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Key Risks in Making a Film, & How to Manage Them, Part II

Be Prepared With a Ready Script!

I Have Always Subscribed To The Boy Scout Motto: “Be Prepared.”

The purpose of this series is to discuss and study the key risks inherent in the motion picture business. By contemplating, planning for and planning against these risks at the beginning of the development process, and all the way through execution, you and your film can be better prepared at each juncture. This could be likened to reading about and supplying yourself for potential bear or cougar confrontations on a back-country trail. That kind of preparation can save your life, and the lives of those around you.

[Read more…] about Key Risks in Making a Film, & How to Manage Them, Part II

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Box Office Panic! Part II

In my previous installment of this probing into the health of the movies in theaters business, we looked at two rudimentary charts that showed that, though the industry touts the fact that box office goes up each year (kind of like a public company report that wants to say all is rosy), we found that, in fact, in equal dollars, years bounce up and down all over the place, even as some have said in the past, somewhat counter-cyclical to the overall economy (SEE 2009). This was always touted as folks want to be entertained in bad times, so the movie business is good, or something along those lines, almost no matter what.

Along with that, though, we saw that there are two generally downward trends

Box Office rises and falls, but in real dollars, 2016, and the teetering/dancing 2017 box office look like we might be in a trend, a slow one, but a trend. Per capita spending of Americans on going to the movies is a decided downward trend. 

More People, But They Are Each Spending Less By The Year

I also assembled a chart that looks at the trend of ticket buying illustrated alongside the Dollars per citizen. Now, I did not “adjust” the ticket buying numbers, but they show a real movement, a sharper decline in the consumer activity regarding box office attendance. There is no masking the fact of this set of numbers shown below. Fewer transactions each year, with a higher average ticket price can mask the general downward trend of movie ticket sales.

Continuing in another vein, and wanting to understand this phenomenon even further, as movie theater attendance is definitely seasonal, and tied to things like kids being out of school, holidays (somewhat the same, but for the whole populace, generally). Since the discussion of the third quarter of 2017 being kind of what set off this “freak-out” discussion in the trades and elsewhere, I decided to look quarter by quarter over the last fourteen years (again, 2003 through 2016). What would we find in that? I assembled all four quarters for each year, but that creates a very, very busy chart, which I may share later, but I think a more salient and rapidly understood initial chart is the one below. I charted here just the average quarterly box office for each of the years, to see if that would better help us understand how things are going.

You can see that the peaks and valleys still remain, relatively identical to the up and down of the box office total (as this can be gained by dividing each year by four) but what bears understanding is the beginning average quarter for the year of 2003 of $3.034 billion dollars, and the average quarter box office of 2016, which is $2.928 billion, a difference of $106 million per quarter, or a difference, in constant dollars of $424 million annual take by 2016. This is not a rise. It is not a plummet, either, but it is definitely no rise.

But, what about 2017, as well as we now know? What is going on there as far as the average quarterly box office take?

This bears up under looking at more granular data.

In the chart above, we see from 2010 through the first three quarters of 2017. 2017 would have skewed the other charts, but here we can see that, though there have been more than a handful of lower first quarter box office performances (in constant dollars) than that of 2017, the second quarter was middling bad, quite a bit below most others, besides Q2 2016, but middling bad. But here is where the train went off the rails, in Q3 (orange arrow), well below any other Q3 in the last seven years.

Now we know why some folks feel like their hair is on fire. Kind of big time. But exactly whose hair is on fire? And whose hair is on fire the most? I want to talk about that the next time, along with some ruminations about why I think that is.
END OF PART II

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What originally caused me to begin FilmProfit® was my noticing that the studios and big players had lots of folks to help them figure out how to make their films profitable. Indie producers were in a gunfight with rubber stage knives. I wanted to give them some weapons to begin to level the playing field a little. The things I do, whether for rump indies or mid-level players, or even the studios are meant to get down under the hood, not just numbers, although numbers tell a story, but to get at the functions, of moviegoers, exhibitors, distributors, and all the working parts of the industry, to help my clients see better what they are getting into and how to prepare for it.

Onward and Upward

Jeffrey Hardy

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Box Office Panic! Part I

Some in Variety, in the Hollywood Reporter and other outlets have been panicking that this down movie ticket year is the death knell of movies in theaters. I am no Pollyanna, but I heard this story in 2005 as well, of course coming off of the sterling year which brought us The Passion of the Christ. The rise of digital delivery systems, and the changing of the generations made me want to dig into this discussion.

Are people going to the movies less? Are they just waiting to huddle around their televisions, or laptops or phones!! to see the latest and greatest Hollywood has to offer? Are they shifting to binge watching, instead of even getting out of their Barcalounger? Will we soon look like the characters riding wheelchairs in WALL-E?

What Is The Result Of Some Of This Digging I Was Drawn To Do?

I gathered and arrayed a host of numbers, starting back in the early nineties, but decided it would be easier to see the effects by focusing on the last fourteen years, as 2017 is still in progress.

I gathered from 2003 through 2016:

  • Population of the US
  • Screens in the US
  • Box Office
  • Tickets Sold
  • Average Ticket Price
  • Factor for Inflation-Adjusting Each Year to 2016

These numbers gave me several vectors to plot, in order to see what is really happening/happened over these fourteen years, to get a handle on whether an off box office year seems like a death knell, or is not so uncommon.

So, let me first show you the “non-adjusted” box office, for comparison.

This is the kind of chart you would get if you just took MPAA numbers each year and plotted them. It looks like we are almost always rising, or, if not always rising, then rolling through hills always upward trending, while experiencing very shallow valleys.

Because I know the number of citizens, and I know the box office of each of these years, I decided another important measure might be seeing how much each citizen is “spending” each year to go to the movies (inflation-adjusted to 2016) and what the box office tally was each year (also inflation-adjusted to 2016).

This is a quite different impression than the one we get from the first chart, inflation-adjusted to show what the real economic story is: one of fairly sharp rises and pretty steep falls in real value. This is likely due to the response of the citizenry of American moviegoing to the goods on display that year. But that is a speculation, and we don’t actually know that yet. What we do know is, box office is not a sweetly-rolling ride up and up, but a kind of roller-coaster experience.

Nonetheless, the high of 2003 and 2004 has never been seen again in this chart, but for 2009, the last year of the 2007 recession. What is also clear, though, is a decided trend downward, in real dollars, of the per capita spending of Americans on going to the movies. About five bucks per person downward over these 14 years we are studying. Are we on a long downward slide?

I will be back next week with more items to look at, as there are many factors involved in this story, and I want to get to the bottom of them.
END OF PART I

If you find what we are posting here interesting, maybe subscribe, if you haven’t already. You’ll get more:

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What originally caused me to begin FilmProfit® was my noticing that the studios and big players had lots of folks to help them figure out how to make their films profitable. Indie producers were in a gunfight to which they brought their rubber stage knives. I wanted to give them some weapons to begin to level the playing field a little. The things I do, whether for rump indies or mid-level players, or even the studios are meant to get down under the hood, not just numbers, although numbers tell a story, but to get at the functions, of moviegoers, exhibitors, distributors, marketing, and all the working parts of the industry, to help my clients see better what they are getting into and how to prepare for it.

Onward and Upward

Jeffrey Hardy

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The Proliferation of Digital (VOD/SVOD/etc.) and the Further Fracturing of Markets

As seen from the view in Brazil

It has been true over the last forty years that as a new movie-viewing platform arrives, chances for consumers to hone their tastes, and to fine-tune their choices has expanded film viewing and expanded film income. At the same time, consumers have become less at the mercy of television networks and theater owners as to what is available, they have consumed mainstream content through the big delivery systems, and lots of different content as well through these more dispersed systems. Digital delivery mechanisms are making that choosiness and fine-tuning of consumption only more so.

In preparing a new section in our State of the Film Markets Report, focusing on the roll-out of these services in spots around the globe, one focus, NetFlix in Brazil, highlighted very plainly how there are many issues in this deployment, and how it will likely not be a hegemonic world, with only a few suppliers in control of all digital content.

Announced at the beginning of the fall, Netflix is expanding into 43 countries throughout Latin America and the Caribbean. The service launched in Brazil in early September. Netflix’s struggles in its first Latin American market cast light on the challenges Netflix will face as it attempts to export its model. Widespread piracy in Brazil, one of the most vibrant piracy markets in the world, and low NetFlix brand recognition are obvious challenges that come to mind. But, in Brazil, Netflix faces stiff competition from local competitors, including NetMovies, Terra TV Video Store, Saraiva Digital, and Muu. Paid TV services, as in the US, are also offering on-demand packages.

Content Deals Are Territory By Territory

Within a month of Netflix’s Brazilian debut, Netmovies announced a streaming deal with Disney. BTIG Research analyst Richard Greenfield notes that the Netflix streaming service seems to have “some, if not all of the titles NetMovies will be offering from Disney. It remains unclear how well-financed NetMovies is and thus what its ability will be to add more content.” Nevertheless, Netmovies’ ability to negotiate an agreement with Disney hints that Netflix may not be able to offer consistent or exclusive streaming content between countries. In other words, no content deals are worldwide, and may not be “region-wide.”
Inconsistent Broadband Penetration Levels

Low penetration of broadband and slower connection speeds in Brazil are an additional obstacle: local newspapers report that Netflix stalls even on broadband connections. According to a May report from Ibope Nielsen Online, only 20% of Brazil’s 42 million Internet users have a connection speed above 500kbs – streaming requires a minimum of about 800kbs.
Local Content Tastes A Barrier

Meanwhile, excitement about Netflix’s initial entry into Brazil has dimmed in the light of consumer gripes. The Netflix catalogue has been a major source of dissatisfaction – according to Netflix VP of Global Corporate Communications Jonathan Friedland, Netflix is working to expand its catalogue. Since its launch, the service has increased its offerings by 50%, and should double by the end of the year.
Securing local content has also been a challenge for Netflix: a month after the service launched, Brazilian newspaper Folha reported that only 7 out of the 10,000 titles available on the service were Brazilian films as NetFlix faced resistance from local producers and TV channels. Recent communications from NetFlix have emphasized acquisitions of local content, such as “The Art of Insult” starring Brazilian comedian Rafinha Bastos.

Technical Glitches Can Mar A Debut

Audio quality also received criticism, especially among users who prefer subtitles to dubbing. According to Gizmodo Brasil, the original audio version isn’t always available. According to Friedland, Netflix is also working on licensing subtitled content; its TV programs for kids, for instance, will include original audio tracks by the end of January, he said. Netflix has held focus groups to provide the company with representative samples, and states that the majority of its customers prefer dubbing. Could licensing subtitled content be a challenge for Netflix in other markets? Despite Netflix’s insistence that most viewers prefer dubbing, the ability to manipulate subtitles was a major source of discussion in Brazilian newspaper Folha’s comparison of Netflix and other VOD services available in Brazil.
Proliferation Of Platforms And Lots Of Extra Work

Netflix’s Android app is now available in Latin America and the company is working on offering its service on iPad, iPhone, iPod and XBox 360 in the region. According to Gizmodo, Netflix’s iOS app has already been submitted to Apple and is now awaiting approval.

Besides mobile devices, Netflix is also looking at connected TVs and recently closed a deal to offer its service on LG Smart TVs in Brazil. Brazilian coverage indicates that short-form content is most popular with connected TV users [FilmProfit’s emphasis]. Sony and Samsung are also key players in the SmarTV market – it remains to be seen how Netflix will fare in the connected TV sector.
Other Operators With Local Content Tastes In Their DNA

NetMovies, for one, provides a significant challenge to Netflix’s streaming-only model. Launched in 2004 as a by-mail DVD and Blu-ray subscription service, Netmovies’ catalog includes some 35,000 titles, including an unknown number of available streaming titles (including its recent high-profile Disney title additions). Anticipating Netflix’s launch, the service expanded its disc availability to all 20 Brazilian states, nearly doubling the territories it served in 2010. Netmovies’ streaming-only service is available for R$9.99, compared with R$14.99 for Netflix. Netmovies offers customers access to its streaming service and its home delivery options for the same R$14.99 cost.

VOD Has Been A Movement Among Cable And Other Operators

As a matter of fact, broadband delivery is not a new concept only to NetFlix, though they have “relatively” solved it here in the States, and moved to Canada. But in a place where news on this used to be a few stories from around the globe in a day, there are now stories in the hundreds per week, with new deployment systems, Sony starting a virtual cable play over the Internet, and so on. Local cable operators can almost buy off the shelf systems and even content packages to deliver to their customers, to stopgap plays like NetFlix and the like.

Some Thoughts, Just About The Netflixes And Amazons:

As an analyst and business planner, I see many clues in Netflix’s Brazil launch that lay out a roadmap for planning the deployment of digital movie and TV content delivery by a NetFlix, or an Amazon, a really fast-moving NetFlix competitor.

  • What are content tastes?
  • Is the old “last mile” or “last ten feet” of broadband delivery question answered
  • What is alternative device penetration, and network-handling?
  • How do we deploy efficiently to a multitude of platforms?
  • How do we compete with local systems already in place?

But those questions also point to complexities distributors face as they try to discern where to efficiently peddle a producer’s film(s) to best economic effect, as they go market to market.

The Complex Complexity Of The Complexness Of It All

And then we have, in my case, the daunting task of trying to discern the value for an individual film in Projections Models what the nature of the value is. I had read a blogpost here some months ago, pegging it at some 10 to 15%. I was nowhere near that in my analysis, in fact, closer to half that or less. But we are entering a world where that could become a reality in two years or more. But, these are not omnibus deals. A distributor, particularly for indie product, needs to have in place a series of deals, NetFlix, cable VOD operators, iTunes, Vudu, hotel delivery operators, and so on, and the differentiated deals with each. Of course, you can blend these (and I have to) but this opens the door to seeing the complexity of the equation. We will not have dust settling on this for some time still, but the future is clear to be highly digital.

Some Of Our Sources For This Post:
Netflix não consegue adquirir filmes nacionais – Folha http://f5.folha.uol.com.br/televisao/996537-netflix-nao-consegue-adquirir-filmes-nacionais.shtml

Filmes do Netflix em HD engasgam na banda larga brasileira – Folha http://www1.folha.uol.com.br/tec/975222-filmes-do-netflix-em-hd-engasgam-na-banda-larga-brasileira.shtml

Netflix Unveils Latin America Service in Brazil – Huffington Post http://www.huffingtonpost.com/2011/09/05/netflix-unveils-latin-ame_0_n_949763.html

Um Insulto que os Brasileiros Vão Adora http://brasilblog.netflix.com/2011/09/um-insulto-que-os-brasileiros-vao.html

Aplicativos de VOD são os mais procurados para TVs conectadas – Rapid TV news http://www.rapidtvnews.com/index.php/rtvn-portugues/noticias/aplicativos-de-vod-sao-os-mais-procurados-para-tvs-conectadas.html#ixzz1e0bXPTHD

And Now I Have Disney Too Netflix Told By Brazilian Rival – Rapid TV News http://www.rapidtvnews.com/index.php/2011093015670/and-now-i-have-disney-too-netflix-told-by-brazilian-rival.html

Disney Signs Streaming Deal With Netflix Competitor – Home Media Magazine http://www.homemediamagazine.com/streaming/disney-signs-brazilian-streaming-deal-with-netflix-competitor-25189

Netflix Executive Addresses Complaints And Promises Quick Fixes – Gizmodo.br http://www.gizmodo.com.br/conteudo/executivo-do-netflix-explica-os-problemas-e-promete-solucoes-rapidas/[/vc_column_text][/vc_column][/vc_row]

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How Do You Kick-Start Your Business Plan?

What The Heck Is The Thru-Line?

And Why Is Every Film A Marketing Challenge and An Opportunity?

***I am updating this article, particularly after a discussion with a client that tweaked my thinking on using the word “problem.” Every time I used it, I found myself explaining it, and he was right. Thanks to Anre Garrett!

Many new and even highly experienced filmmakers arrive at our door trying to think about all parts of a business plan at once, worried about the research (worried about what to research), worried about how to describe the process, planning to deliver a detailed schedule of their production activities, trying to make their own stab at projecting the value of their film, and worrying about all kinds of deal questions, their festival strategy, selling DVDs on the Internet, selling downloads to phones in China, you name it, a stew of boiling ideas and decisions. I sometimes call this state of affairs “all trains arriving on all tracks simultaneously.”

But how do we stop and schedule the trains? One of the biggest contributors to overwhelm in decision-making and clear action is simply trying to make too many decisions simultaneously.

A Good Way To Overcome This – Remember Why You Are Here

Every film has a driving force in its idea. The industry likes to call it the concept. They love to reduce things to a few pithy words that seem to mash two or three ideas together and make a film rank high on a “cool” meter. The fact of the matter is, some films take contemplation, some films encourage involvement. There are many kinds of films that are viable for many kinds of film fans. Some are even for people who are almost never fans of films, or are very wary of films. Some elements of the Christian audience fit this profile.

Remember Why You Are Here, Above All – The Thru-Line

When a film is conceived, there is an audience for it within the story’s conception. Some think it’s dirty to contemplate your consumer, but even if the perfect consumer of your story is someone just like you, maybe even is you, that’s an audience too (no matter how unique and unreachable and above it all you think you are). I once had a Thanksgiving dinner where one of the older guests, an ex-hippie mom who had raised two very nice geek sons who were into all the latest gadgets and technology, even working in technology, and she said she was unreachable, as she didn’t have a TV, and wasn’t susceptible or identifiable to marketing. Well, if she reads Mother Jones, or even her local co-op newspaper, somebody is trying to reach her with messages. I think she hated me for saying all that. She was just the right kind of person to get a What The #$*! Do We Know?! message from the granola, co-op, whole foods type marketers that worked on that film. She probably did get more than one message.

Paula Silver once told me she was hired to help galvanize the audience for My Big Fat Greek Wedding, and her first job was to go a Greek dancing convention in Seattle. As she gave out every shirt she had printed up, she told the dancers that they needed to support this film, or “it would be another 20 years until you get a film about Greeks.” That was the start of the avalanche for the film. Constituency. Films like this are built on constituencies.

I call the line from the conception of the story to the ultimate consumption, the Thru-Line (trademark, service mark, copyright, intellectual property). The Thru-Line is what will always return you to why you are even here anyhow. When you are pitching your film and its reasons for being to an investor, your Thru-Line is what you are asking them to partner with you on. When you are lining up actors and production personnel, you are asking them to get aboard and help you attain the vision that delivers your Thru-Line. When you are presenting your film to a festival, or to a distributor, you are asking them to get aboard and help you bring your film to the audience, achieve the fullest expression of the Thru-Line.

Why Does The Thru-Line Exist, Then?

The Thru-Line is your direct connection to your audience, why you’re even making the film. It can be sublime, sharing a meditation on the most metaphysical of concepts in a documentary or a filmed tone-poem, or it can be a ridiculously funny and bloody zombie romp, or it can be a quiet look into the emotional needs of a woman uprooted from her homeland and dropped into an alien farm town halfway around the world. And I’ve enjoyed working on all of the above.

Every Film Is A Sizing Problem Challenge – Then It’s A Marketing Problem Challenge and Opportunity
What do I mean by that? I don’t mean that marketing is at the heart of your endeavor, but I do mean that communicating the existence of your film to your natural audience is as important as making the dang film in the first place. So, thinking long and hard about who your audience is, how to describe them, why they even want to see your film, or they need to, is a crucial first step.

Unfortunately, this business (making a film) usually costs some kind of money. And often the story requires enough money that a couple of friends just can’t do it out of their wallets, even if their wallets are middle-class, or above middle-class.

So, unless you can do the whole thing on your own allowance, you will need financial partners. Knowing who your audience is, and being able to clearly articulate who they are, and why they want to see your film is part of bringing those financial partners on board. Knowing who your audience is can also help you size that audience in some reasonable fashion.

Celibate Goths may be a pretty small group, but you can look for them and their friends and try to find out how many there are, and how they communicate, and get a feeling for whether they can help support your ten million dollar movie or not. If not, then you need to either determine how to crossover, or how to trim your budget by five or ten bucks. This is “Sizing.” Now, when you do this a lot, sizing becomes easier, and you can get a feel for it, but there are no absolute “facts” out there, and you just might uncover the surprising and wonderful fact that Celibate Goths are all on one Twitter channel, and that there are forty five million of them, and they all use VOD extensively every day because of something they got in a tweet, so your job is easy, and a $10 million negative cost is easy to deal with. But the key thing in this paragraph is that “there are no facts.” Everybody in this risky business of filmmaking and delivery wants to feel secure, so they grab at “facts” and spout them repeatedly, to gain and retain comfort, and to provide it to others.

Here’s a fact:

In a 2009 New Yorker article on the new Julia Roberts and Clive Owen international spy dalliance romp in the hay, the author says that “Today, the film industry considers adult-oriented drama a small target, and one that is getting smaller. Middle-aged Americans don’t go to the movies; young adults and teenagers do, and they prefer action to talk…”
There are actually several facts stated in this small excerpt, a. what the movie industry considers a viable target audience (probably based on the “4 quadrant” theory – men, women, above age 25, below age 25) b. who goes to movies (and who doesn’t) c. and what they love in a film (and don’t love).

Let me show you a countervailing couple of facts:

The audience opening weekend for Gran Torino was 45%+ 50 years old and older. The audience for The Unborn the same weekend was more than 40% under 18.
Gran Torino achieved $143 million US gross, and The Unborn achieved $42 million US gross.
Gran Torino had 52% highly satisfied female attendees opening weekend and The Unborn had 56% very unsatisfied female attendees opening weekend.
1, 2 and 3 are much closer to facts than the facts (a, b, c) in the quote above.

The secret is, (whisper) the audience is aging, and, frankly, the MPAA is trying to hide that, or, at least I think they are. Up until 2005, they reported age and attendance figures by slices like this:

  • 12-15
  • 16-20
  • 21-24
  • 25-29
  • 30-39
  • 40-49
  • 50-59
  • 60+

Starting in 2006, they began reporting it like this:

  • 12-24
  • 25-29
  • 30-39
  • 40-49
  • 50-59
  • 60+

Now, read below, and you might wonder, like I do, if they are trying to plaster over a crack in reality.

–In 1990, the percent of moviegoers above the age of 30 was 37%.
–In 2000, the percent of moviegoers above the age of 30 was 42%.
–In 2006, the percent of moviegoers above the age of 30 was 51%.

The audience is aging, and has been since at least the mid 90’s. I have been covering it that long, sad to say, or happy to say. But these are facts.

–In 1990, the percent of moviegoers above the age of 40 was 17%.
–In 2000, the percent of moviegoers above the age of 40 was 24%.
–In 2006, the percent of moviegoers above the age of 40 was 33%.

When a segment of the audience nearly doubles its hold on a marketplace (those above age 40), this is significant. But even these facts are also “facts.” When you start to analyze frequent moviegoers, you get a different, but not radically different slant on the situation. As would be anticipated, you lose a few points when looking at frequent moviegoers in the upper age groups. They have a lot more discretion, a lot more money, a lot more decision freedom, and a lot more they like to do.

And don’t even get me talking about online presence and other facts areas like that. What many people think are facts are actually just crap to talk about.

The point is, facts are closer to facts, and what is often taken as “received wisdom” like the statement from the New Yorker article is nothing but water-cooler talk, in light of real facts.

That’s why what you hear in the halls of AFM might be far from a fact, and just one piece of anecdotal information handed around ten times before it got to you, all massaged into a soft little tidbit.

Facts are actually better.

Every Film Is A Marketing Challenge and Opportunity

I see every film as a marketing problem (Read: problem as task) challenge and opportunity, but that is really broken down into:

  • An audience identification task
  • An audience sizing task
  • An audience hangout identification task
  • An audience message preference identification task
  • An audience position in the flow of information
  • A scoping out of the cost of messaging the audience task
  • Identification as to whether all this will support the ostensible negative cost, or investment.
  • Go/No Go – or redesign…
  • Unless these things are at least reasonably and satisfactorily answered in some way, it is hard, I believe, to begin to think really clearly about what the model for your film’s life could be.

Oh and by the way, the Julia Roberts film opened with a 60% female audience, and almost 50% aged 50 and above. Both males and females were generally dissatisfied, and older audience members the most dissatisfied.

Onward and Upward

Jeffrey Hardy

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Why is Video on Demand so Attractive?

And Why Are So Many People Mystified About Video on Demand and Its Contribution to a Film’s Value?

It’s attractive because delivering a film is expensive, and the core purpose of filmmaking is sharing what you made, the story you have told. More ways to share it are attractive, and easier and cheaper ways to share it are attractive, and delivering it, potentially, into the hands of everyone, is attractive. Now, I believe all filmmakers are concerned with that sharing, but some filmmakers are more interested in the making of money than others. Almost all investors, however, are interested in making money, so understanding how to estimate some reasonable region of future value is attractive.

With a declining business in “shrink-wrap” (DVDs and Blu-rays), other markets are necessary to help float the content increase caused by the new production paradigm (cheap, fast and everybody doing it).

Come To the Rescue, VOD

But VOD is complex, and VOD is a mystery.

Just today a new Ooyala report came out that the Premium Over the Top business (OTT, that is: Netflix, Hulu and the like) will grow from $4 billion in 2014 (of which Netflix owns 85%) to $8 to $12 billion in 2018. Now, almost all predictions about VOD since 2011, and almost all predictions about Netflix since then as well, have been below the mark. But let’s just accept the middle, and say that in 2018, OTT will be $10 billion. The Ooyala report also says that Netflix will drop to 50% of the market by 2018 (so, $5 billion of that middle accepted number).

Ooyala Premium OTT Growth

Source: Ooyala

I hate to go off on an aside here, but this story has so many asides in it. The DEG (Digital Entertainment Group) who tracks these things, also tracks Digital Download to Own (also called EST Electronic Sell-through) and Digital Online Rentals (and also shrink-wrap) and puts all of this together into home entertainment. Why is this interesting? Because this lumping of digital and shrink wrap kind of obscures the fact that digital could eclipse former markets, and digital is half just like TV and half just like shrink-wrap, but with newer less-friction technologies for delivery.
History Rewards Content Heading Toward Ubiquity

VHS tapes took about 25 years to achieve the sales that DVDs achieved in about 8 years. Digital could explode beyond that, and faster. All the markers and infrastructure are in place. But there is a further complexity, and that is the fact that digital delivery is really a bunch of markets and platforms that work differently, have different price points and have different deal structures behind them.
Here’s a Tiny Example:

A client of mine made a music documentary, The Wrecking Crew. Here are the prices of the digital movie on select services:

  • PlayStation Standard Definition (SD) Rental $6.99
  • Xbox Video SD and HD, Own $11.99 and up, Rental $3.99 and up
  • Amazon Instant Video SD and HD, Own $12.99 and up, Rental $3.99 and up
  • iTunes SD and HD, Own $12.99 and up, Rental $3.99 and up

Another client of mine made a sports documentary (and no, I don’t only work on documentaries, but I do like them and the makers), called Undefeated (Oscar Nomination btw). Here are the prices for that on select services:

  • PlayStation Not Available
  • Xbox Video SD and HD, Own $7.99 and up, Rental $2.99 and up
  • Amazon Instant Video SD and HD, Own $7.99 and up, Rental $2.99 and up
  • iTunes SD and HD, Own $7.99 and up, Rental $2.99 and up
  • This film is also now available on Netflix

Key in the difference between the two films is age, (2011 Undefeated, and 2015 The Wrecking Crew). That makes Undefeated a catalog title, and explains the general price difference. And some of the platforms are coalescing around similar pricing, but since all of these deals are revenue share, one dollar means about seventy cents per transaction to the rights owner, and about thirty cents per transaction to the platform. 10,000 downloads means $7,000 lost income. 100,000 downloads means $70,000 in lost income. For DVDs, there are not supposed to be separate deals per outlet, so, if Walmart decides to sell it for less, the distributor take is still the same on that DVD.

This is the first major complexity in modeling Video on Demand.

Video on Demand Is Really Kind Of Like 25 To 30 Markets, or Platforms

Here is how they break out, sort of:

MSO’s, or Multi-System Operators, on the order of Comcast, Direct TV, Google Fiber or Time Warner, including small regional operators.
These have subscription options, and Pay per View options (the original VoD).
OTT operators, like Sling TV, Amazon Prime Instant Video, Crackle, HBO, Hulu, Netflix and the like. These are, in general, the Subscription Video on Demand (SVOD) folks, though Crackle and Hulu have commercial-funded elements. Hulu, Amazon and Netflix buy movies, but they are really competing for television windows or rights. They used to buy the 2nd TV window, but now they buy, in some cases, the 1st TV window.

Then we have IPTV, which includes some television content, not germane here, but also some Video on Demand movies, which are delivered over Internet Protocol Television platforms.
Lastly, we have the pure Internet plays who will deliver to any device, and often through their own apps, or through a browser window, or to a set-top box, completely platform agnostic. These include Google Play, Amazon Instant, iTunes less so, Distrify and Vimeo on Demand focusing on Indies, and so on. The larger of these take more for each transaction, but have large marketing footprints, and so on, while some of the smaller ones return all but 10% of sales, with much smaller footprints.

Why did I talk about all that? To show that there is a great deal of complexity in Digital Delivery, and it is getting more so all the time. The Ooyala report that says Netflix will have a smaller share of a growing market, anticipates many small niche players. They will be like art houses, and specialty distributors, and will be boons for smaller films.

Why Is It Mystifying?

The complexity is in understanding and modeling the value these markets offer. Some films will have Netflix, some will not, some will have MSOs, and some will not. This is a very complex environment and my models for estimating the value of a film already in release, and my models for estimating the value of a film in front of us have many moving parts, including 25 to 30 markets, with rentals, DTOs (also called EST) and different market shares for each platform, if they overlap, like many do. The models are not perfect, but no one’s model can be perfect, even more so because so much of the data is hidden from everyone, purposefully.

Exiting the Desert

But we are not still lost out in the sun-baked desert anymore, and we have more points of reference to map out our path, but there are rocks and stones and mirages as we make our way to the oasis. Still, over the last five or so years of studying this, I think we are making progress, and, on that note, I am introducing our ROI Reports (Now with VOD) at the old price of these reports without VOD for the next month and a half. Check them out, but whether you buy one, a handful, a bucket full or none, I hope this discussion was helpful and informative along the way of your own path.

Onward and Upward

Jeffrey Hardy

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What is a Film Business Plan?

This is a foray into the key elements of a business plan, in which the philosophy, and the nitty gritty of proper business planning will be discussed. Feel free to respond. Comments that can be helpful to others may end up in future issues. My intention is to walk through the parts of a business plan and discuss them as we go.

WHAT A BUSINESS PLAN IS NOT.

The first thing I want to say is what a business plan is not. At least in my mind, it is not just a document which has the magic power to make the pitch and get you money without you showing up or exposing yourself, or putting sweat and your best thoughts into the process.

WHAT A BUSINESS PLAN IS

I like to call your business plan your plan for business. So, what it is, is a collection and recording of the assets (scripts, people, equipment, contacts, contracts, proprietary knowledge or technology) of a proposed and/or existing company, as well as a set of educated predictions for the marketplace and how the company will make money with their product.

Are there certain conventions in a business plan, items which one generally needs to get the story across? Yes. And we will get to what those regularities are as we go along, but for now, we will work our way through the preliminaries, the keys to how you should think about your business plan.

Many filmmakers are so focused on their creative goals that they forget that they also must have a business vision which they can articulate as well as they do their creative vision. It’ll be cool, trust me, just isn’t enough. Particularly now.

WHAT IS A BUSINESS MISSION?

First we need to ask and answer a couple of questions, and from those answers we are closer to the business mission for you.

What do you want for yourself?

  • A new car?
  • New shoes for the baby?
  • The chance to make a second, third and fourth film
  • A house?
  • Access to a broad audience
  • Total creative freedom?
  • To work with friends in a collaborative environment?
  • All the money in the world?
  • Your own production facility?
  • To be an honestly successful blend of the creative and business person all in one..?

HONESTY

Honest answers to this question is the first step in creating a business plan. If a plan does not fit you, and you are the chief executive of the company, how can you pursue it to its logical conclusion? Any viable investor will want you to be motivated and fulfilled. It should be in fulfilling you that you fulfill an investor’s goals too.

As well, I would say, that if you cannot answer this question honestly, and in a way that takes into account the rest of the world, you may gain the whole world, but lose yourself along the way, and have no way to actually enjoy it. Maybe an outmoded concept to some, but I believe it is truly so.

WHAT DO INVESTORS WANT?

What do you think your potential investors want?

  • Some want money for things like you want.
  • Some want money for things you don’t care about.
  • Some have money and want to have fun at something new they couldn’t do for themselves with all the money in the world.
  • Some want to change the world a little with the money they have.
  • None want to do anything stupid.
  • Your business plan is built internally, upon facts about the outside world.

–Your business plan incorporates your vision (mission) for yourself.

–Your business plan encourages the visions (missions) of the right potential investors.

–Your business plan should be a road map to effect both sets of goals.

So, the first thing to do for a business plan is define your vision, your mission, your goals.

WHAT IS A MISSION STATEMENT LIKE?

This is not an actual mission statement, but it incorporates the concepts that bring a mission statement to life:

To make the best damn film I and my team members can make. To make people laugh at the characters in the film, and thereby learn to laugh at themselves a little (hopefully). To have fun with a good team of people around me who know how to make high quality films on a reasonable budget that is not oversized for the market. Have that film sell enough tickets that it makes our investors (who we also think of as team members) money, that it makes my other team members money, and that it makes me money This is an actual mission statement:

Vision Pictures, Inc. a Florida corporation, has fully developed, and intends to finance, produce, and distribute a romantic motion picture tentatively entitled Vision, and thereby to manage the rights to Vision so that it is seen by mass market audiences on a global basis, and subsequently returns profits to the film’s investors and to all of its profit participants. This is an actual artistic mission statement:

The artistic mission of the film Vision is to produce an original and audience-pleasing entertainment which can inspire viewers from all backgrounds by showing them that there is more to be gained from life by giving to others than there is in merely taking from them.

You can have both a business mission and an artistic mission. A good business mission statement need not be complex, but it will signal that you intend to keep promises to achieve the financial goals of the enterprise as well as your artistic goals.

I have worked on films that also have a proselytizing mission. There is room within the world of business planning to incorporate any vision and mission that there is. If, however, your mission is all about yourself and your needs and hopes and fears and dreams, then be prepared for people you talk with about it to tune you out and tune your business plan out.

A BUSINESS PLAN IS THEN TWO THINGS:

It is a document which describes your vision and how you are going to reach that vision, and it is a document which describes how you are going to enable the visions of others through effectively reaching your own.

Over time, in subsequent newsletters we will break down the elements of the business plan, and discuss how each is arrived at, how it works, and the decisions inherent within it. Here is an outline of the sections we will cover.

BUSINESS PLAN OUTLINE

The outline below lists the contents of an average business plan which we find are important to investors and partner companies. Each film company and project bring a different set of talents, strengths and weaknesses to the table, and thus each plan has to have an individual set of emphases. A more detailed outline of a business plan is available on our web site, under Business Planning.

  • Mission Statement For Your Movie
  • Executive Summary
  • Motion Picture Market Statistics Overview
  • Domestic Markets
  • The Birth Of An Independent Film
  • THE PRODUCT
    • Synopsis Of Your Movie
    • The Process Of An Independent Film: From
    • Conception Through Post-production
    • Gaining Distribution For Your Movie
    • Festival Strategy (if any)
  • MOTION PICTURE MARKETS
    • Domestic Primary Markets
    • Foreign Markets
  • THE AUDIENCE
    • Movie Audience Demographics
    • Analysis Of Target And Any Crossover Or Secondary Audiences
  • EXHIBITS
    • Biographies and Resumes
    • Historical Studies of Comparable Films
    • Projections

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