Finding the Bottom Line

The author is familiar with an independent feature project that was being developed in Seattle. The filmmakers had no idea where they would get the money from or how much money the project would make when completed. The initial budget started out at $250,000. Then it moved into the $400,000 range and then up to $750,000. And why wouldn’t it go up to $1 million, or $10 million? If you don’t know where the money is coming from, it’s just imaginary numbers on an imaginary project. If you want to have a real project, you must connect real funding sources to a real return on investment when the picture is completed.

This is a very simple business concept but unfortunately, when many people work in film they forget that if they want to spend money they need to make money. If you find a good script, option it. But before you go any further, you need to establish the amount of money it will cost to produce vs. the amount of money it will bring in when completed. The overall strategic vision of the producer, which is described in detail in a business plan, should have this idea addressed as the centerpiece of the proposal.

So let’s look at the cost of production. For many years, the cost of professional production has been pegged at $1,000 per finished minute. Therefore, a feature film of 100 minutes would cost $100,000. Are there pictures made for less than that? Sort of. We’ll discuss the difference between actual, in-kind and deferred costs later as well as the difference between a screener and completed deliverables. The $1,000 per finished minute comes with a wide range of caveats. It’s not really an accurate way to forecast costs because it doesn’t take into account the higher production value you will need to sell your project. However, it does set a minimum bar for the cost of production. A detailed examination of the script by an experienced producer will send that number up but first, you must establish the upper limit of your budget.

Setting the upper limit of your budget is done by determining how much money the project will return, minus any profit you hope to make.

If you plan on selling your project to Blockbuster or Netflix and they will only pay $150,000, if you spend more than $150,000 you will lose money on the deal. Those are going to be hard numbers to sell to a potential investor. The author is familiar with some investment bankers in New York City who decided they wanted to become filmmakers. They made movies for about $1 million and sold them to the Sci-Fi Channel for about $1 million. They were content enough with breaking even. There’s nothing wrong with that. If you love doing this enough, being able to do is it’s own reward. However, they applied more creativity and ingenuity to the producing and reduced the cost of their production by $200-300K, they would open up a gap between the cost of production and the value of the production in the marketplace. Then you have a profit, everyone is happy and you keep making movies.

The amount of money your project will return should be determined by current market conditions. Study sources online, the festivals, film markets and trades (like Variety) to see what pictures are selling and at what price. This initial market research will save you from enormous fundamental problems later on.

It is a very bad idea to look at examples of runaway indie hits and put those numbers in your business plan. It’s irresponsible, naïve and foolish. Every year there is an example of a movie made for peanuts that pulls in millions of dollars in revenue. However, there are also people that win the lottery. By telling investors that they have a chance to make millions with you for a pittance you are on the verge of con artistry and fraud. Usually people who have money are not stupid – if you are pitching your project to someone who is stupid enough to fall for this then you are running the risk of legal problems. It’s bad business for everyone. Don’t do it.

What you should do instead is to find someone in the industry actively involved in the sale of rights to distributors. We’ll talk about distribution deals and the sale of rights later but a good contact can tell you from month to month what is selling and for how much. If you provide them with a few details about your project – genre, rating, and attachments – they can immediately tell you how that would fare in the current market.

A sample conversation:

Producer: “So I have this Kung-Fu comedy/action film. No sex/violence/drugs/profanity. Could be family or teen. What do you think?”

Sales Agent: “Any names [actors with name recognition]?”

Producer: “No.”

Sales Agent: “The market is glutted with product right now. Only 15% of the movies at Sundance sold this year. Nobody is buying right now, everyone is waiting for AFM [The American Film Market]. Showtime was paying $225,000 last year, no they’ll only pay $100-125,000 if anything. Advances are really hard to come by.”

Producer: “Okay. So what about foreign sales?”

Sales Agent: “Evaporated for now. But say, do you have any art action projects? I know some people that would buy anything you had.”

And so it goes. Usually when you make that phone call, you will have a good idea of what the market is like and whether or not you should move with your project or hold. That contact could give you a lead about projects they are looking for but be careful – if it takes you 12 months to produce a project, the market could have changed by then. One thing is certain about the film industry. Whatever is hot now will not be hot a year from now. When all the producers figure out what is hot, they go out and make it. By next year, all their movies will be flooding the market.

This is how you leverage existing relationships to help you shape the framework of your project. That conversation with your contact, including your market research will help you determine where your bottom line number should fall. There are no rules for how much your budget should be, except that it should be less than the revenue you can generate from it. Once you set that number, you are ready to complete a top sheet budget for your business plan. You have to ask yourself if you are capable of raising that amount, but Lesson 5 will help you address that issue.

NEXT : Premise and Treatment Creating the premise/logline and treatment is an important step to building a business plan. Potential partners will want to get the idea of your story without reading an entire script.