BETTER SCRIPTS THAT SELL!

Tracking the studio dollar

The following table shows a general overview of what might happen when a finished film is sent to an exhibitor. The table follows the $10.00 an audience member pays to see a film. On average, half of that money goes directly to the exhibitor (theatre owner), and the other half is returned to the film distributor. It’s always possible for the distributor to get a better deal with the exhibitor, but a 50/50 split is most common. Then, you are charged a distribution fee, generally 30 to 40 percent for all the people involved in marketing your movie. Next comes the hardest number to estimate, the distributors overhead. The overhead is the fixed cost of the distributors team (management, secretaries, employees, staff, accountants, etc.). Typically, you use a common percentage to figure this number out.

film-producer

Creating a table like this helps you see how the dollar is broken down, putting things into perspective. Especially when asking for financing, how much to ask for, how it’ll be spent and how much revenue you might see.

Looking at the table above, you are left with $1.90, keep in mind this does not even touch the idea of paying stars and directors their gross points or a percentage of the distributors gross dollar. It is not uncommon for even a box office hit to net a loss for the bottom line. That’s where all the other Industry markets come into play (DVD, television, internet).

Pros and Cons with Studio Investors

The great thing with going with a studio to back up your project is their wealth of resources. Offering plenty of staff through the entire process from development to post-production. Plus, if you ever go over budget, the studio will back them up with even additional charges. A studio is a massive system that has the capabilities of putting a film on more than 4,000 screens on opening weekend if the budget and movie requires it.

On the other hand, a studio is in full control. That may be okay for some filmmakers, and not so much for others. Since the studio can hire and fire anyone they please at any time they please. No matter your position in the project, even if you’re the director or producer.

Tracking the Independent Dollar

This section will be the most important section to describe to potential investors. For the most part, it’s similar to tracking the Studio Dollar. However, when it comes to negotiating deals, the studios tend to have an upper hand in squaring off a better deal than an independent distributor.

The following table goes over how the revenue earned throughout the course of your movies distribution is shared among contributors.

film-finance

Understanding how the revenue will flow throughout all the markets paints a clear picture in your investor’s mind of the potential forecast.

Pros and Cons of Independent Investors

Being an independent filmmaker has some obvious advantages such as being in full control of script and the filmmaking process. However, the disadvantages are all of the advantages you will be missing out on going with a studio. Some filmmakers may be okay with that, some may like the insurance and security that goes with being under a studio roof even if it means they might lose their job at any time if the studio gods are unhappy with you.

Talking with your investor

Every business plan should always include an overview of the industry and how it works, no matter the size of your budget. The investor needs a clear idea of how the studio and independent system works. Your plan has to tell your investor that this is a healthy industry with options. But, whatever you end up telling the investor, always back it up with hard facts. As long as your points make sense, the investor will feel more assured of your plans. It doesn’t mean they’ll write you a check on the spot, but at least you’ve gained their trust.

Part 3 of Film Producer’s Guide to Film Finance

This marks the end of part 2 of our 3-part series. Click here to go to part 3 of to complete your film business plan and increase your chances of getting film funding.

References

If you found this article helpful, I highly recommend checking out the following book that goes into more detail about how to write a business plan for filmmakers.

Filmmakers & Financing: Business Plans for Independents

Recommended Resources

Producer to Producer: A Step-by-Step Guide to Low Budget Independent Film Producing

Producing An Indie Film From The Grassroots Up

Crowdfunding Your Film

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