Can an indie feature film be profitable ?

Joe999 said:

So for an indie filmmaker, with the odds of making little to nothing from theatrical distribution, maybe it would be smarter to just go straight to deals with DVD sales and rentals, worldwide, through a distributor or self-distribution that way?

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Its quite short-sighted to eschew avenues of distribution just because they won't make you immediate upfront cash. Films have a very long shelf-life as a product, which needs to factor in your mindset.

What if it were the case that a theatrical distribution, no matter how small, not only qualified you for various awards (raising the awareness and attention of your movie), but ultimately doubled or tripled DVD sales and rentals? Even if you make no money on the theatrical release (beyond, as I said, the negative pickup), getting to as many eyeballs as possible, gaining the prestige factor of a theatrical release (again, rare enough), will ultimately lead to better home video revenue, which you get more of a percentage of anyway.

So you are forgetting that a) you will make money from your film on a negative pickup deal and b) abandoning theatrical release for short-term gains in the home video market or even self-distributing, you are narrowing and narrowing your actual chances of maximizing profits for your movie. You are crippling yourself with short-sightedness.

clive said:

If you did have a movie that turned over $30M... where you make your money is in the investment that pours into your other projects, because you are perceived to be hot.

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Totally agreed. This is a point I made earlier. There is, of course, a certain obligation to pay back your investors, but for you as the filmmaker to "make money," what you should be concerned about instead of making the mistake of limiting your distribution options because you're too concerned about getting ripped-off, is to worry about eyeballs and not money. If you maximize the eyeballs, the rest will take care of itself.

Two quick questions:
1. What is a "negative pickup deal"?
2. OK if once I have a feature film I work with a distributor to get it into theaters, is the worst I can do is make nothing-- because in the book "Reel to Deal" the author cites the movie Batman and shows the balance sheet showing a negative balance after theater distribution. I guess what I am asking is could a studio/producer be stuck with owing a distributor millions (that would majorly suck!) if the distributor racks up so many millions in P&A that they do not cover the Distributor Gross left after theaters take their cut of receipts? I certainly would not want to be stuck with owing money after distribution to theaters. If that were the case I would say the distributor did not do their job-- which for the $ they take would seem to be should be earned by their expertise first in even choosing what they think is a winner or not (if not then do not make a deal), and if they make a deal with a studio/producer than they should earn their take of the $ by having the expertise of balancing how much they spend on P&A.

Thank you. I am glad someone shares my view. I think it is just a matter of personalities differing. Some are laid back, go with the flow, learn as they go. I am more of a perfectionistic personality (as well as an artist) and I like to learn all I can about all angles of a topic, esp. one where I invest a huge amount of my life and money and time. It seems to me a filmmaker must learn many aspects of the trade, to wear so many hats.

directorik said:

I think knowing and understanding all aspects of the business end is very
important at the very early stages of your career. Worrying, considering
even obsessing over what the back-end percentages might be is a great
thing - in my opinion very important.

Every bit of information is worthy of worrying about. Of course if you change
the word worry to consider it's hard to say, "no point in considering the back-end
deals on a $30M turnover film until you're a lot further down the road than you
are right now." I don't believe thinking about and learning about these aspects
of the business is restricted to a further point down the road.
...

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Joe999 said:

1. What is a "negative pickup deal"?
2. OK if once I have a feature film I work with a distributor to get it into theaters, is the worst I can do is make nothing-- because in the book "Reel to Deal" the author cites the movie Batman and shows the balance sheet showing a negative balance after theater distribution.

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Forget about what happened with BATMAN, a huge big budget, big studio franchise. That has nothing to do with you or any other small independent film.

Let's look at your scenarios as a filmmaker and what is more likely to happen. So hypothetically, you make a movie for $1 million (and let's say you've put up $100K of your own money) and you defer your salary of $100K, which means you don't paid anything until the movie makes money. What that means is that you're looking for a deal with a distributor that pays $1million, plus a 10% return for your investors, plus all deferred salaries. You get a few festivals under your belt or shop around to film markets and find a distributor willing to pick up your movie. They buy the movie for $1.5 million.

So from the advance, you've not only paid back your investors, but you yourself pocket your investment back, plus $10K profit, plus $100K for your work as writer, producer, director. You've made money. Your investors have made money. And since most investors on movies lose money, and since most films never get distribution, let alone theatrical release, you're already in a best-case scenario.

What you're worrying yourself over is what happens AFTER that. You're so concerned about avoiding getting ripped off on that $30 million gross that probably isn't going to happen, that you're actually increasing the likelihood that you will lose all of your money PLUS the money you will have to pay out of pocket to self-distribute and self-market your film. By avoiding distributors, your personal exposure (risk) goes through the roof.

What you REALLY need to be focused on is eyeballs. You want MORE people to see your movie, not less. And everything you're talking about seems to be guaranteed to keep as many people from watching your movie as possible. Even if you do not make money on a theatrical release (unless the movie is an absolute sensation), the theatrical release itself leads to increased DVD sales, and you make more money off of home video than you would on the theatrical release anyway.

The concern with Batman (not a worry, just trying to understand the business end of it all) is that the balance sheet (from Distributors) showed it lost money, a negative balance, no money for the producers--OK that is fine and dandy but what I am trying to learn is who picks up that negative balance--the filmmaker/producers, or the distributor (maybe they just do not get as much of their 35% as they hoped)?

Beeblebrox said:

Forget about what happened with BATMAN, a huge big budget, big studio franchise. That has nothing to do with you or any other small independent film.

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OK the scenario you describe is appealing actually to me (if I were lucky enough to be in such a situation someday). In such a situation where the film is sold to a distributor-- does the filmmaker maintain rights to DVD sales/rentals, cable, etc., or have those all been sold to that distributor for the $1.5M?

Beeblebrox said:

Let's look at your scenarios as a filmmaker and what is more likely to happen. So hypothetically, you make a movie for $1 million (and let's say you've put up $100K of your own money) and you defer your salary of $100K, which means you don't paid anything until the movie makes money. What that means is that you're looking for a deal with a distributor that pays $1million, plus a 10% return for your investors, plus all deferred salaries. You get a few festivals under your belt or shop around to film markets and find a distributor willing to pick up your movie. They buy the movie for $1.5 million.

So from the advance, you've not only paid back your investors, but you yourself pocket your investment back, plus $10K profit, plus $100K for your work as writer, producer, director. You've made money. Your investors have made money. And since most investors on movies lose money, and since most films never get distribution, let alone theatrical release, you're already in a best-case scenario.

What you're worrying yourself over is what happens AFTER that. You're so concerned about avoiding getting ripped off on that $30 million gross that probably isn't going to happen, that you're actually increasing the likelihood that you will lose all of your money PLUS the money you will have to pay out of pocket to self-distribute and self-market your film. By avoiding distributors, your personal exposure (risk) goes through the roof.

What you REALLY need to be focused on is eyeballs. You want MORE people to see your movie, not less. And everything you're talking about seems to be guaranteed to keep as many people from watching your movie as possible. Even if you do not make money on a theatrical release (unless the movie is an absolute sensation), the theatrical release itself leads to increased DVD sales, and you make more money off of home video than you would on the theatrical release anyway.

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Joe999 said:

The concern with Batman (not a worry, just trying to understand the business end of it all) is that the balance sheet (from Distributors) showed it lost money, a negative balance, no money for the producers--

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The producers of Batman got paid millions of dollars in salary plus back-end. The studio had all of the exposure and the risk, not the producers. And the studios didn't lose money either, whatever the balance sheet says (it's that ol' creative accounting again).

In such a situation where the film is sold to a distributor-- does the filmmaker maintain rights to DVD sales/rentals, cable, etc., or have those all been sold to that distributor for the $1.5M?

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That depends on the distributor and the deal you work out. Typically the DVD and broadcast rights are included, with bonuses and percentages going to you at different stages of the process.

OK thank you for all the patience and advice from all on this discussion thread. So much to learn. I will keep an eye on the forums here to learn more on this and other topics, and I ordered a few books off Amazon on the matter to read more.

Coming in late on this thread but I can throw my 2 cents in...

I'm currently sitting as a lead producer on one movie and share producing credit on 2 other films that are currently in preproduction with our prodco.

To say that I've had an accelerated lesson in film finance is an understatement... Literally, any kind of a deal can be struck with investors, studios, distributors... From my experience thus far, most of this depends on:

1) The script - genre
2) The actors attached
3) The director

The above 3 elements do not necessarily have to be in that order... Obviously, if you're lucky enough to get a huge star attached, then you'll have a slightly easier time getting that film financed... The only problem here however, is paying that star.

While there are definitely some solid stars out there who can get a film greenlit and financed -- another problem immediately sprouts up... That of paying the star. LOL.

Some stars can literally double or triple the budget of the film so it definitely helps to have a solid script where stars can flap their creative wings to begin with... I'm finding that this is even MORE IMPORTANT when it comes to losing a star... LOL.

With a solid script, your chances of finding another actor who's participation and attachment will help you in finding financing are very very good.

If however, you, as a writer, paint yourself in a corner with a script that doesn't appeal to a lot of actors, you're back to running into financing problems... When I say PROBLEMS, I'm talking about possessing the ability to negotiate a fair and substantial deal for yourself as a producer.

The more of the above three elements that you take away, the less ability you have to negotiate a good, fair, deal for yourself as a producer... So, if that is in fact the case -- either be prepared to sacrifice your position as producer to get the film made and into theaters and or DVD or go back to the material (script) and rethink it.

Of course none of this matters that much to most Indie filmmakers because they're working with a low to NO BUDGET so getting a star isn't even a remote possibility. Neither is getting a name director.

However, the script can always be better so that's definitely something to consider and possibly RETHINK if you're having a problem finding funding. In fact, it's almost always the case i.e., the average Indie film is derivative and full of clichés thus, making the trek of obtaining financing a difficult proposition. Not that it can't be done... It's done every day and there's obviously a market for these kinds of films but for MOST Indie filmmakers, until they gain some experience here, will have a hard road lying ahead of them and when it comes to negotiating a fair and or substantial deal for themselves as producer... It all depends on what you're willing to give up to possibly gain something even better down the line with a different project.

But if I had to give anyone any kind of advice or recommendation, it would always be to go back to the material and make it the very best if can be... As little cliché and derivation as possible and more breakout events, obstacles, and action that we've not seen before -- just to get you into the ballpark.

But the biggest thing I've learned is a very basic formula that many may not want to hear but here it is...

When it comes to obtaining financing, it seems (at least this is my personal experience so mileage may vary) that most investment entities immediately look at the project with the following in mind:

Does the film stand a good chance of earning its production budget back?

And here's how it's been broken down to me every time from the investor's point of view... I'm paraphrasing for length.

If a film's production budget is $5 Million then it MUST be able to earn at least $20 Million at the boxoffice for your financing entity to even consider the project and read on. The way that's broken down is as follows:

From a total boxoffice of $20 Million:

1) $10 Mil goes to the theaters -- $10 Mil is left
2) $5 Mil goes to the distributor -- $5 Mil is left
3) $5 Mil goes to the investors -- $0 is left

A very simple formula to be sure but so far in my experience, this is what it takes just to be able to sit down with the money men... Now of course all kinds of deals can be negotiated from this formula but like I said, this is the basic OFF THE TOP OF YOUR HEAD formula that you need to consider just to be able to be considered when it comes to money.

And of course if your project fits into this formula, then the money men are already at an advantage since you, the Producer, aren't even a part of the formula... LOL. And notice I said that this just gets you a meeting... No investor that I've met thus far is in this NOT to make money back from their investment... Of course they want to make a profit from their investment which is only fair.

From my experience, this amount and percentage immediately rises based on your material, actor(s) attached, and director. So if you can obtain or write amazing material, this is what it really takes to get all the others on board.

Get all the others on board and now you can start negotiating a fair and substantial percentage from all the other areas EXCEPT theaters... That's a given.

So as I've said before and I say again... It almost always comes down (all things being equal) to the material... The better the material, the better actors and director. The better actors and director, the better position you're in when it comes to negotiation.

We've been lucky with our projects when it comes to material since everyone involved is a writer in some aspect which really helps when it comes to tweaking the material into something that can really sell.

On our projects which are actually for substantially more money than the above example, we've been able to negotiate the distribution and investment percentages so that we do end up with a fair and substantial percentage should the films do well at the boxoffice.

So I don't know if this info helps or not and it's certainly not meant to be the standard... Just a position to be considered when you decide to enter the financing arena...

From my understanding, a negative pickup deal works as follows...

You're a producer looking for funding for your project... You go to a studio, the studio likes the project and enters into an agreement with you to PURCHASE the completed movie from YOU sometime in the future. This agreement is negotiated to an actual purchase price or fixed sum.

But here's the rub... You, as producer, still have to obtain financing for the project. LOL.

Hence, negative pickup.

However, with that deal in place, a producer can usually take that agreement and obtain funding fairly easy because the film in essence, has already been sold before it's even been made.

This is done a LOT with cable networks, pay-per-view, satellite, etc...

Some interesting links:

Investing in Film

Protecting Film Investors

filmy

Filmjumper thank you so much for the detailed reply, very insightful. And though I am a noobie at this, fwiw I am in total agreement as to the importance of a great script--not good but great. I am doing my best to take that seriously, whether I succeed or not time will tell; I am finishing my first draft (horror-suspense-thriller) working with a screenplay mentor consultant, and after I tweak it through several revisions I then plan to go to one of the top screenplay consultants (e.g. John Rainey or Syd Field or Michael Hauge or Linda Seger) to hopefully help me elevate the script another notch. I know as an indie filmmaker my script is going to have to be great, since the film will likely suffer in others ways as a result of being low budget (likely little to no star power, low number of locations, etc). But as you say, the script is the one thing we have under our control that costs little more than time and imagination to make it the best it can be.

I had also read what you pointed out--that a film needs to gross at the box office four times its budget in order to break even, so that was good to see you point that out also. Does that rule also apply to even lower budgets--say a $500,000 or $1,000,000 USD production? (i.e. if it grosses $2M or $4M at the box office, respectively, then it should break even at least for the producer). So as I am starting to understand it all, even if one breaks even at the theatre, that is a great thing because then the suitcases of money <grin> roll in later from DVD sales/rentals, cable, satellite, pay per view, etc?

Joe999 said:

I had also read what you pointed out--that a film needs to gross at the box office four times its budget in order to break even, so that was good to see you point that out also. Does that rule also apply to even lower budgets--say a $500,000 or $1,000,000 USD production? (i.e. if it grosses $2M or $4M at the box office, respectively, then it should break even at least for the producer). So as I am starting to understand it all, even if one breaks even at the theatre, that is a great thing because then the suitcases of money <grin> roll in later from DVD sales/rentals, cable, satellite, pay per view, etc?

Click to expand...

One aspect you keep omitting is advertising.

The advertising for the $500,000 "Open Water" was $8,000,000.
Using that as an example, if it had made $2 to $4 million at
the box office...

Another thing you haven't touched on yet is getting paid for your
work. Back end profits are nice, and something every filmmaker
hopes for. But as you can see, it's difficult for a small movie
to see any back end profit. The reality is distributors have
overhead even if you think this is creative accounting, they have
it. Legitimately. The reality is the investors will want a
healthy percentage in addition to getting paid back.

Take three of the most famous independent features as an example.
All three made by first timers and starring unknowns.

Blair Witch was made for $35,000. Artisan paid $1 million for the
rights, spent $2.8 million getting it theater ready and $6.5
million on P&A. It's worldwide gross was $248,300,000. They all
saw some nice back end profits.

Clerks was made for $27,000. Miramax bought it for $1 million.
That's how Smith made a profit. They then spent another $2.5 to
bring the film up to release standards and another $4 million on
P&A. The total gross in the US was $3,000,000. Mirimax lost
money. The producer, writer, director made a profit of $973,000.

Open Water was made for $500,000 LGF bought the rights for $2.5
million. They made a profit of $2 million before it hit the
theaters. With ad P&A expenditure of $6 million it made $30
million. When you do the math you'll see the movie didn't make
much on the back end and the filmmakers still saw $2 million.

You can see from these examples that even the movies many
filmmakers hold up as huge in the indie scene didn't make much
money for the distributors.

Creative accounting and false overhead? These companies put in
much more money than the filmmakers and while the filmmakers
made an excellent profit, the distributors didn't.

Knowing that most films don't return a profit, does it still seem like
creative accounting and false overhead costs when a distributor
asks for 35% of the gross above their investment in your movie?

OK I will lighten up on the Distributors, I am understanding they have costs, huge costs for P&A, and run the risk of a film earning back their costs for them and the producers to have something left.

A question I have asked in this thread that I am still in the dark on if anybody can comment-- OK assume a film (not my film, just some film) were to gross $30M at the box office. Theater takes $15M. Distributors take say $5M of that, leaving $10M. P&A costs to Distributor were $12M. That leaves $2M in the red (negative). Who is responsible for that -$2M? Does the Distributor take that loss, or is the Producer required to go get a second and third job and sell their house to pay back that $2M net loss?

I like the examples you gave where the Producers simply sold their film rights to a studio for a million or two, walk away with a profit (for a film shot on a budget of say $500,000).

Joe999 said:

OK I will lighten up on the Distributors, I am understanding they have costs, huge costs for P&A, and run the risk of a film earning back their costs for them and the producers to have something left.

A question I have asked in this thread that I am still in the dark on if anybody can comment-- OK assume a film (not my film, just some film) were to gross $30M at the box office. Theater takes $15M. Distributors take say $5M of that, leaving $10M. P&A costs to Distributor were $12M. That leaves $2M in the red (negative). Who is responsible for that -$2M? Does the Distributor take that loss, or is the Producer required to go get a second and third job and sell their house to pay back that $2M net loss?

I like the examples you gave where the Producers simply sold their film rights to a studio for a million or two, walk away with a profit (for a film shot on a budget of say $500,000).

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Well the formula you've come up with isn't something I'm actually familiar with... All the deals we're making include the cost of P&A i.e., the distributor recoups whatever they put in PLUS a percentage. How that percentage is worked out is really where the rubber meets the road... Literally anything can be done as long as all parties agree...

Of course there are "the usual" agreements that win out more often than not... Especially with those prodcos and Indie prodcos with little experience and or no stars or name director.

Having said that...

From what I've seen, the Distributor is absolutely NOT going to take a loss. Do they ever? Certainly. In fact, Studios with distribution arms that are completely separate from the producing entities is how and where that creative accounting comes in... LOL.

I've seen deals where Warner Bros. needed to go into the red when it came to distribution on a particular film just so that the producing entity could go into the black and vice versa... This is where studios fucking shine... LOL. They do pretty much whatever they want to do and they DO. This is also how some producers, actors, and directors never see a dime on the back end because distribution costs were so high... Purposely high of course... So high that the film will never be in the black ON PAPER.

All I can say about the above example you've given is NOT to allow that to happen. Never go into a deal where it looks as though you're going to take it in the shorts because yeah, you're right... The producer is the one that will.

This is WHY the formula of making smaller budgeted films with lesser known stars works a heck of a lot better as compared to the huge $100 Mil plus budgeted films that have to do outrageous boxoffice and DVD sales to get into the black.

This is why writers like Tarantino can attract some big stars... They love whatever he writes. They believe in his screenplays so they are always willing to work for scale, scale and percentage... Whatever it takes to keep the budget down.

By the same token, he can turn around and resurrect some actors' careers... Everyone wants a shot at being in one of his films because of his material and of course his direction.

So no matter what, we can always keep working the material until it's the very best it can be.

filmy

Joe999 said:

Who is responsible for that -$2M? Does the Distributor take that loss, or is the Producer required to go get a second and third job and sell their house to pay back that $2M net loss?

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No, in most legit deals, the filmmaker is not responsible for expenses incurred by the distributor in distribution of the film. Typically, the distributor pays an advance to the production company based on estimated revenue. Kind of like how book and record deals are done. If the film loses money, the distributor takes the hit and the production company receives no more checks but does not have to pay back the advance. If the film makes money, then the distributor keeps all revenue owed the production company until that revenue exceeds the amount of the advance.

That said, the producer may go in the red for other expenses not picked up by the distribution company, such as additional post-production expenses.

Perhaps the reason you are still in the dark is because the
scenario you've set up isn't realistic. It just doesn't work
that way. The distributor will recoup all their investment before
they return money to the producer.

A more realistic look at the numbers.

Producer raises $1 million from the investors.
Distributor buys the distribution rights for $1.5 million.
The producer pays the investors $1.25 million and keeps $250,000.
The distributor covers P&A to the tune of $5 million.
That means they will take $6.5 million off the top plus their
percentage of $2.27 million - we'll round it up to $9 million.
The movie grosses $30 million of which the distributor takes in
$15 million.

Simplistic numbers, but a little more accurate than your scenario.

Now there is $6 million in profit. The investors have been paid
back, the distributor has been paid back and the producer has
been paid. So depending on how the deal was structured that $6
million goes back to all the parties involved.

The distributor (who put in the most money $6.5 million) might see
30% of that, the investors (who put in the first $1 million)
might see 40% and the producer (who took no financial risk at all,
got paid a salary AND saw $250,000) might see the final 30%.

So you will see an additional $1,800,000 for a total of $2,050,000
in addition to the salary you got as producer, writer and
director.

Thank you. I finally got an answer to that question. I feel a lot better now about someday working with a distributor (with an entertainment attorney at my side of course).

Beeblebrox said:

No, in most legit deals, the filmmaker is not responsible for expenses incurred by the distributor in distribution of the film. Typically, the distributor pays an advance to the production company based on estimated revenue. Kind of like how book and record deals are done. If the film loses money, the distributor takes the hit and the production company receives no more checks but does not have to pay back the advance. If the film makes money, then the distributor keeps all revenue owed the production company until that revenue exceeds the amount of the advance.

That said, the producer may go in the red for other expenses not picked up by the distribution company, such as additional post-production expenses.

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Thank you, your numbers break down and analysis really makes sense and clarifies lots of questions I had. My books from amazon on all this also shipped today, so I will lots of reading to help further study this issue and get some preliminary quasi-understanding of it all.

Filmy, as usual I couldn't agree more...

There one additional perspective though.

If you're operating within the industry, then your concept and your script are the keys which open the door to everything you need to turn a profit.

If you decide to go down the DIY approach, then on top of your concept and your script you'll need a marketing strategy. Your ability to secure any kind of deal will depend as much on your marketing plan, as it will on the quality of your project.

I agree with Rik that it is important to understand the way money flows through the industry and why... however, I'm also aware that until you've got something the industry wants, its a moot point.