FilmProfit

The Business of Successful Films

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“Big” Data or “Smart” Data

In this era of ‘Big Data’ buzzwords flying everywhere, “We at FilmProfit prefer to focus on the accuracy and the appropriateness of data, not its height or its girth.”

FilmProfit Uses Latest Data Science Techniques to Guide Financial Modeling

Deep knowledge of the film business, an Institutional Memory of its patterns and its deal structures is crucial to understanding and managing risk. Markets in evolution fall back on tried and trusted deal structures, even when deployed in new patterns. We track these patterns. Big pools of data cannot give you this. At FilmProfit, we bring this institutional memory, and our powerful data knowledge, coupled with the latest data science techniques to rational decision-making in film business planning.

Good Assumptions Start Good Data Science Studies

In data science, one must always start with assumptions, so knowing what to assume moves one instantly ahead when seeking Confidence and/or Probability. And, not knowing what to assume or what is actually customary, then any data could be seen as telling you its secrets, when it is actually not giving up any significant secrets at all. In a complex system, we never have complete information, so to analyze a system, we have to know the system well, and then look for important links in the observational data, before making a case for a potentially valid inference. Does knowing the differences in market deals at different levels require us to think differently for different types of films? Does knowing the differences in how women and men approach movie-going at different ages, and for different film types mean anything? Does knowing the base and evolving structure of Chinese, or Japanese film distribution help us with modeling for these markets. We definitely believe it does, and we believe it can impact your business, and we believe that it works with and provides a separate set of signals that pure pools of box office data cannot. We use these signals and many more, combined with our command of practice, to help us choose and organize our data and assumptions, and to help us have a valid starting reference.

Science realizes that in evidence-based work we are often focused, like in a courtroom, on the causal elements of what is at hand. But, we must admit that all systems contain randomness, and that there are causes which exist that are very difficult to discern. Now, the human brain is a very powerful computer, but even the human brain cannot ascertain all of the random and non-random elements in a circumstance or a pool of data, and certainly not with alacrity. So, we use the latest techniques in statistical analysis to help us feather the non-random elements in our data to the surface, where they can be analyzed, while sequestering the random elements at the edges of the system and beyond.

Data Science Aids Us in Complex Systems

A complex system such as producing and releasing a film, contains randomness and uncertainty because there are so many independent operating parties along its path. In data science modeling, they call these operating parties “agents.” The individual goal-seeking of those agents can create randomness, uncertainty and complexity.

We start our work with the understanding that there is and will be randomness and uncertainty, so we are able to focus our attention on the string of non-random events, those which maintain relative stability. These we analyze to ascertain with a high level of CONFIDENCE (90% or above), so we can see a path forward. We can also push this confidence further, labeled in data science as PROBABILITY, using our proprietary tools. Within these bounds are the things of which we feel pretty confident, or which we can describe as probable. These things, then, enable us to identify the range of events where the randomness and risk are not so high, and even the areas where the randomness exists, thereby enabling us to focus on our confidence range, or on our probability range.

An Illustration of Confidence and Probability

FilmProfit has long produced proprietary models for estimating the financial performance of films in distribution, from the very low budget, like Sweet Land, to the very high budget, like this summer’s The Meg. These models have been used by producers for hundreds of films. In a standard three-column format, Low, Expected and Better, they are still a very viable alternative for modeling a film.

An Illustration of our three-column conventional projections model

Understanding the range of risk or performance, is an exceeding powerful business planning tool, and a powerful driver in targeted negotiations that impact your film’s performance for your team. Over the last year, building on our deep institutional memory of the film business and utilizing the newest aspects of data science, we have put significant time and effort into developing a system for effective and affordable Risk Analysis using our proprietary data to arrive at two new reports which provide significant advantages for our clients:

Report 1. Filmmaker’s Statistics-Driven Financials

With designated 90%, 95% or 99% Confidence Level and detailed performance ranges in the assessed output, based on individually separate market signals bootstrapped a minimum of 3,000 iterations on each signal. This robust report is targeted to single films, or slates of up to three.

Report 2. Producer’s Continuous Event-Driven Financials

A Continuous Event is an ordered (or “chained”) sequence of sub-events, such as box office and budget and opening and maximum screens and foreign box office all tied together to find central tendencies of these when chained in a bootstrapped analysis of a minimum of 3,000 iterations on each signal. We use this much more complex analysis to achieve an even greater modeling environment.  This report is ultra-powerful with both single films and slates of films.

Six Reasons Why This Analysis Is Meaningful

  1. It enables a client to gain prudent evidence-based scientific inference
  2. This data analysis effectively describes the range of performance within our Confidence Levels or Probability Range with designated levels of confidence and/or probability, further defining the client’s “less-risk” path pointed out in the analysis.
  3. It is backed by a deep institutional memory of the industry practices and structures
  4. It uses rigor and discipline to achieve a practiced analytical approach that can take the results of the data analysis and apply it to any client scenario parameters, any deal point structures and any waterfalls, even including specific target parameters for an individual offshore target market, such as China, or the UK, and so on.
  5. It supports planning for effective long-term outcome over risk.
  6. It is an affordable approach to giving a client greater confidence in business planning for a film.

An illustration that shows elements of the kind of detail in the nine scenario results

This level of inquiry and enables us to plan in much more detail, and to understand the field with a higher confidence or a higher probability.

FilmProfit’s new analysis tools:

  • Increase your speed to market
  • Result in triple the number of model scenarios
  • Give us clearly defined boundaries at the Upper and Lower Confidence Intervals
  • Give us even more sharply defined fences in the Probability Range, providing us a finer-tuned approach to our discerned outcome ranges.

A conventional histogram illustration that enables us to understand the detail in our analysis

The power of this new approach can be acquired for your film project or slate, by contacting us at https://filmprofit.com/contact/

FilmProfit is the premier business planning consultancy for filmmakers, financiers and studios, with clients in all the filmmaking centers around the world, from Los Angeles to New York, to London to China and India, and covering all the areas in between. FilmProfit has been striving for 25 years to aid independent film producers to develop and operate with good business practices, by providing them with the business planning tools that meet this mission, including, FilmProfit ROI Comparable Pictures Reports, Projections of Potential Income, and End to End consulting in the preparation of a film to deliver successfully all the way to market, including target audience analysis and much more.

FilmProfit® is a registered trademark of FilmProfit, LLC.

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Key Risks In Making A Film, & How to Manage Them

If you’re in the film business there’s a good chance you’ve read a statement like this before:

Statements like this usually go on half a page or more, listing a pile of risks, including competition and the like. But I am focused here on the specific risks a producer confronts when birthing and bringing a film to market. These key risks are confronted in each film, and are events against which you can forge a viable campaign of mitigation and defense.

In general, in life, to the risks go the rewards. Risk, and this potential for rewards, are both inherent in the business we have chosen to pursue. However, I am very much against running wildly into the risk storm, yelling, “Wow, this is risky, but fun!” We must understand and inspect the risks, and we must take measures to control them and to control the relationship of our projects to those risks, while not limiting the potential for reward.

These Risk Points
Are Met at Key Tasks and Their Attendant Decisions

  1. Creation of a quality script
  2. Effective development and packaging of the property to make a quality film
  3. Fully financing the film
  4. Completing the film at a level commensurate with its budget and market
  5. Gaining adequate distribution in the marketplace
  6. Achieving effective marketing for the target audience
  7. Achieving consumer uptake or sales levels, thereby achieving financial goals

Each Film Has Many Risk Points

Every risk point I list here is actually a decision point and an action point. The act of planning the business of your film is the act of learning about, understanding and gaming out your moves in advance so as to minimize risk and maximize potential. You pre-visualize the creative plan of your film to mitigate production risk, so why not pre-visualize the business plan of your film and mitigate the business risks. Mitigating the business risks protects the precious creative asset you are producing. This is to the benefit of all stakeholders in the asset, including you!

The result of this approach to answering the risks will be an effective and powerful business plan. https://filmprofit.com/what-is-a-film-business-plan/

There are, of course, very complex business moves that people might take, all meant to target and neutralize financial risks. These are good and viable, but most of the items I want to highlight in this series of articles are easily do-able by any producer, and are primarily focused on how information and preparation will enable you to be ready for the key risks in front of you, risks you can manage without being a hedge fund manager.

This Is An Ongoing Series

I will be discussing these risk points in future installments of this blog. To go on this little journey with me, you can subscribe here:

Key Risks in Making a Film, & How to Manage Them, Part II
Key Risks in Making a Film, Part III – Greenlighting Yourself

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, and help my clients see better what they are getting into and how to prepare for it.

Onward and Upward
Jeffrey Hardy

https://filmprofit.com/blog/

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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