Making a return on any film investment is of course highly speculative. In our last look at making money in the movie business we covered some of the basic elements
that need to be in place before you even consider an investment. In this article we will look at how profits are actually distributed once a film goes into circulation.
There are so many steps involved with creating a movie deemed ready for distribution that to talk about distribution before you’ve even made an investment may seem a bit like reading the final page in the novel first. However, knowing how the “trickle-down” actually works is critical information and for many, quite sobering.
While there are a multitude of hybrid approaches for distribution, for the purposes of this article we will focus on the one most people associate with feature films… theatrical release.
The first thing to understand is that the process of distribution is typically quite expensive. There are insurance premiums to consider, closed captioning, music clearances (most often handled by the production entity), DVD duplication (although changing), shipping, legal expenses, accounting, and of course advertising. These costs are often recouped as part of a round percentage but they do drive the percentage taken by a distributor, aggregator, theater or the like.
The next thing to understand is that as an investor, you are
more than likely the second-to-last person to be paid once the money starts to come in. The last person or entity is the producer’s group. If in their business plan they’re not listed as the last group to receive a return then you don’t want to invest in their project.
If you’re production team is able to put together a film with theatrical potential then you’ve probably invested with a good group. Getting a film into theaters in today’s wild west of distribution is no small feat. Generally reserved for studio-backed films, a theatrical run for any film is often treated a simply an advertisement for the DVD and/or video on demand (VOD).
Let’s say your film was given a $500,000 MG (minimum guarantee) by a distributor, who also promised to put in and additional $1 Million for P&A (prints and ads). Now that’s a pretty sweet deal. Let’s also say that on your opening weekend the film earned $5 Million. Amazing! Right? Yes, those are some very nice returns but don’t get too excited. Here’s how the returns actually break down.
The theater will take a sales tax right off the top. To make things easy we’ll round that up to 10%. After sales tax they will also take 50% of the ticket revenue. This high percentage of take by the theaters is fairly standard. With $500K for tax and $2.25M for the theater you are left with $2.25M. Now the distributor steps in and recoups all of their expenses. Remember that minimum guarantee of $500K? That gets paid back in full along with the $1M they spent on P&A, and you’re left with $750K. From that $750K the distributor takes their contractual percentage which is usually somewhere between 20%-to-30%. We’ll estimate high and say 30% to the distributor. If you have used a sales agent to make the deal with the distributor, they
typically take 15% from that $750,000 as well. With that 45% split between the distributor and the sales agent this leaves the investment group with $412,500. Not that you need to be told but that is less than 10% of the $5M earned at the box office. Let’s see it broken down:
Opening weekend: $5,000,000 – $500,000 (Sales Tax = 10%) = $4,500,000 – $2,250,000 (Theatrical Take = 50%) = $2,225,000 -$1,500,000 (Distributor Recoupment)
= $750,000 – $337,500 (Distributor & Sales Agent = 45%) = $412,500 (Total return to investment group)
It’s still a nice yield to be sure and considering we’re only looking at a hypothetical opening
weekend, this is an investment that will more than likely continue to produce a return for some time but when all is said and done, you’ll need to get used to the fact that there are many hands in line ahead of yours. You should also know that this trickledown is not a fast one. Once the film actually hits the marketplace it typically takes another 9-to-12 months before a check arrives in your mailbox. That’s just how it works. If you’re looking for something quicker… buy a scratch-off, but if you can plan for the long haul the returns can be quite nice.
Next time we’ll breakdown DVD, cable, and VOD distribution.
by Michael Fitzer is an Emmy™ Award winning producer and a partner in the production company 180 Degrees