Service Deal, Self-Distribution, Four-walling

We have come a long way from 1971, when the makers of Billy Jack took their orphan film on the road after a succession of studios abandoned it. The box office of the film eventually reached $40 million. It supposedly still ranks as one of the all-time 100 box office hits ( inflation-adjusted).

In the same year was also birthed Sweet Sweetback’s Baadasssss Song, a film that was written, directed, produced, edited, starred-in (doing his own stunts, too), scored, and then released by hand by Melvin Van Peebles. Carried from theater to theater, a starved constituency embraced the film, its ideas, its attitude, and its moxie. Who woulda known? 

What I mean is, who ever knows? Who actually knows when a film will strike a chord? Both of these films found their success after being rejected by “the man,” the distribution complex. Now, I don’t believe in “them” and “us,” or “the man” and us, but I do believe that innovation happens in garages, no matter the product line. And independent filmmakers are the garage-tinkerers of the film business, making the things that others find hard to believe in, no matter how many times they are shown that “not believing” is a big mistake.

The core of the business is structured around “not believing.”

• Not believing that a film has an audience
• Not believing that home video will do anything but destroy their business (When it really more than doubled it)
• Not believing that anyone could be so silly as to want to watch anything on a phone, for god’s sakes!
• And so on…

And not believing now is even more a priority, with money for slates, money for release in tight supply. Not believing is also a convenient way to avoid all the trouble and heartache and work it will take to make any film the success it is capable of being. It takes that leap of faith and then it takes work and marketing money. It is hard for a distributor to acquire your film. They and their investors are wary. It will cost money to release your film. So, they might want to dismiss your film more than embrace it, as embracing it means toil and trouble that feels risky to them. So, they rely on…

Deal Structures That Devalue Your Film (To You)

This is all about access to market. You want it, they have it. They decide if you get it and set the price for that. This analysis of the market structure has no value judgment, but is meant to strip away the fluff from the press releases, the stroking, the hand-holding solicitation, and look at it clearly. The conventional film distribution deal is tilted away from you, the initial rights owner, and toward the acquiring (rights-seeker). In this way:

• Last money in is first money out.
  • This means that production investors receive their money after the last investors in (distribution company) get their money back and after they secure their profits.
    • Thus, the investors who take the least risk (investing in a film when it can be seen, and is no longer just stacks of paper and dreams and pitching with hand-waving) are telling you that they are taking the most risk. Is it true that drilling for oil is the biggest risk, or is it picking the gas up in a truck to take to market that’s the biggest risk. What’s the difference here?
  • The structure also protects his (the last guy’s) investment, by holding all subsequent markets hostage until he turns a profit.
  • And because he is holding the entire stream of markets in his hand, he has little incentive to meter or really manage his marketing spending, and in fact is incented to overspend to ensure his potential return because…
• The major aftermarket value is shared unequally.
  • Home entertainment (primarily DVD) is hands down the driver of the cash value of feature film entertainment. Ranging from 50-60% of a film’s domestic returns to a distributor (and less, but still very significant offshore), producers share in this income at a 20% royalty.
    • I won’t talk about the fact that some distributors can use controlled home video entities to drop the share further…
• And from there, the terms don’t get better.

Can We Illustrate It?

Now, there are some intervening calculations that are not in here, Distributor/Exhibitor Splits, some distribution fees, and more, but this is less about showing every step of a deal and more about where and how money is really made. Overcoming deal points and controlling costs should be the targets in your strategy (of course along with making one dang good film, but that goes without saying). So, reducing the cost of marketing wins in lower costs, but it increases ROI because your investment is lower by that amount. The single most dangerous number on this sheet, then, is the Prints & Ads. I face this every day when I am doing Projections of Potential Income

What’s The Upshot?

Theatrical release, except in extreme cases, is a loss leader. (What’s a loss-leader — You go into Walgreens to buy the tube of toothpaste on special for $.50. They expect you to help them turn a profit by buying a candy bar, and vitamins and bandaids and a cheap pair of flip-flops, all with a higher mark-up. The tube of toothpaste is the loss-leader). It is only by controlling costs and getting to your consumers simultaneously that you beat that part of the equation, along with overcoming onerous fee terms.

Theatrical release may seem to you and even your investors to be the reason for a film’s success. It can be, but in a really twisted way. It is a marketing platform for the rest of the film’s life, and only in rare cases is more than a loss-leader.

So, the film distributor has little incentive to control spending in theatrical marketing (effectively subsidizing box office even more to a not for profit level). They are incented to overspend as “aftermarket protection,” to ensure the market awareness of the film when it hits DVD.

Now, because they will take this marketing money (and profits) back from the proceeds of the film, they are not giving your film money, they are loaning it money and using the film itself as collateral (the hostage). So, they are not really using their money, they, ultimately, are using your money to market the film. And they are going to keep the majority of the biggest market as the ransom for taking the “risk” on your baby. Based on these terms, I usually think a little skeptically about all the talk of “passion” and “love” and effusive praise. These may be real, but the deal is also real, and, like a pre-nup, it controls who gets to sleep in the big bedroom. In this marriage, you always sleep in the guest room or on the couch, even if its a real nice guest room or real nice couch. This love, this passion that is spoken of, ultimately, is a commercial relationship, and its purpose is to make the distributor money. It gotta hasta make ‘em money.  

How Do You Beat This?

There are several ways.

• Hit the lottery at a film festival and sell your film for a multiple of its negative cost based on wowing them. You believe in dreams, don’t you? That’s why you made your film. But this is a dream, and the chute to riches and fame is narrow with a lot of folks shoving to get in it.
• Negotiate better terms in your deals while all else stays the same. Pretty good luck on that.  
• Take the bull by the horns, take your faith to the table and control your own release. Go directly to your market, work hard and bring the odds down to something like business, not without risk, but much much better than lottery odds.

This Is A Risk Reduction Strategy

Whoa! We just made a really big leap here…

Yeah, but it is definitely a risk-reduction strategy to be prepared to engage significantly in the release of your own film. A woman with choices is a woman of strength. Make plans, create choices for yourself and reduce risk, make your own downside protection. A little further on why:

In my practice, over the years, I have identified Six Key Risk Points in the life of your film.

1. One of them is gaining distribution at reasonable terms.
   • That’s one, but it has two parts, and those parts need to be in alignment, or it’s nearly certain you’re headed for a fall, or your god is gonna have to come and save you.
   • If you do get the distribution, what will the terms be? Some of the most successful films have had terms that limited the financial participation of the producers and original investors who took the big leap of risk. History is littered with lawsuits that seek to recover profits… This isn’t about bashing distributors. It is just about business.
2. The next risk point is the film being properly marketed.
   • Most people believe that it is a distributor’s job to do this really, really well. But many things can get in the way of this, including a handsomer film with a better walk coming in the room or some other distraction, a change of executives at the distributor, even on this film that they love, an inherent inability to understand the audience and how to get to them. So many things can intervene.
   • And these are problems in the best of times. We are not in the best of times. 
   • You already have to be prepared to discuss your audience, and be ready to offer great ways to get to them in order to get a deal, to get the attention of a distracted and stressed-out distributor. You are already on the road to freedom, when you study your audience and devise a real-world strategy to get to them economically.

In the hands of a conventional distributor, the parallel of conventional wisdom would be that both of those risk points are taken off of the table. If your film is more than your fever-dream fantasy, if it is more a Sweet Sweetback…more of a Billy Jack…more of a My Big Fat Greek Wedding…more of an Illusionist, more of a Manna From Heaven, more of a Memento, more of a Passion of the Christ, or more of an Anvil!, The Story of Anvil, or more of a Metallica: Some Kind of Monster, then it is suited for a Producer-Controlled Release. A Service Deal. All of these films, some out of necessity or rejection, and some consciously, used Service Deals and controlled the release of their films, pursuing a route of profit to them and their investors.

There can be risks to this strategy, too. It also may not be a strategy you have the stomach for; or you may not be able to mount and manage the small enterprise it requires, but I know that smart investors seek all the protection they can get, and this can be structured as a min/max deal that gives you all the strategy alternatives you might seek, and leads you onto a path of reducing yours and your investor’s risk, and onto the path of profitability. It is really dependent on what you want to be doing with your life, with your time, and with your films.

I help filmmakers understand the nature of this as a choice a lot. It is not for everyone, but it is for a producer who has the guts, the stamina, the savvy and the eye on profitability and risk reduction.

With all of the thinking about this topic, the work we have done on it, and the detailed work we have done for clients, we have come to the conclusion that Producer-Controlled Release, our term for it, both describes it better than pevious terms, and gets at the heart of its facility and describes its responsibilities.  

Thanks.
FilmProfit
Onward and Upward