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The Business of Successful Films

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What in Holy Hell Are Indie Films Facing in 2021?

First, I’m Not A Seer

I do not style myself a future predictor, so, I want to say that I do not KNOW exactly what things will be like in 2021; but the following are not just random thoughts, they are based on detailed study.

Having spent a good bit of my life listening to, processing, and trying to understand the large and small signals of the film industry, I have learned a lot about how the gears of the industry mesh, grind, package and deliver entertainment, and how it is marketed and monetized. I use this information daily in my work, and it informs the financial models I create and the business plans I write. I try to mirror the real world, but, of course, we are reaching into the future with this work.

Too D**n Many Screens, Guys!

First, I want to say what I have been telling a lot of people for some time: The theatrical business has been over-built, with far more screen capacity than necessary, for more than 20 years (yes, 20 years!!), and the bill for all of this real estate and technology has been coming due for a long time. Now, a paroxysm of a pandemic has forced everyone’s hand; and the over-capacity of screens has caused exhibitors to hit harsh reality, and chains are being crushed under debt. This is not merely a function of Covid-19, but Covid-19 brought it to a catastrophic place.

Chart showing the Number of Screens Each Year and the Total Box Office for the Year, (inflation adjusted)

As we can see in the above chart, Inflation-adjusted box office showed the screens punched above their specific weight for half a decade, then began to track almost precisely with the number of screens, except for the abberation in 2004, based on The Passion of the Christ. Then began to track almost precisely to the number of screens again until things started to trend down in the 2010’s. .

The following chart clearly illustrates that, starting in 1987, the annual take per screen was over $450,000, with about 23,000 screens available (including drive-ins), and ending in 2019, when there were about 43,000 screens (Cripes! Nearly double!) available (including drive-ins), with less than $300,000 per screen annual income. Unless each screen is being built at less than 65% of the cost of each screen in 1987, money is certainly being lost on the overall transaction.

Theater Screen Inventory and Average Annual Take by Screen

Volume or Margin, Again!

I have talked often of the volume or margin equation. Movie theaters are items with too big a ticket on them, so why would you play them for volume? Anyway, that is what we have now, too many screens and (forget Covid-19 for a minute) not enough rise in sales to maintain a margin.

With less income per screen there is nowhere to go but further into debt. Now, with the collapse of sales due to Covid, it is causing chains to have to innovate and re-negotiate debt on facilities. Overbuilt with screens, no income, theater chains have had to become innovative, but even more importantly, start to rethink their previous extremely hard line on release windows. OMG, windows strategies are crumbling! Only months ago, one letter from an exhibitor chain explained their unmovable position:

“For 100 years, XXXXX (Exhibitor) has served as a strategically critical and highly profitable distribution platform for movie makers, and for all that time the exclusivity of the theatrical release has been fundamental.”

That sentence was kind of the introduction to the ultimatum that any abrogation of the relatively rigid theatrical window: “is categorically unacceptable.” But now, we have a lot of theater chains making deals with the studios that allow various mitigations of theatrical windows. Covid broke the theatrical window’s back.

Further, with a vaccine on the way, it is likely, as Anthony Fauci has said, that after the second quarter of 2021, theaters will be able to open much more normally, and audiences, hopefully, will begin to be confident to start going back to the movies.

But this post is not about over-building, is it? Not really, but to understand the pickle the big chains find themselves in due to Covid, and due to their exuberance, is to understand the potential opportunity for Indies who want to be out from under (at least I would think so) the thumb of the dumb entanglements of the theater chains and the studios. This is the background of the situation in which we find ourselves going into 2021.

The Perpetual Indie Conundrum — Always Following in The Wake of The Studios

Can I add another layer hinted at above? Indie films have been living with the devil-deals of the studios for years and years, from DVDs at commodity pricing, to restrictive release windows that can choke films off from reasonable market timing. Theatrical release is expensive, and indies have been hampered by these studio deals that cram the indies into a financial corner with few really good choices.

Shite, Sounds Like a Disaster!

Maybe, but indies, filmmakers and exhibitors, have been innovating the way mom and pop stores the world over have been doing forever, trying to keep their foothold on the dream of making and sharing interesting films with film fans, aficionados, and the adventuresome.

Before Covid indie theaters were already under stress, trying to update their projection equipment to digital at costs that were prohibitive for them, and even dealing with geographic blocks on distributors giving their films to local theaters because of a large chain’s prohibiting contracts.

During Covid, small indie theaters have set up their own digital channels, put mini drive-ins in small-town parking lots, while smart indie distributors like IFC, RLJE and others have booked drive-ins during social distancing, and become almost the only players on the box office charts this year. And IFC did Day and Date VOD and Drive-in releases. Innovation in thinking, and innovation in action are our path forward!

What Do I Think We Might See in 2021?

Because of the stress on the chains, I see the windows erosion unstoppable. Large chains, instead of throttling the windpipes of distributors, will be much more amenable (while grumbling) to windows that are not so restrictive, and I, for one, would be pushing very hard to enable and pursue hybrid release patterns that blend Box Office and Digital in recipes that are different for each film or film type. And that includes many more players pursuing Day and Date releases that enable a consumer to see a film where they want to see it. Of course, the Digital Subscription model is going to not only emerge as king, as it is now, but it will solidify its lead with many film types. That does not mean that SVOD is the be-all and end-all platform for indies. The theatrical release that puts so much pressure on the opening of a film does not understand that many indie films have long shelf-lives, not at all like the slam it at the theaters and scoop up early dollars while the value of the film decays right before your eyes.

This is what that kind of wide release decay chart looks like:

Up First Ten Weeks

You’ll notice in the Up box office chart above that by Week 5, something like 83% of box office take has come in, and by Week 10, the box office cumulative is in the upper 90% range. The film, which earned a lot, has burned out at theaters. This slam it at the wall strategy has made all of these releases immediate do or die scenarios.

Let’s look at an indie like Winter’s Bone, and see what it’s 10 week box office trend looks like:

Winter's Bone First Ten Weeks

We can see that Winter’s Bone was at only 41% of its total box office in Week 5, and at only 77% in Week 10. Winter’s Bone held on in theaters for 45 weeks (BTW, close to a year!), giving audiences a chance to learn about it and catch up with it, while not burning through all of the world’s cash in marketing. While Up was in theaters in some form for 23 weeks, it was really burned out by Week 10. Certain kinds of fast and hot releases are right for certain kinds of films, but most indie films require more detailed and attentive handling, like Winter’s Bone. I want indies to have the maximum leeway in their choices, Day and Date if necessary and wise, and long slow roll outs if that is necessary and wise, and I believe the soft market will be much more viable for this kind of hybridization, as I call it.

My Models Now

Almost all of the financial models that I have crafted for smaller indie films since about May or so of this year, plan on some kind of hybridization of Theatrical and Digital, and plan on a very attentive release pattern. This is the way of the future. There will no longer be, I believe, a “one-size-fits-all” pattern for releasing indie films, and each needs to be planned for, modeled to the real world, and should take significant advantage of the soft spots that we will see in the markets for some time to come.

Onward and Upward

Jeffrey Hardy

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Comparable Pictures (ROIs) List

This Table Lists All the Film Titles Currently in Our Database

But don’t let that stop you from asking for a film, as we are constantly adding titles.

You can download this pdf and peruse, search, take you time with checking for the films you desire, or get ideas about films to choose. They are arrayed by budget ranges.

FilmProfit List of Films Available CompListDownload

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Comparable Pictures: How to Choose ‘Em and Use ‘Em

I get a lot of clients who find it difficult to choose comparable films right off the bat. I wrote this article to help them, and help others, even if they do not become clients. Bona Fortuna to all!

How I Go About Choosing Comparable Pictures

In a given year I might prepare projections and financials packages in which I have to help producers choose hundreds, even thousands of titles for comparison to their prospective film. Every producer comes to this a little differently, but I thought it might help some of you if I talked about my own point of view when approaching this task. Whether I am involved in your process or not, I hope this helps in the way you approach it. First, the comparable films chosen should be seen as “models” for your film. They can be creative models, but they are also business models, and we are seeking insight from the information those models bring to us. In my case, mostly business insight for strategies and value. So, what are some key questions I think you should be asking and answering to discern comparable titles.

1. I like to start with films of Similar Themes.

Many producers think they need to use films with similar stories. This is often, in my book, a real stumbling block. A film uses its plot elements to explore themes, rather than themic elements to explore the plot. So, focus on the theme. If your film is a kidnap, then choosing only kidnapping films, for example, could actually miss the mark of your film, and make your choices far narrower than they really might be, than if the positioning of your film was as a drama of how an individual can get caught up in events that snowball unintentionally into great tragedy.

2. Of course we want to start in the Budget Range of your film.

There is a little bit more I will have to say about this later. But the lower the budget of your film, in some ways, the narrower the range of budgets we might have to work in. So, a $5 million film, we might look at titles from $3 or $4 million, to $10 million. If your film is $100 million, then we can reasonably look at films in the $70 to $200 million range, for example. Of course, with lower budget films, there could be reasons why we might broaden the range of budgets, some of them might include a sharper comparison in target market, for example. Sometimes, we may be dealing with a film that has few thematic, story, target market, and so on films that are in the same budget range of our film. In that case, we may need to choose higher budget films, or some at our target budget, and one or more at a completely different budget level.

3. If possible, we would like to work with films Released More Recently.

Various elements of the release and markets in these changing times may be much more indicative of how your film might perform as we go forward, than a film released ten years ago.

a). Still, however, your film might be so unique that similar films come along relatively seldom, so that we have to take them from the time periods in which they have appeared. That might lead us to choose films from fifteen or even twenty years ago, if they also fit in other ways.

b). As well, if we understand the range of the domestic box office, at least that can give us a starting point for understanding the possibilities of our prospective film’s value.

4. Understanding Your Film’s Target Market.

This is an important element in helping us determine good comparable films. Just today I was working on a middle ages Action Adventure with a relatively low budget, but when studying the target audience of two higher budget Action Adventures, and analysis of Action Adventure audiences from an exhibitor overseas, it was remarkable the similarities in audience breakdown. Understanding your film’s target market is crucial in many other ways that will serve you through the whole process, including the range of target distributors and the distribution method.

5. Style of Release or Distribution Method.

The viable selection of distributors, the possible number of screens in release, the size of the target market, all are encompassed in the understanding of the style of release of your film, and its comparables. At certain budget levels, a Producer Controlled Release is viable, even if it is not your preferred method and you go a different way. At others, unless you can mount a studio-style release, you must find and work with a studio partner to achieve the market dispersion your film and budget needs, and your target market(s) can support.

6. What is the Look and Feel of Your film?

The style of your film can tell us a lot about where it belongs in the continuum. That continuum encompasses Budget and Target Market. A comedy that is quirky, or a film that will be cut with a fast pace will likely have a younger-skewing audience, and may be less suitable for an older audience, unless there are thematic elements that are more suitable for older audiences. I suppose, then, what you see from my answer to this question, is that these things are all inter-related.

7. What is the Target Cast or the Negotiated Casting of your film?

Of course, given that you can achieve and afford your target cast, what does this say about target market, and, commensurately, what does that say about the style of release. Now, sometimes, a producer will think it might be easier for me than for them to make choices of comparable films. In many cases, it can be much harder for me. And, then you might understand why I charge for this service, and why it is better for you to start with your own choices, and then I might be able to help you refine that list.

Let me tell you some of the reasons why:

1. You probably know your film better than I do.
2. You likely know what about your film inspired you, better than I do.
3. You know your own influences and desires for your film better than I do.

The influences for your film, whether you are the writer, the producer or the director, or some combination of the three of them, are likely the most insightful place to start. So, I always like to start by asking you to help me see the film the way you see it. No matter how smart I might be, my goal and job is to help you achieve your film, and comparable films that I deliver are a suit of clothes you will wear, not one I will wear. The following is a set of questions we ask our clients to think about in choosing comparable titles. This comes from our Project Intake Form for packages where we are doing Comparables and Projections, Business Plans and the like: Comparables – in look and feel, market, budget, cast, distribution strategy, story, or a combination thereof. These should be films you think are the best matches for comparables, but be assured we look them over fully, and make sure we don’t think others might be better (Our criteria for choosing comps are:

1. Does it share target audience
2. Is it story style comparable, not story comparable (many get hung on this)
3. Is it distribution comparable (studio, methods, etc.)
4. Is it budget comparable
5. Does it evidence broad or deep interest in the subject matter
6. Did it come about the same way (outsider production, or insider production)
7. Is it casting level comparable
8. Certain other items may include production methods, etc.
9. Does your team feel comfortable with it, can they represent it)
Onward and Upward! Jeff

Comparable Pictures Available ListDownload

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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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