Film comparables will lead you to your projections and your projections will help communicate an estimated earnings for your picture. Now, I've said this before but if you do not intend on making any money with your film, then why are you making one? If you do not intend on doing so then please do not read on.
There is a lot of bad and strange advice about film comps and how to successfully predict your earnings. Some say it's misleading, and it could be if they're not done correctly or honestly. Most of the time comps and projections give your prospective financiers an idea of the market and how the industry functions. You would not believe how many don't understand the flow of the dollar when reading box office reports so it's important to include this information within your business plans along with your assumptions. To understand box office reports you must understand distributor and exhibitor relationships and how general deals are structured and how those numbers effect the waterfall of the net dollar; i.e. "screen averages" usually equates to per location revenues. Below I will break these down and give you an idea of how these relationships work. At least you'll be able to take away from it an understanding as to why concessions are so costly.
Film Comparables
What are they? They are films that your film directly compares to, directly or indirectly. These films should be an example of your film. Most comps I've prepared have been done through theme comparisons as opposed to story line, this way it's more accurate to your demographic and you will have more films to choose from and you can see how more films performed with those various demographics and territories throughout the world. However, the theme isn't the only factor in considering your comps, I like to look at budget range and release dates as well, it just isn't fair to compare your $100,000.00 picture to a $50 million picture that was released in 2001. You want to select pictures that were released during the same flux of the current trend of the industry, like the past 5 years at best. On some occasions, in order for you to choose a good selection of films you may have to widen the budget range a bit. For the given, $100,000.00 example I would place that range up to $1 million, considering it is a ultra-low budget and the number of films produced in that range which receive distribution (theatrical) is very narrow. Incidentally, you may increase higher if the other factors are matched such as your theme and demographic.
What we know about your film. When preparing the comps I like to know as much about the film your producing as you do. I'd like to know everything from inspiration to your anticipated distribution. Are you really expecting theatrical release? Straight to DVD? Do you have name talent attached? Is it interesting? Any pre-sold territories? The more I know the better I can find and list those model films to better estimate your projections.
Projections
This is the section that can make you or break you, your financial predictions. A projection is what you can expect this picture to make based upon a very long list of assumptions. Assumptions I have defined below. It is extremely necessary that you list your assumptions prior to giving your projections, because this can really be considered a violation of the SEC Rule 10: (I lifted this from: http://taft.law.uc.edu/CCL/regS-K/SK10.html as it was the most understanding explanation of the Rule) I have also bold what I consider most important.
Investor Understanding
- When management chooses to include its projections in a Commission filing, the disclosures accompanying the projections should facilitate investor understanding of the basis for and limitations of projections. In this regard investors should be cautioned against attributing undue certainty to management's assessment, and the Commission believes that investors would be aided by a statement indicating management's intention regarding the furnishing of updated projections. The Commission also believes that investor understanding would be enhanced by disclosure of the assumptions which in management's opinion are most significant to the projections or are the key factors upon which the financial results of the enterprise depend and encourages disclosure of assumptions in a manner that will provide a framework for analysis of the projection.
- Management also should consider whether disclosure of the accuracy or inaccuracy of previous projections would provide investors with important insights into the limitations of projections. In this regard, consideration should be given to presenting the projections in a format that will facilitate subsequent analysis of the reasons for differences between actual and forecast results. An important benefit may arise from the systematic analysis of variances between projected and actual results on a continuing basis, since such disclosure may highlight for investors the most significant risk and profit-sensitive areas in a business operation.
- With respect to previously issued projections, registrants are reminded of their responsibility to make full and prompt disclosure of material facts, both favorable and unfavorable, regarding their financial condition. This responsibility may extend to situations where management knows or has reason to know that its previously disclosed projections no longer have a reasonable basis.
- Since a registrant's ability to make projections with relative confidence may vary with all the facts and circumstances, the responsibility for determining whether to discontinue or to resume making projections is best left to management. However, the Commission encourages registrants not to discontinue or to resume projections in Commission filings without a reasonable basis.
Assumptions are just that, assuming the outcome of the picture. When listing your assumptions, assume nothing and consider everything. What I mean by that is do not assume you will finish the film, do not even assume you will raise the full budget. The latest list of assumptions I created for a production I'm developing is more than 2 pages in length. Generally you will also include assumed release patterns, assumed deals, assumed rentals and everything else you've used to accurately project your earnings. You also don't want to list something that is well beyond your capacity, such as "assuming Steven Spielberg directs this picture...". That is not realistic and these assumptions are not your get out of jail free card. Your assumptions should also leave no question as to "why" or "how" you've come up with the estimates you did; i.e. "theatrical release has a 35% rental fee" but rather "assuming "OUR SUPER AWESOME MOVIE" secures domestic theatrical release, we assume the highest rental fee of 50% will be deducted from box office gross by the theatre and the remaining 50% will be received by the domestic distributor representing the gross film rentals."
Why Raisenets Are Eight Bucks
When considering your projections there is a ton of variables to consider and it would be foolish to believe that you can find them all, but we try. Variables are things that can have an impact on the box office return of any given film such as number of screens, pre-sales, territories, ratings, bloggers, distributor, release date, day and date, competition, competitions stock price, theatre nut, etc. and that is only scratching the surface and as you can see there are things that just aren't known until they're known. So this is how we go about the breakdown.
As always nothing is certain, you may have a blockbuster record breaker or you may have a dud, so the general rule is to project three various outcomes such as LOW, MODERATE and HIGH. The low represents a break even point, moderate represents the outcome based upon your comparables and the high is if you have earnings set by your highest film comp.
Once you have figured your averages from your film comps, you're ready to project your outcomes. For the sake this blog I will assume the MODERATE (based on the average of your comps) outcome.
NOTES
|
MODERATE
|
|
Domestic Theatre
|
$25,900,000.00
|
|
Box Office Gross
|
1
|
$25,900,000.00
|
Exhibitor Share (50%)
|
2
|
$12,950,000.00
|
GROSS FILM RENTAL
|
$12,950,000.00
|
|
Distribution Fee (35%)
|
3
|
$4,532,500.00
|
P&A
|
4
|
$5,000,000.00
|
Domestic Theater Net Profit
|
$(467,500)
|
|
Domestic Ancillary Sales
|
||
Pay Cable (11%)
|
5
|
$2,849,000.00
|
Network TV Revenue (15%)
|
6
|
$3,885,000.00
|
TV Syndication (15%)
|
7
|
$3,885,000.00
|
Home Video Market (38%)
|
8
|
$9,842,000.00
|
GROSS ANCILLARY SALES
|
9
|
$20,461,000.00
|
Distribution Fee (35%)
|
$7,161,350.00
|
|
Domestic Ancillary Net Profit
|
10
|
$13,299,650.00
|
Foreign Theatrical
|
||
Box Office Gross (62%)
|
11
|
$16,058,000.00
|
Exhibitor Share (50%)
|
12
|
$8,029,000.00
|
Distribution Fee (40%)
|
13
|
$3,211,600.00
|
P&A (50%)
|
14
|
$2,500,000.00
|
Foreign Theatrical Net Profit
|
$2,317,400.00
|
|
Foreign Ancillary Sales
|
||
Pay Cable (8%)
|
15
|
$1,284,640.00
|
TV Revenue (50%)
|
16
|
$642,320.00
|
Home Video Market (40%)
|
17
|
$770,784.00
|
GROSS ANCILLARY SALES
|
$2,697,744.00
|
|
Distribution Fee (40%)
|
$1,079,097.60
|
|
Foreign Ancillary Net Profit
|
18
|
$1,618,646.40
|
REVENUE AND PROFITS
|
||
Total Worldwide Earnings
|
19
|
$65,116,744.00
|
Total Revenue after Fees
|
20
|
$16,768,196.40
|
Film Costs (Budget)
|
21
|
$11,500,000.00
|
Total Net Profit
|
22
|
$5,268,196.40
|
Total ROI
|
52.6%
|
|
ALLOCATION PER UNIT
|
23
|
$2,634.09
|
These are actual figures for a feature which I did the financials for. The "NOTES" column will be definitions and a description of the figures and percentages which are listed. These numbers and percentages you see are based on research performed from film comparables and the average outcome across the board of how they performed domestically and internationally. So not all percentages of earnings will be the same picture to picture. For example, Domestic Pay Cable revenue's were shown to be 11% of theatrical performance. What's important to notice is that this breakdown is showing to have lost money on its domestic release, as I've been going through literally hundreds of pictures and their releases, the domestic theatrical release is shown to be a lost leader for it's ancillary markets through a tradition release deal of 50/50 split. Some, like your typical tentpole studio mega-budget films I have noticed have a 90/10 split in favor of the studio for up to the first 2 weeks, then the scale will gradually tip in favor of the theatre. So a film that opens like "JOHN CARTER" did, it's likely the theatres didn't make much money, however a film that plays for what seems like an eternity i.e. TITANIC or AVATAR, as those weeks continue the theatres are making some serious money.
While listing film comparables and projections may be a strong addition to your investment package overall, not all films in development require it. Use your best judgment and consider the picture you're producing to determine whether or not this is a wise investment to consider. It's costly (especially if done by someone else) and extremely time consuming. I allot upwards of 2 months or more depending on the type of picture, the more 'unique' a script the longer. So if you're producing a film that you feel has a realistic shot at distribution, needs independent financing from others then you may want to consider it, or if you're doing a film for out of pocket expenses and just want to take a shot in the market then you may not need it. Either way I hope this was of some help.
Next, I will address the benefits of the JOBS Act and how it benefits those crowdsourcing, but until then you can read the Bill here: http://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf
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